Supplier Reliability
SUPPLIER RELIABILITY
The components of supplier reliability cover both response time and quality. The more often a supplier is unreliable, the greater is the tendency for its customers to hold more safety inventory to compensate for supplier incompetence. By changing suppliers or improving existing supplier reliability, a business can reduce its safety inventory levels in the knowledge that the supplier can support the business efficiently. The main variables are as follows:
• Response time – the lead time from a supplier receiving an order and being able to deliver it. Sourcing supplies from another continent to drive down cost may be advantageous at one level, but it is likely to extend lead time (for transportation) and require higher inventory levels to cover for uncertainty and potential delay. The risk of delays in supply can be passed back to the supplier in the form of guarantees and penalties, but the supplier providing the guarantee is likely to pass on the cost in its pricing, as it will with any fulfillment obligation imposed on it. The way to reduce response time and unit cost is to work with the supplier on how efficiencies can be achieved.
• Quality
• supplier error (failures in fulfilling an order to specification);
• short or delayed delivery (the inability to supply on time and in full, which is critical in supplier performance – failure on this measure can be one of the biggest contributors to holding safety inventory);
• Product quality (supplies that are not fit for purpose, damaged, fail in service or not to specification).
In structuring a supply chain for sourcing it is important to balance a supplier’s ability to manage demand response times with reliability and split requirements between supplies that need to be agile and those that can be lean:
• Agile – the primary goal is revenue and growth. These are supplies where there is high volatility in demand and a quick response time to replenish is crucial. An example is
The components of supplier reliability cover both response time and quality. The more often a supplier is unreliable, the greater is the tendency for its customers to hold more safety inventory to compensate for supplier incompetence. By changing suppliers or improving existing supplier reliability, a business can reduce its safety inventory levels in the knowledge that the supplier can support the business efficiently. The main variables are as follows:
• Response time – the lead time from a supplier receiving an order and being able to deliver it. Sourcing supplies from another continent to drive down cost may be advantageous at one level, but it is likely to extend lead time (for transportation) and require higher inventory levels to cover for uncertainty and potential delay. The risk of delays in supply can be passed back to the supplier in the form of guarantees and penalties, but the supplier providing the guarantee is likely to pass on the cost in its pricing, as it will with any fulfillment obligation imposed on it. The way to reduce response time and unit cost is to work with the supplier on how efficiencies can be achieved.
• Quality
• supplier error (failures in fulfilling an order to specification);
• short or delayed delivery (the inability to supply on time and in full, which is critical in supplier performance – failure on this measure can be one of the biggest contributors to holding safety inventory);
• Product quality (supplies that are not fit for purpose, damaged, fail in service or not to specification).
In structuring a supply chain for sourcing it is important to balance a supplier’s ability to manage demand response times with reliability and split requirements between supplies that need to be agile and those that can be lean:
• Agile – the primary goal is revenue and growth. These are supplies where there is high volatility in demand and a quick response time to replenish is crucial. An example is