Measuring Buyer and Seller Performace (A PI Q and A)

Member Question:

What methods are available to measure purchasing performance for both buyers and sellers?

My Response:

The challenges associated with quantifying (re measuring) performance extend beyond the mechanisms for capturing the data to include its timely application relative to ongoing real-world decision making.

Specifically, is the current methodology capable of incorporating centrally established acquisition guidelines or parameters (i.e. price, quality, delivery performance, terms offered etc.) into front line buying decisions without negatively impacting operational capacity and performance.

Leveraging one of an increasing number of web-based applications that are now becoming available through a variety of SaaS vendors, here is how it would work:

The buyer submits a request which is sent to registered suppliers via the Internet. Within a pre-determined time period, suppliers wishing to participate in the “bid” process respond online; simultaneously, the tool queries the data tables of different couriers to determine the best shipping option taking into account rates, geographic cut-off times, and past performance.

Once supplier “bids” have been received and the opportunity closed, the tool assists the buyer in selecting the best possible supplier for the requested item; this is accomplished within a matter of seconds through the utilization of advanced algorithms, which compare a supplier’s price against those of competing bidders, as well as “best value” parameters such as delivery and quality performance.  (Note: with each and every purchase, the “intelligent” data base is automatically updated as part of the transactional process – no manual entry required.  As a result, the data pools by which the algorithms make their recommendations are always reflective of the most current information.)

The tool then provides the buyer with a list of possible sellers, ranked in accordance with purchasing guidelines established by the company’s management. The buyer can then purchase the item(s) from the recommended supplier, or with an explanation (which is recorded and tracked), chose a lower ranked supplier. In either instance, the order is processed quickly, and in accordance with pre-defined standards.  Furthermore, the tool’s web services component enable a somewhat easy integration with existing back-end ERP systems.

The sole caveat is that the process be linked to a firm understanding of the commodity characteristics of the goods that are being procured.  In essence, the company has to know the characteristics (re dynamic flux or historic flat line) that define the commodities being purchased to ensure a proper technological alignment.

Here is a link to part 7 of a 7 parts series I wrote titled Dangerous Supply Chain Myths (https://procureinsights.wordpress.com/2007/07/04/dangerous-supply-chain-myths-part-7/).  It touches on both the emergence of the Metaprise in terms of technology as well as quantifying the impact that commodity characteristics have on identifying and measuring realistic buying parameters.

I have also included links (see Reference Links at the conclusion of this post) to supplemental reading on commodity characteristics as well as the impact Double Marginalization has on developing a effective supply chain practice (which of course is the whole reason behind measuring purchasing performance).

I can also provide upon request a graphical outline of past commodity characteristic analyses that were gathered and studied over a period of 14 years.  This research was partially funded by the Government of Canada’s Scientific Research and Experimental Development (SR&ED) Program.  Just drop me a note at procureinsights@rogers.com.

Reference Links:

Double Marginalization and the Decentralized Supply Chain: https://procureinsights.wordpress.com/2007/08/09/double-marginalization-and-the-decentralized-supply-chain/

Double Marginalization and the Point of Ideal Price Viability: https://procureinsights.wordpress.com/2007/08/10/double-marginalization-and-the-point-of-ideal-price-viability/

(Supplemental Material) Double Marginalization and the Point of Ideal Price Viability: https://procureinsights.wordpress.com/2007/08/23/supplemental-material-double-marginalization-and-the-point-of-ideal-price-viability/