Spend Matters welcomes another guest post from Becky Partida of APQC.
In a recent post, I discussed one measure from APQC’s report Blueprint for Success: Procurement (Second Edition), which highlighted key measures for operational aspects of procurement that can be targeted for improvement.
This post discusses another measure from the report: percentage of supplier orders delivered on time. This measure may seem simple and straightforward, but when suppliers are chronically late, it can add significant complexity to an organization’s operations. These suppliers have the potential to shut down production lines and cost organizations a large amount of money. Not only is there money lost in production downtime and due to late or rushed delivery, there is also the potential for lost business when customers are dissatisfied. In contrast, a supplier that has a high on-time delivery rate can allow an organization to reduce its inventory carrying costs by keeping less safety stock on hand.
APQC’s cross-industry data indicates that top-performing organizations have 13 percent more of their supplier orders received by the original request date (see figure below). These organizations clearly have taken a proactive stance to ensure that their suppliers deliver on time, whether that is adopting some internal method of coping with suppliers that run late or using other methods to compact the cycle time on the front end. Another possibility is that these companies have focused on establishing strategic relationships with suppliers. It may be that these organizations only do business with suppliers that perform better than others or that they work with trusted suppliers to improve delivery times.
APQC’s results would also indicate that there is a fair amount of gain to be recognized from improvement in this area. With 91 percent of their supplier orders received by the original request date, top-performing organizations have made great strides toward improving supplier performance but still have room to improve. There are clearly benefits to improving on-time delivery performance. Business schools across the country teach the impact of variability on inventory levels, and inconsistent delivery performance is a key component of variability. Having reliable supplier deliveries allows organizations to more accurately predict needed inventory levels, which can reduce the amount of inventory needed on hand.
APQC’s data indicates a sizable gap between top- and bottom-performing organizations with regard to the percentage of supplier orders received on time. With the potential impact that late supplier deliveries can have on an organization’s ability to meet its commitments to customers, the ability to maintain a high level of supplier on-time delivery is crucial. Organizations can assess the performance of their current suppliers to determine which ones need improvement. For suppliers of strategic importance to the business, organizations can establish mentoring plans to help the suppliers meet performance requirements. An organization’s relationship and collaborative practices with its suppliers can be key to ensure best-in-class on-time performance.