The Business Challenge
A leading oil and gas company, who had received substantial concessions to explore and produce natural gas in several gas fields in the United States, was facing challenges in evaluating the performance for pipe, fitting, and flange suppliers for the company. With over 31% spending on pipe, fitting, and flange materials in the financial year 2017-18, they accounted for substantial spending on materials. Therefore, it became crucial for them to implement a robust supplier performance management system that would help them improve the supplier selection process and supply chain management process for the company.
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SpendEdge aligned with the client and developed a conceptual supplier performance management framework for pipe, fitting, and flange suppliers. The also proposed a framework which evaluated the supplier performance on the basis of quality, delivery, service and flexibility and identified ways to improve them. They also conducted in-depth interviews with procurement professionals to confirm the appropriateness of the supplier performance management process.
In a span of two months, the supplier performance management process enabled the client to measure factors such as on-time delivery, quality of sales, and delivery accuracy and summarize the overall performance of their suppliers. The insights gained through supplier performance metrics helped them in making informed and knowledge-based decisions about various supply management issues. This involved minimizing operational costs, identifying the most profitable distribution channels, and optimizing the utilization of assets. Additionally, better supplier performance management helped address key areas where the company needed to make improvements related to cost, on-time delivery, quality of goods and services, and inventory.
SpendEdge’s approach helped the client to determine supplier performance score on the basis of supplier performance metrics pre-decided by them. The score deduced was based on four main criteria – quality, delivery, service, and flexibility and provided insights to rank suppliers apart from improving supplier relationship management capabilities.
Determined cost ratio
The supplier performance management solution helped them to evaluate the total cost of each purchase, including selling price with the buyer’s internal operating costs pertaining to quality, delivery and services. This allowed the client to decrease the net adjusted cost of preferred suppliers by 12%.
What are the Benefits of Supplier Performance Management?
As a majority of companies feel that two out of the top three major procurement risk factors are associated with suppliers – specifically “dependency on supplier” and “supplier quality problems” – implementing a robust supplier performance management program becomes a must. Some other benefits of supplier performance management that companies look to achieve are:
Improves brand value: Supplier performance management help companies to track supplier performance against set KPIs and enable them to take corrective actions that are imperative for maintaining brand value.
Avoid costs: A variety of cost factors can be tracked using supplier performance management, which can affect both the hard and soft dollar costs for the company. The information provided by the supplier performance management system helps in cost savings by centralizing supplier data into a single source of information for vendors.
Segment and rank vendors: Apart from gaining visibility into specific groups of suppliers and their overall ability to meet organizations expectations and requirements, supplier performance management can help make data-based decisions, especially when it comes to determining the ranking of vendors.