Measuring supplier performance cuts business costs

Measuring supplier performance is a critical activity for businesses but few are doing it successful, according to Aberdeen Group and iSource Business magazine.

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By  Neil Denslow Published  January 12, 2003

Measuring supplier performance is a critical activity for businesses but few are doing it successful, according to Aberdeen Group and iSource Business magazine.

"An increased reliance on external supply partners to mange a larger portion of product content and business processes has only increased the need for companies to improve their ability to track measure, and analyse supplier performance," says Tim Minahan, vice president of supply chain research at Aberdeen.

"Unfortunately, most companies continue to exhibit inadequate and inconsistent supplier performance measurement procedures. Such factors are putting businesses at risk of inflated costs and performance disruptions at a time when every dollar counts," he adds.

Supplier performance measurement involves measuring, analysing, and managing supplier performance for the purposes of reducing costs, mitigating risk and driving continuous improvements in value and operations. Such measurements can then help companies focus resources, identify performance glitches, develop strategies for supply chain improvements and determine the total cost of ownership (TCO) of supply relationships, products and entire supply chains. Aberdeen reports that enterprises applying consistent performance measurements and procedures are able to improve supplier performance by an average of 26%.

"Global competition, mass customisation, heightened customer expectations and harsh economic conditions are forcing companies to rely more on external suppliers," said Julie Murphree, editor in chief, iSource Business.

"Suppliers are contributing a larger portion of parts, materials and assemblies to finished products and are managing a growing number of processes and functions that were once controlled by their customers' organisations," she adds.

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