2010 KPIT Cummins Infosystems Limited

Best Practices within

Oracle Application
Module/s
Oracle Purchasing
Author
Vanaja Ragunathan
Consultant Oracle Apps
Reviewed By
Dheeraj Sharma
Senior Consultant Oracle Apps
Creation Date:
08-June-2010
Version: 1.0
KPIT Cummins Info systems Limited
Plot No. 35/36, Rajiv Gandhi InfoTech Park,
Phase I, MIDC, Hinjwadi, PUNE-411057, India
Tel: +91 20 6652 5000, Fax: +91 20 6652 5001
www.kpitcummins.com
Supplier Scorecard
2010 KPIT Cummins Infosystems Limited
Supplier appraisal is one activity which supply chain teams
undertake that can have real bottom line fiscal impact.
Get it wrong or have none at all and the business can find
itself aligned with improper suppliers, ineffective goods and
impractical delivery schedules.
Get it right and the organization can be positioned with
suppliers who are focused and tuned alongside the needs of
the business.
Business Challenges
Abstract of the Best Practice
An effective supplier scorecard should :
Communicate all pertinent information related to the
organization's key performance measures.
Concise, accessible, and understandable to
managers and leaders in both the supplier and
customer organizations.
2010 KPIT Cummins Infosystems Limited
Implementing Best Practice (Contd..)
Method Reference
Quantitative
/Qualitative
Parameters
Advantages Disadvantages
Cost Ratio Timmerman
(1986)
-Quality
-Delivery
-Service
-Price
The evaluation
process is clear
and systematic
Inexpensive
-Requires a
minimum
Performance
data
-Attributes are
Weighted equally
-Subjective
-Imprecise
Categorical Timmerman
(1986)
-Quality
-Delivery
-Service
-Price
Subjectivity is
reduced
-Flexibility
Complexity and
requirement for a
developed cost
accounting system
-Performance Measures
(cost ratios) are
artificially expressed in
the same Units
Neural
Networks
Wei(1997) -Performance
-Quality
-Geography
-Price
-Saves a lot of
time and money
of the system
development
Lack of experts and
Requires a software
Principal
Component
Analysis
Petroni
&Braglia
(2000)
-Quality
-Delivery
-Price
-Reliability
Considers
simultaneously
multiple inputs
and outputs
without prior
assignment of
weights
-Knowledge of
advanced statistical
method is required
2010 KPIT Cummins Infosystems Limited
Implementing Best Practice (Contd..)
Method Reference
Quantitative
/Qualitative
Parameters
Advantages Disadvantages
Total
Cost of
Ownership
Ellram
(1995)
Price
-Quality Costs
-Unreliable
Delivery Costs
-Transport Cost
-Ordering Cost
-Reception Cost
-Inspection Cost
Substantial
Cost savings
-Allows various
purchasing
policies to be
compared with
one another
Complex
Analytic
Hierarchy
Process
(AHP)
Nydick &
Hill (1992)
-Quality
-Delivery
-Service
-Price
-Simplicity-
Captures both
qualitative and
quantitative
criteria
-Inconsistency on the
method
Weighted
Point
Timmerman
(1986)
-Quality
-Delivery
-Service
-Price
-Attributes
weighted by
Importance
Subjective
-Difficult to
effectively consider
qualitative criteria
One of the simple yet effective method called the weighted point method has
been described in detail, which considers attributes that are weighted by the
buyer.
The weight for each attribute is then multiplied by the performance score that
is assigned.
Finally, these products are totaled to determine a final rating for each
supplier
This method is designed to utilize quantitative measurements and minimize
subjective factors in evaluation
2010 KPIT Cummins Infosystems Limited
Functional flowchart
Identify key supplier evaluation categories.
Decide which performance Metrics to include
Generally the Most obvious and most critical areas that affect the buyer
Weight each evaluation category
The performance categories are weighed to reflect their relative importance.
The total of all the weights must be equal to 100.
Define scoring system for categories and subcategories
A quantitative scale of measurement is defined in the scoring system
In a 5-point scale, 1=poor, 2=weak, 3= marginal, 4=good, 5=outstanding
Evaluate supplier
Scores of different suppliers are compared and selected one
over the another based on the evaluation score.
Review evaluation results and make selection decision
The primary output from this step is recommendation about
whether to accept a supplier for a business.
Identify and weight subcategories
Performance subcategories are decided within each broader category.
The sum of weight of subcategories must equal to the main category weight
Review the evaluation periodically
The emphasis shifts from the initial evaluation and selection of suppliers
to evidence of continuous improvement by suppliers.
2010 KPIT Cummins Infosystems Limited
Implementing Best Practice (Contd..)
Performance Metrics:
Quality
Number of acceptable lots from vendor
divided by total number of lots from vendor
Cost
A subjective evaluation of the factors
deciding the performance of suppliers
on the price perspective
Delivery
Number of on time deliveries from
vendor divided by total number of
deliveries by vendor.
Service
A subjective evaluation of the
variety of services offered by each vendor.
Support
A subjective evaluation of the advice
and assistance provided by each vendor.
2010 KPIT Cummins Infosystems Limited
Delivery:
This information can be collected from promise date and actual
receipt information.
Implementing Best Practice (Contd..)
Quality :
It is measured using the DPPM (Defective Parts Per Million)
method. This information can be collected using Inspection
Quality Plan.
Score PPM
3 <100 PPM
2 100-500 PPM
1 >500 PPM
Total no. of items received on time
Total no. of items received
X 100
Score %
3 >99%
2 97-99%
1 <97%
Total no. of defective items
Total no. of items received
X 1,000,000
2010 KPIT Cummins Infosystems Limited
Implementing Best Practice (Contd..)
Cost:
The following sub factors are considered for weighing a
supplier on this performance metric.
Cost Reduction Efforts
Performance during Delivery Process
Competitive Price
Quote analysis can help in identifying the competitiveness
The sub factors are given a score as below:
1-Not Good, 2-Poor, 3-Good, 4-Very Good, 5-Excellent
The Total weight for a category is the sum of scores of the sub factors.
Service:
The following sub factors are considered for weighing a
supplier on this performance metric.
Communication
Responsiveness
Immediate Corrective Action
2010 KPIT Cummins Infosystems Limited
Implementing Best Practice (Contd..)
Supplier Code of Conduct:
The following sub factors are considered for weighing a
supplier on this performance metric.
Statutory Compliance
Equality in Treatment
Integrity
Protection of Environment
Fatality & Safety initiatives
Confidentiality
Comply with the Cummins Supplier Code
The sub factors are given a score as below:
1-Poor, 2-Good
The Total weight for a category is the sum of scores of the sub factors.
2010 KPIT Cummins Infosystems Limited
Implementing Best Practice (Contd..)
Example of Weighted point method:
Assume that there are five performance metrics that are being
used to evaluate suppliers, quality, cost, delivery, service and
supplier code of conduct.
These attributes are weighted with their corresponding values on
a 1 (least preferred) to 5(most preferred) scale.
Further, assume that proposals from four suppliers are being
considered (S1, S2, S3 and S4).
The Table below presents the final results.
Weights Supplier1 Supplier2 Supplier3
Quality 35 3 3 2
Cost 15 12 9 6
Delivery 30 3 2 2
Service 6 5 4 2
Supplier Code of
Conduct
14 13 10 8
Total 100
Final scores are calculated as:
Supplier 1 = (35*3)+(15*12)+(30*3)+(6*5)+(14*13) =587
2010 KPIT Cummins Infosystems Limited
Implementing Best Practice (Contd..)
Final
Scores
Supplier1 587
Supplier2 359
Supplier3 284
According to the above results, the higher weight belongs to
supplier 1, and is judged to be the best overall.
2010 KPIT Cummins Infosystems Limited
Implementing Best Practice (Contd..)
Final Output:
2010 KPIT Cummins Infosystems Limited
Implementing Best Practice (Contd..)
Scorecard used in Honeywell Industries:
2010 KPIT Cummins Infosystems Limited
Implementing Best Practice (Contd..)
Scorecard used in Allstate Corp, USA:
2010 KPIT Cummins Infosystems Limited
Implementing Best Practice (Contd..)
Scorecard used in National Instruments, USA:
2010 KPIT Cummins Infosystems Limited
References
Doolen, Toni
Using Scorecards for Supplier Performance Improvement: Case Application in a
Lean Manufacturing Organization
Engineering Management Journal , June 1, 2006
Performance Measurements and Metrics
Supply Chain Management Portal
Christine Dunn
How to: Building a vendor scorecard
Computer World, May 29, 2006
CUMMINS SUPPLIER HANDBOOK
Page 17, May 19, 2008
CUMMINS INC FILTRATION BUSINESS UNIT SUPPLIER QUALITY HANDBOOK
Page 15, June 2007
Cummins Supplier code of Conduct
January 2009
Honeywell ACS Vendor Scorecard (Version 2.1 January 2008)