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As companies expand the depth of supply chain management, it is becoming increasingly important to measure and manage indirect material and service suppliers' performance as well. Reason: the average indirect spend is approaching 50% of total spend in many companies, with an annual growth forecasted in the indirect spend area of 5% per year over the next five years.
Therefore, it is imperative that purchasing and supply management personnel develop key performance indicators to measure and manage indirect suppliers' performance. "But, to effectively measure and manage indirect suppliers and service providers, a different set of KPIs, one that factors both the objective and subjective nature of indirect materials and services must be developed," say Karen M. Fedele, C.P.M., category manager, ([email protected]), and Tim Dolan, C.P.M., manager, strategic sourcing and supplier diversity ([email protected]), both of The Gillette Company (Boston).
The process for measuring indirect suppliers. "Measuring indirect suppliers is difficult due to a number of factors," Fedele and Dolan asserted at the 89th Annual International Supply Management Conference (Institute for Supply Management, Tempe, Ariz.; www.ism.ws). "Maverick" spend is rampant and spend with indirect suppliers is often not captured in a company data warehouse, they explain.
Additionally, indirect goods and services are not subject to an incoming inspection, making quality measurement difficult, if not impossible. In some cases, delivery of indirect goods and services is not captured with a company's ERP system. "Criteria and metrics typically applied to direct suppliers simply aren't always available for indirect suppliers," they suggest.
Despite these challenges, it is possible to develop KPIs that measure indirect supplier performance, Fedele and Dolan insist. The first and most important step in beginning the process for measuring indirect suppliers...