The Business Problem
The client, a leading car manufacturing company in the US, was struggling amid a tumultuous economy. Despite the US being the largest automobile market, their profit margins were shrinking rapidly, and their stock price had taken a tumble. This compelled the client to take a step back and conduct a comprehensive supplier performance assessment as a major chunk of their total production costs were coming from suppliers due to the implementation of a poor sourcing process. They also realized that conducting a comprehensive performance assessment of suppliers was crucial for the company to decrease costs, improve quality, and integrate new technologies.
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To cater to the car manufacturer’s predicaments and help them reduce operational costs, the experts at SpendEdge tailored a comprehensive two-step research methodology. This extensive research methodology included primary and secondary research coupled with interviews and discussions with industry stakeholders to identify the optimal process to profile suppliers.
In a span of 12-weeks, the performance assessment solution started showing promising results. Their supplier profiling process improved drastically, and the car manufacturer was able to achieve significant cost savings since they were now able to meet all their performance goals. The company was also successful in removing wasteful costs and activities such as extra freight charges, overtime, safety stocks, obsolete inventory, and buying from multiple sources caused by supplier glitches. Moreover, with the aid of SpendEdge’s performance assessment solution, the client was able to better understand supplier performance and industry best practices, which had a subsequent impact on the costs and supplier engagement process.
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The performance assessment solution helped the client to enhance their supplier relationship and design a program to recognize the high performing suppliers. This reduced their sourcing costs by 19% and helped them mitigate financial risks. The supplier performance assessment also helped address factors such as quality, delivery, and cost management apart from underlying qualitative factors.
Why is Supplier Performance Assessment Critical?
With the increasing number of offshore suppliers, supplier performance assessment becomes critical for companies looking to overcome a variety of supply chain challenges. Companies must conduct performance assessment to gain better visibility into their suppliers’ performance, remove hidden cost drivers, and reduce risks by lowering order cycle times and inventory. Also, the supplier performance assessment process helps companies to achieve at least 20% improvement in supplier performance metrics such as on-time delivery, quality, and cost.