Objective:
To ensure reliable delivery performance from an organization’s top 10 suppliers
Calculation:
| Σ x = Top 10 suppliers |
Number of perfect purchase order lines shipped on time for “supplier x” | |||||
| x 100% | ||||||
| Σ x = Top 10 suppliers |
Total number of purchase order lines for “supplier x” |
Target:
≥ 98% perfect order lines shipped
Background Details
Rationale
The supply chain department’s goal is to provide a high standard of customer service to satisfy customer and patient requirements while optimizing supply chain costs. Supplier performance is an important external driver for the supply chain department to achieve this. Poor supplier performance in filling purchase orders (POs) completely and on time affects an organization’s ability to provide high quality service and increases its workload.
Organizations should monitor supplier performance regularly and perform root-cause analysis when needed to continuously improve fill rates. Better demand planning and communication will help suppliers improve their service levels. Each hospital’s goal should be to have all major suppliers meet the minimum required service level.
Benefits
Patient Care: Patient care excellence requires that customers have access to the right product at the right time. Ensuring reliable delivery from suppliers means that customers are less often short of supplies, and therefore able to provide the best care for their patients.
Process Efficiency: Improved supplier performance required fewer supply chain resources to expedite shipments, source alternative suppliers or products and resolve problems related to back orders and missed shipments.
Customer Service: Supplier delivery problems have a direct impact on customers, causing them to lose trust in the supply chain department and possibly begin ordering excess stock to compensate. Monitoring the performance of key suppliers supports continuous improvement efforts in areas such as enhanced communication with customers on changing requirements and demand planning.
Supplier Relationships: Measuring supplier performance supports stronger supplier relationships as it establishes expectations for service levels and provides a consistent approach for all organizations to measure supplier performance of all their key suppliers, resulting in a levelling of the supplier playing field.
Underlying Leading Practices
Collaborative Planning: Proactive communication regarding changes in supply requirements from customer through to supplier supports better service from suppliers.
Strategic Sourcing: Reducing the supplier base and selecting strategic suppliers to develop high-value relationships and alliances supports improved supplier performance.
Supplier Relationship Management: Ongoing collaboration between the hospital and its suppliers enables performance that is more reliable, opportunities for process improvements, improved problem resolution, potential cost reductions and other savings.
Target Considerations
Establishment: The members of the Working Group have limited experience with metrics related to measuring individual suppliers. The Working Group recommends that the target be reviewed six to twelve months after implementation.
Future Opportunities: Organizations may wish to measure critical and non-critical items separately, though collecting the data separately may be difficult. Targets for critical items should be set at ≥ 99 per cent, with targets for non-critical items set at ≥ 98 per cent.
Reporting Frequency: If regularly monthly measurement reveals declining fill rates, a root-cause analysis should be conducted immediately and reporting frequency should be increased until the problem is solved and the customer is satisfied.
Related Metrics and Standards
| Related Metrics: | Related Standards: |
|---|---|
| 3.2 Percentage of Rush Purchase Orders 3.4 Average Lines per Purchase Order 3.5 Average Number of Purchase Orders Placed to Top 10 Suppliers in One Month 4.1 Stock-outs at the Cart Level 4.2 Fill Rates to Customers |
1.3 Boilerplate Contracts and Key Legal Principles 5.1 Supplier Performance Management Process |
Implementation
Calculation Parameters
Calculation:
| Σ x = Top 10 suppliers |
Number of perfect purchase order lines shipped on time for “supplier x” | |||||
| x 100% | ||||||
| Σ x = Top 10 suppliers |
Total number of purchase order lines for “supplier x” |
| Variable | Include | Exclude |
|---|---|---|
| Top 10 suppliers | Include the top 10 ranked suppliers based on activity (total number of POs) and spending (total value of POs). | Do not include all other suppliers |
| Number of perfect purchase order lines shipped on time for “supplier x” | For each of the above suppliers, include all lines that meet all of the following criteria in one month:
|
Do not include lines that meet any of the following criteria:
|
| Total number of purchase order lines for “supplier x” | For each of the above suppliers, include all of the following types of orders in one month:
|
Do not include orders issued to any other supplier
OR
for the following types of orders:
|
Data Accessibility Rating
CHALLENGING – Data are available but require analysis and custom reporting
Possible Data Sources
Electronic
Procurement Module:
The procurement system must be able to provide spend data and number of POs per supplier to determine the Top 10 Suppliers by activity and spend.
In order to use an automated method of reporting the Total number of purchase order lines for “supplier x”, the procurement system must provide number of lines per PO and due dates per line. This would likely require custom reporting.
Receiving Module:
To determine the Number of perfect purchase order lines shipped on time for “supplier x”, the information system would have to report the lines shipped complete and on time sorted by supplier. For most of the current systems in use, this would require custom reporting.
Many organizations currently rely on suppliers to provide performance information. This leads to inconsistent reporting methods between suppliers to an organization as well as between organizations.
Manual
If electronic reporting is unavailable, the organization could consider using a logging method throughout the month or selecting a representative time period (one day, one week, etc.) to collect a subset of data. Organizations should select the option that balances the cost of collecting the data and the associated accuracy with the benefit of reporting the metric.
Organizations should develop a weighting/decision-making system to determine which suppliers to include in the Top 10 suppliers. The list of suppliers should be established based on activity (i.e., number of POs) and spend (i.e., combined value of POs).
Implementation Challenges
Challenges:
- If organizations are not already doing so, they will need to establish lead-time requirements in supplier contracts and indicate item due dates on the POs to be able to measure on-time shipments. Due dates on POs must be consistent with the lead time from the supplier contracts.
