Saturday, April 5, 2008

Are your suppliers helping you, or hurting you? (Part 2)

In Part 1 of this article, we discussed the Fulfillment Execution Metrics for measuring supplier performance. The second part of effectively managing supplier relationships is process compliance. In this part, we cover the Process Compliance Metrics for the supplier performance management.

Well established processes normally provide a repeatable performance that is efficient, normally highly automated, and does not depend on individual level of skills to achieve a dependable result. Purchasing processes cross the organizational boundaries and their total efficacy depends on how well the suppliers comply with the Retailer’s processes. Measuring process compliance helps Retailers identify the suppliers with issues, and address these issues before they start affecting the supply chain efficiency.

The key to a successful process compliance program is to identify which transactions are core to the smooth functioning of the purchasing and delivery processes. Within these transactions, it requires that the key data elements are identified clearly. And finally it requires that these expectations are plainly defined and become part of partner contracts. These transactions cover the merchandise suppliers, as well as carriers, and can consist of all the following.
  • Vendor facing: Purchase Order Acknowledgement, Request for Routing Instructions, ASN (advanced shipping notice), and Merchandise Invoices
  • Carrier facing: Load Tender Response, SSM (shipment status message), and Freight Invoices

Having these transactions automated (for example through EDI messages) helps in capturing when the process breaks as well as managing the resolution quickly.

Process compliance metrics normally measure the following three aspects of any transaction:

  • SLA (Service Level Agreement) Compliance: It measures whether a required transaction response was sent within the agreed time. For example, if PO Acknowledgements are expected for every PO within 24 hours of transmission, then this metric will track how many POs did not get any acknowledgements, and how many acknowledgements were received after the required 24 hours SLA. It applies to all the transactions mentioned above, but is required to be measured only if it brings specific value to the Retailer. For example, if PO Acknowledgements are used to project on-order quantities and enable order promising, it will be a good transaction to track. However if no other functionality depends on this transaction, there is no need to require or track this SLA.
  • Format Compliance: This measures if the required transaction any format issues that may have caused the transaction to fail. Most relevant for electronic transaction exchange (EDI/XML/pre-formatted files), it ensures that the automation does not fail and transactions are not dropped unexpectedly through the process due to formatting errors. For example, if dates are required to be transmitted in mmddyyyy format, was it done? For EDI formats, did it have all the required segments, and was the format of each data element as expected?
  • Content Quality Compliance: It measures the data quality of the transactions exchanged. For example, if the ASN must reference the PO number then this metric will measure how many ASNs did not have the PO number (this filed was left blank), and how many had an invalid PO reference. Of course this requires that such fields are clearly identified and communicated to the partners in advance.

Just like Fulfillment Execution Metrics, these metrics can also be shared with the suppliers as a score-card. These can also be used to identify the top and bottom complying partners to prioritize the efforts of the compliance teams. And finally, Retailers can charge-back when suppliers fail to live up to contracted process compliance agreements.

No comments:

Post a Comment