An effective supplier performance measurement process can create a virtuous customer cycle. Without it numerous unacceptable outcomes can result for the buying organization and its customers, including: increased prices, disrupted supply, higher risk, poorer quality, etc.
The most rigorous, widely recognized and simply the best supplier performance measurement process is DMAIC (an acronym for Define, Measure, Analyze, Improve and Control). Pronounced deh-MAY-ick, DMAIC is a methodical, closed-loop, fact-based process that is used to define performance targets, measure, analyze, improve and enhance supplier performance.
The DMAIC Process
Step 1 – Define
This step details the prioritized business needs identified, evaluated, sourced and contracted for in the strategic sourcing process.
Step 2 – Measure
This step compares actual supplier performance (the As Is state) with what is required and contracted for (the To Be state) so that the “performance gap” can be identified.
This gap analysis gives the suppliers a clear understanding of what they need to do to improve or enhance their performance.
Step 3 – Analyze
In this step, DMAIC focuses on determining the root cause of poor supplier performance in order to identify appropriate solutions. Root Cause Analysis (RCA) identifies the primary cause of poor supplier performance and answers the questions: What happened? Why did it happen? What can we do to minimize the likelihood that it will happen again?
Step 4 – Improve
In this step, DMAIC focuses on implementing the changes that eliminate the root cause. These changes can range from specification changes, process changes, technology changes and capital investment through to people changes, retraining and behavioral changes. Each of these changes can be introduced in isolation or in combination with others.
Step 5 – Control
In the final step, DMAIC focuses on ensuring that any actions identified in the Improve phase are implemented and sustained. It answers the question “Supplier performance has been improved, but how do we sustain it? Using Key Performance Indicators is the most common way used to keep an eye on supplier performance in this phase of DMAIC.
In summary, using the DMAIC supplier performance measurement process will improve, sustain and enhance supplier performance and not only result in hard dollar savings, it will also ensure the delivery of your sourcing strategy.