Rating a supplier from the warehouse's point of view

The purchasing department chooses a supplier by price, discount and payment terms. The warehouse lives with that supplier's discipline every day: the truck does not arrive on the promised day, some order lines are missing, the label does not match the document, boxes arrive crushed. Each of these turns into time, space and money in the warehouse, yet none of it shows in the price agreement. As a result the "cheap" supplier ends up expensive. To see this you do not need complex software; a simple supplier rating is enough.

What to measure besides price

Four indicators, which the warehouse collects itself every day, are enough:

• timeliness: did the delivery arrive on the agreed day or within the agreed window;
• completeness: what share of order lines arrived in full quantity;
• correct documents and labels: did the name, quantity, batch number and expiry date match the document;
• condition: did the goods and packaging arrive undamaged.

The data comes from the receiving log. For every delivery the receiver records the planned date, the actual date, the quantity ordered, the quantity accepted and any discrepancies found. An Excel table is enough; if receiving is entered in 1C, much of this data is already there.

How to build a simple rating

At month end three figures are calculated for each supplier: the share of deliveries that came on time, the share that were complete, and the share with a problem in documents or condition. Then points are assigned. For example (illustrative): timeliness 40 points, completeness 30, documents 20, condition 10. The results split suppliers into three groups: A (good), B (under watch), C (problematic). You set the thresholds yourself; what matters is that they are known in advance and the same for every supplier. Do not draw conclusions until you have at least three months of data: one delay may be chance, but a pattern that repeats for three months running is not. The table should fit on one screen: suppliers in rows, months in columns, the total score in the last column.

Turning the rating into money

For the purchasing department the most convincing argument is a sum. An example, with illustrative figures. Supplier A delivers goods worth 120 million so'm a month and is 3 percent cheaper than supplier B, a saving of 3.6 million so'm a month. But 8 of the 20 monthly deliveries have problems. Let us count:

• each problem delivery takes 3 hours of staff time, which at 25,000 so'm an hour comes to 600,000 so'm;
• because of delays an item runs out twice a month, and each time 1.5 million so'm of margin is lost, 3 million so'm in total;
• to protect against delays an extra 30 million so'm of stock is held; if tied-up money is valued at 2 percent a month, that is 600,000 so'm.

The total is 4.2 million so'm, which is 0.6 million more than the discount. The "cheap" supplier is actually the more expensive one. Your figures will differ, but the order of calculation is the same.

Keeping the rating fair

A delay is not always the supplier's fault. The truck may have arrived on time and then waited for hours because the receiving area was busy. Record the cause of a delay in the log as well: supplier, transport, warehouse or paperwork. Count against the supplier only causes that belong to the supplier and its own transport. Otherwise the rating loses credibility at the very first discussion: the supplier will object to a delay that was not its fault, and will be right.

Using the rating in conversation

The rating is there for agreements, not punishment. Once a month show the result to the supplier and ask for two or three specific things: agree the arrival window in advance, check the load against a list before dispatch, issue labels in one format. For important goods keep at least two suppliers, otherwise the rating changes nothing. Give a group C supplier a deadline to improve, for example two months, and only then reduce its share.

Conclusion

A supplier's price is visible on the invoice, while the price of its discipline is hidden in the warehouse. The OmborExpert specialists help set up the receiving process and the indicators, and write the rules for working with suppliers.