Proactively managing vendor performance now key manufacturing need in SA

Manufacturers who want to ensure they meet customer expectations on cost, quality and delivery, need to do more than implement internal systems to improve their own efficiencies. They also have to be able to proactively influence their suppliers' performances.

So says Andrew Brown of Eigenon Consulting, which together with Business Intelligence (BI) specialist, Synergy Computing, has developed a system designed specifically to help manufacturers improve efficiencies across the supply chain.

"SA manufacturers can no longer afford to carry excess stock or have production schedules affected by poor quality or late supplies. They rely on their vendors to deliver trouble free products and services timeously," he says "As global competition increases, improved vendor performance has become critical to achieving a competitive advantage. Companies have to ensure vendor related delivery issues do not adversely impact production especially in Just-in-Time manufacturing environments."

The joint Eigenon -Synergy solution is a vendor performance management system that proactively monitors key vendor performance indicators against predetermined measures and targets.

By designing a vendor management process that categorises the nature of the relationship with the vendor in terms of strategic value, monetary value and relationship complexity, manufacturers are able to define key performance indicators (KPIs) that enable all parties to grasp the required levels of vendor performance.

Targets are set for each KPI. These encourage improvements in vendor performance as the measures and targets can form the basis of a service level agreement between the organisation and the vendor.

"The system provides key leading and lagging vendor related indicators to managers via the Cognos Business Intelligence Suite," says Andrew Connold, MD of Synergy Computing, the largest Cognos strategic solution provider in South Africa.

"These indicators enable managers to accurately analyse vendor performance and take appropriate action where negative performance issues are revealed."

The Cognos Business Intelligence suite provides the enabling technology to track KPIs and provide managers with accurate, relevant and information about vendor performance timeously.

"This shouldn't be seen as a wielding the 'Big Stick' solution. It can be used to reward improvements. The key objective of the system is to improve communication between manufacturers and their suppliers so that both parties can plan to better meet their respective customer needs.

"The vendor management process is essentially an ISO 9000 quality management process. KPIs and targets are discussed, agreed upon and then measured, enabling a feedback loop which promotes continuous improvement," says Connold.

Accurate measurement of vendor performance also allows organisations to introduce incentives for vendors to perform better. The Body Shop in the UK is an example of an organisation that has used vendor performance management to incentivise their vendors. Vendors are able to earn an annual bonus providing they meet a predetermined set of delivery and quality targets.

As organisations outsource non-core functions, management attention is now more focused on managing contracts, risk, relationships, strategy and their outsourcing partners.

"Outsourcing partners could improve the value they deliver to organisations by offering vendor performance management to their clients as part of the outsourcing deal. This would enhance client relations and manage client expectations. It could also help differentiate them in the market place," adds Brown.

By introducing a comprehensive vendor management process with an enabling technology like the Cognos Business Intelligence suite, managers will have more control over key cost drivers and performance indicators, enabling them to improve their organisations competitiveness, ensure reliable delivery, improve vendor relations and improve organisational return on net assets (RONA).

Synergy Computing and Eigenon Consulting have formed a strategic partnership for the purpose of providing strategic business performance management solutions.