Original Date: 04/24/2006
Revision Date: / /
Information : Supplier Review Program
After a review of its Supplier Review process, Midwest Metal Products initiated a new supplier management plan that has resulted in more reliable and improved supplier on-time deliveries, less raw material being stored on-site, and improved average inventory turn rates.
Midwest Metal Products (MMP) initiated a review of its supplier performance review process in early 2004 and found that its system did not adequately provide the supplier-performance information management needed to make decisions on supplier selection. MMP’s position was that its Supplier Performance Review process failed not only because performance results were not sent to suppliers on a regular basis but because MMP did not have a corrective action process implemented for problem suppliers.
MMP personnel initiated a four-phase plan to resolve the problems found during its supplier review. The first phase addresses the design and implementation of the MMP supplier management system and includes: A database to store supplier performance information
The establishment of minimum requirements for supplier delivery times and quality of purchased material
The establishment of a corrective action plan to address suppliers who fail to meet the minimum requirements.
The information stored within the supplier database is segregated by the impact of each supplier’s products on the quality of MMP’s finished products.
The second phase addresses the supplier assessment procedures that will be performed annually on supplier performance data. The assessment procedure will use a Pareto analysis approach to sort suppliers based on their financial and service-level impact on MMP’s business revenue. Suppliers that rank in the top 80% will be deemed to be preferred and will receive detailed delivery and quality performance results on a monthly basis and bar charts on a quarterly basis. The remaining 20% of the suppliers will receive performance results annually. MMP will then be able to focus on those suppliers whose performance has the most impact on its business.
The third phase addresses supplier management on a daily basis. MMP personnel will check the status of orders daily and will follow up on purchase orders by informing suppliers of their order status on a weekly basis. MMP will expect suppliers to advise them of the status of open orders due within a six-working-day time period. Pertinent information about supplier performance will be noted in the purchase order.
The fourth phase addresses continuous improvement. In this phase, MMP plans to perform the following record- keeping tasks to aid suppliers in achieving on-time deliveries. MMP will verify the quoted supplier lead-time and maintain this information in the MMP database to continually update the most appropriate reorder period for each supplier and respective product. Similarly, MMP will continually update the most appropriate period to perform blanket orders or stocking programs on high-volume and/or long lead-time items. MMP is preparing a process to automatically determine supplier raw-material requirements directly from its customers’ forecast.
As a result of the changes MMP has made to its Supplier Management program, on-time deliveries have improved from 81% to 95%. Reliable supplier delivery times have resulted in a “just-in-time” system. MMP does not have to stock as much raw material on-site, which improves its inventory turn levels and allows MMP to use less storage and production floor space. MMP’s average hardware inventory turns have improved from 4.2 to 8.8 turns a year, while raw material turns have improved from 11.9 to 20 turns a year.
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