Improving supplier on time delivery performance can have many benefits including improved inventory levels, production efficiency, labor utilization, and quality to name a few. While the benefits of improved on time delivery are clear, the challenge remains: How can you actually achieve better on time delivery from your suppliers?
The first step to improve something is to measure it. This includes identifying what the specific objectives are, the metrics needed to track progress to this objective, and finally what data needs to be collected to enable it. Identifying the objectives and defining the metrics can take many forms. For example, is it relevant to track fully completed and accurate documentation in the on time delivery metric or as a separate metric? Should the supplier be measured upon completion of the order, once the order ships or upon buyer receipt?
There is also commonly a buffer window (e.g. +/- 2 days, etc.) in which a supplier is allowed to deliver the goods without a penalty for being late or early. If it falls outside the performance window, then the delivery will be counted late on the supplier’s on time delivery metric. Other considerations could be fully complete and accurate documentation or the goods passing a quality inspection.
After defining the metrics, there needs to be a way to collect the data. Ideally, this will be done with a dedicated software solution. The data needs to include the actual delivery date along with the contractual delivery date, transit times, the logistics carrier, mode of transport, ship to and ship from locations, and any root causes of delays. These are just a few, but depending on the nature of the goods, there could be plenty of other relevant data points to include for monitoring and analysis.
Clear and frequent communication is the foundation of supplier relationship management and critical for developing good on time delivery habits. Regularly reviewing and following up on open purchase orders is the first step. This can help bring to light potential issues well in advance and give all parties opportunities to take corrective actions and mitigate what could potentially turn into a significant impact to downstream operations.
It is also important to regularly review a supplier’s on time delivery performance metrics. It is hard for a supplier to improve their metrics if they don’t know what they are, how they are calculated, or what they can do to influence it. From there, clear escalation procedures can be set when the buyer feels that they are not getting the responsiveness or attention they feel their organization requires. Deploying field representatives is also another widely used tactic to ensure that the communication channels are strong and the information transmitted remains as accurate as possible.
The supplier portal can also be a great tool to streamline and organize supplier communications. Order status updates, performance metrics, forecasting, and demand planning information can be very helpful to suppliers and allow them to better plan and organize their operations to meet their customer’s needs.
Ultimately, all the terms and requirements for the supplier need to be included in the purchase contract. This includes terms related to performance requirements, Service Level Agreements (SLAs), order status responsiveness, and any other stipulation that might be relevant. Penalties and rewards for performance can also be stipulated in the contract as well. These can include both financial and non-financial measures. Financial penalties could include lates fees, cost recovery, better payment terms, or reduced future order allocation while financial rewards could be bonus payments, increased order allocation, or innovation funding. Non-financial performance penalties could be lower supplier tier status, increased audits and inspections, while non-financial rewards could be marketing partnerships, joint development opportunities, or preferred supplier status.
Once there is a process in place with definitions on metrics and expectations set, the data needs to be collected, stored, and analyzed. From here, the buying organization can understand historical trends and patterns across their supply base and answer:
From here suppliers can be segmented further, not just by their capabilities, but by their current performance and subsequently what the strategy is for that supplier. Does the buying organization want to try and increase the volume of business they do with the supplier, maintain it, or decrease it? Ultimately, when it comes to chronic poor performing suppliers, the question also needs to be considered whether the buying organization wants to continue doing business with the supplier or create an exit plan.
Continuous Improvement (CI) for supplier on time delivery performance can be one of the most worthwhile avenues to explore. One of the most important CI practices related to improving performance is root cause analysis. For example, if a supplier’s late delivery was caused by an issue with the carrier, then it would not make sense to devote time and resources into the production systems and vice versa – if the issue can be traced to a certain step in the manufacturing process, then investigating the transportation is probably not going to yield the best results.
Other CI initiatives can include best practice sharing and supplier technical development. This could be especially relevant if the operation is something that was recently done in-house or at a different supplier and the work is being transferred to a new supplier. This transition period is one of the riskiest phases for late deliveries as the supplier has no experience in manufacturing the specific product required. Technical development could involve sending a team of engineers, mechanics, or other individuals with technical knowledge, that can work side-by-side with the supplier’s personnel to train and get them up to speed.
Depending on the nature of the goods being purchased, it sometimes makes the most sense to have the supplier manage the inventory or at least give the supplier direct access to current inventory levels through their supplier portal. Vendor managed inventory is common for certain consumer packaged goods, commercial off-the-shelf hardware, and raw materials. Variations of this include Just-in-time where the supplier does not directly stock the shelves or bins, but does closely monitor their customers inventory levels and ensure that they have deliveries scheduled to ensure that inventory stays as low as possible, but the customer still has exactly what the need.
On the logistics side, the mode of transportation and the carrier can have a massive impact on supplier on time delivery performance. Air transport for example will have much less variation in delivery than an ocean container ship for example. Likewise, certain carriers, whether air, train, ocean, or truck have differing abilities to deliver shipments to schedule. It can be worthwhile to develop close partnerships with the carriers as well to ensure that shipments run into less mishaps during transit.
The bedrock that enables all of these on time delivery strategies is having the right technology and systems in place to facilitate these processes. All of the data on orders, contract dates, actual delivery dates, and real-time build status information should be housed in a procurement software platform. Procurement software platforms can provide modules to report & export data, automate performance tracking, facilitate analytics functions, and will also offer supplier portals for suppliers to have visibility into real-time information that the buyer elects to share with them. Having the requisite real-time data housed within a dedicated software platform is paramount to provide visibility to suppliers and share critical information.
The key to advanced analytics is to have the data in a format that is readily available to be accessed and queried by other applications. These integrations allow for demand planning, forecasts, supplier health analyses, and optimal order quantities, to name a few.
At the end of the day, no matter how good the supplier and buyer partnership, there will always be some risk of late deliveries to manage. In these cases, it is still crucial to have various backup and mitigation plans in place. This could involve having multiple sources of supply concurrently because if there is an issue with one supplier, then the other supplier is able to pick up the slack in the short term. However, this can still be fraught if the later delivery is due to a raw material shortage. In the case of a raw material shortage, other methods need to be considered, including locating additional sources of the raw materials or carrying safety stock for a period. In other cases, various contingency plans such as rescheduling the manufacturing processes can help alleviate a schedule strain and provide a few additional days or weeks for the late shipment to come in. In the end, the specific risk mitigation strategy will depend on the nature of the goods (are they only available at one source?) and weighing the mitigation costs versus the potential expected impact if the goods are late.
Lasso provides a full suite of procurement software solutions, including real-time data and reporting, supplier relationship management, contracting, order status updates, and an easy-to-use supplier portal.
Having a dedicated software solution like Lasso can help streamline and organize your supply base, identify the root cause of late deliveries and continuously improve supplier performance. Lasso is also free to start – create your free account and get started with Lasso!
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