Tom Waits, the singer/songwriter, quotes Jim Jarmusch with words to live by (Hilton, 2008). It goes like this: “Good, Fast, and Cheap (GFC); Pick two.” This is a valid, although simple observation. The reality of GFC is that when you pick two of the elements, the third falls away. It is a good rule of thumb when choosing suppliers. Typically, we want something to be good. Therefore we have to give up either fast or cheap. The bottom line is that time and money are driving factors, and typically, you get what you pay for.
According to The Aberdeen Group (2002), approximately 50% of an organizations earnings are spent on external suppliers. This cost represents a necessary investment that a horizontally integrated organization is required to make in order to produce their product or service. Consistently measuring supplier performance is a necessary part of managing and maintaining a business.
To create a solid supplier measurement system, subjective information needs to be translated into objective data. Subjective data provides “fuzzy” information that requires “defuzzification.” This will be discussed in more detail later, as supplier rating.
In order to produce consistent measurements, metrics must be standardized across a business’s supplier base (Maheswari & Kumari, 2012). A broader portion of the supplier base should be measured and the resources from the suppliers must be organized to reduce costs, mitigate risks, and avoid liability. The actions taken to accomplish the above need to put the suppliers in the position of team members with your business as the customer, in a leadership position. This will more easily drive continuous improvement. Nothing kills a supplier relationship like performing aggressive audits like a police force.
The following questions need to be answered by the organization: is it important to visit suppliers on a regular basis? How isa supplier rated? How is an objectivescore assigned? How is a supplier base maintained?
Hilton, R. (2008) Tom Waits Interviews Tom Waits, NPR, online at: http://www.npr.org/sections/allsongs/2008/05/an_interview_with_tom_waits_by.html
Maheswari, A. U. & Kumari, P (2012, Sept.) A Fuzzy Mathematical Model for Multi Criteria Group Decision Making –An Application in Supply Chain Management. International Journal of Computer Applications (0975-8887) Volume 54 – No. 7
The Aberdeen Group (2002) The Supplier Performance Measurement Benchmarking Report, Aberdeen Group: iSource.