The development of a supplier performance evaluation tool

As product life cycles continue to shrink and global competition increases, manufacturers are outsourcing what they consider to be non-strategic activities in order to focus on their core competencies. Consequently these organisations must rely more and more on their external contractors and suppliers to support all non-core activities. Progressive organisations are therefore developing proactive supplier based strategies in order to integrate these suppliers in to their processes and systems. To do this, they must focus on the critical few. In other words, they must identify best performing suppliers and eliminate those that do not add value. This paper presents a case study of a large multinational organisation in its quest to rationalise its supplier base and reduce inventory costs. To do this suitable performance metrics including one appropriate for Just in Time (JIT) suppliers were derived. A computer based measurement tool was then developed to collect the appropriate data and perform the evaluations. This resulted in an impressive 2.9 fold reduction in the numbers of suppliers from 23,225 to 8,024 and a 2.6 fold reduction in the value of inventory held from $15.24 million to just over $5.86 million. Findings from this case analysis are presented.