Procurement- Contract Management

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PROCUREMENT- CONTRACT

MANAGEMENT

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ELEMENT TWO: RATERS

The next key element to decide upon is the raters – who are the individuals who will participate in the evaluation of your suppliers?

Obviously, your organisation’s purchasing and supply management staff should participate because that staff is ultimately responsible for the performance of your suppliers

But do not stop there! It is extremely important to get the input of other stakeholders in the organisation

If you work in a production environment, be sure to involve your engineers and quality staff

These folks have a vested interest in the performance of your company’s product or service and usually are more than happy to give their opinions on how well suppliers support their goals

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WHY CONTRACT MANAGEMENT?

Suppliers Raters PerformanceSupplier Rating

Program


ELEMENT TWO: RATERS

Working in a non-production environment, end users of the products or services of the selected suppliers, would need to be included

Let’s consider copy paper as a commodity purchased from one of your selected suppliers

You, in purchasing, may not use copy paper as much as some of your company’s end users and, therefore, may not be able to comprehensively evaluate your paper supplier’s performance

Meanwhile, your company’s biggest end user of paper may find her copier jamming constantly because of poor quality paper

You need that person’s opinion when rating your paper supplier. Never ignore stakeholders or end users in the supplier evaluation process

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Program


ELEMENT THREE: PERFORMANCE MEASURES

The third key element of a supplier rating program is the group of performance measures that you select

Performance measures are those important, specific facets of suppliers’ performance that you will rate

Performance measures will differ from organisation to organisation based on the needs of each particular organisation

However, performance measures usually fall into one of four categories:

Cost

Delivery

Service

Quality

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Program



Cost performance measures relate to the direct financial impact of a supplier’s performance and can include:

Price, payment terms, shipping charges, savings from process improvements, and so forth

Delivery performance measures relate to a supplier’s ability to support your scheduling requirements and can include:

On-time delivery of goods, on-time completion of services, stock availability, or anything related to the cycle time between order and receipt

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Program



Service performance measures relate to the personal and electronic interaction between the buyer and seller and can include:

Responsiveness, resolution of problems, technology used to provide customer service, and so forth

Quality performance measures relate to the conformance of a product or service to requirements and can include:

Rejection rates, warranty claims, technology used to improve products and services, and other metrics related to the durability, reliability, and consistency of a product or service

Each performance measure that you ultimately select should be specific and measurable

For example, on-time delivery is specific (a delivery is either made by a certain date or it is not) and it is measurable (a delivery was 3 days late)

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Program


FRAMEWORK FOR MANAGING CONTRACTS (S.L.A’S)

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Methods of Rating

Once you have made your decisions

relative to the three key elements of a supplier ratings

program – suppliers, raters, and

performance measures – you

must decide how to acquire information

about your performance

measures

Be advised that the performance measures you

choose and your method of acquiring information have a dependency on one

another

The performance measures you

choose may drive how you go about

acquiring the information

Also, limitations with regard to acquiring

information may require that you

"tweak" the performance

measures that you have selected


FRAMEWORK FOR MANAGING CONTRACTS (S.L.A’S)

Methods of Rating (Cont)

The ideal situation is one in which you

have the means of acquiring the

information you need to support your selection of the best

performance measures for your

company measures

The ideal situation is one in which you

have the means of acquiring the

information you need to support your selection of the best

performance measures for your

company

Having such means may or may not be

realistic in your particular situation

While there are many ways of

acquiring information and then

converting that information into

supplier ratings, we will focus on three of the most common:

Supplier scorecards

System metrics

Supply chain event management (SCEM)

software


SUPPLIER SCORECARD:

Supplier scorecards are a common starting point for organisations who wish to have some method of rating their suppliers

The supplier scorecard approach gained popularity in the 1980’s

Each rater will receive one scorecard for each supplier being evaluated

Each scorecard represents a survey of the rater’s opinion of that supplier’s proficiency for the selected performance measures

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FRAMEWORK FOR MANAGING CONTRACTS (K.P.I’S)


SUPPLIER SCORECARD (CONTINUED):

The scores for each performance measure are usually based on a scale where low scores indicate poor performance and high scores indicate good performance

For example, a performance measure may be "Adheres to delivery schedules" and the rater may assign a score of 1 to 10 where 1 indicates that the supplier never adheres to the delivery schedule and 10 indicates that the supplier always adheres to the delivery schedule

Scores for each performance measure are then added to produce a total. Suppliers can be ranked from best to worst by creating a list of your suppliers and their total scores, then sorting it from highest score to lowest score

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FRAMEWORK FOR MANAGING CONTRACTS (K.P.I’S)


CASE STUDY?

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IT’S TIME FOR A CASE STUDY

Education

Procurement- Contract Management