Failing to achieve your purchasing key performance indicators (KPIs) can have effects throughout the company – especially if C-parts availability becomes so low that you risk a line stop in production.
Let’s start by taking a look at the most common, and potentially most important KPI: availability.
The consequences of not meeting this KPI can be serious. Ultimately, it’s the purchaser's responsibility to make sure that production has the parts they need when they need them. If this doesn’t happen and essential parts are missing, it can result in a line stop – where the production line is forced to stop until the required parts can be sourced. Downtime is a hugely expensive occurrence for any company, and with the current disruptions in global supply chains, it’s harder than before to find a solution quickly.
So what’s the best way to meet this KPI? As the most fundamental target you have as a C-parts purchaser, there’s lots of contributing factors. But generally, having a consolidated supplier base is a good first step – with a limited number of C-parts suppliers, you have fewer orders and contacts to keep track of, which reduces the risk of mistakes. Other measures depend on your choice of supplier – fast, consolidated deliveries, and potentially some kind of automatic ordering solution can also help make sure your company’s required parts are always in stock.
It’s vital you don’t let the number of suppliers in your supplier base get out of control. Even if you’re getting hold of the parts you need, dealing with more and more suppliers all the time is a negative development in the long term. More suppliers means more repetitive work and administration, as well as higher costs. Instead, you should focus on moving the responsibility for more of your C-parts needs onto fewer, larger suppliers, such as Bufab. This has both short and long-term benefits – such as better relationships with the new supplier and worry-free access to their base of suppliers.
Cost
For purchasers of other types of goods, getting a good price is a vital objective. But for C-parts purchasers, the actual sticker price of the products is less important since the direct cost is always going to be relatively low.
However, the cost, specifically the total cost of ownership (TCO), is an important target for C-parts purchasers. Alongside the price of the parts themselves, there are a large number of other costs around administration, delivery, and storage. If you choose the wrong set of suppliers, these costs can escalate, especially if you have a large, unconsolidated supplier base. The administrative work your purchasing office must do to deal with all these suppliers has a hefty cost – which can turn these very cheap parts into an expensive burden.
Sustainability
It’s still quite uncommon for C-parts purchasers to have KPIs related to sustainability, although it’s not unheard of. In future, as sustainability becomes even more important for manufacturing companies, you can expect that these kinds of KPIs will be implemented.
It can be hard to measure sustainability in a way that can easily be turned into a KPI, but it’s possible. Some examples of sustainable KPIs could be the number of suppliers who are ISO 14000 certified, or members of the UN Global Compact. Another KPI could be the proportion of a company’s suppliers who have undergone a certified sustainability audit. Alternatively, the KPIs could focus on the parts themselves, or the way they’ve been delivered – for example, a purchaser could have a KPI focused on keeping the number of C-parts delivered by air freight as low as possible.
It's hard for companies to keep track of the sustainability efforts of all of their suppliers, even for large companies with lots of resources. For that reason, making a real difference to these kinds of KPIs would probably require working with a supply chain partner who can conduct the necessary audits and checks themselves.
Lead times
Sometimes, it’s impossible to avoid long lead times for C-parts, especially with the current disruptions in global production and supply chains. However, what really matters is how a purchaser handles these lead times – with good planning and dialogue with the other parts of the company, lead times can be managed and production can stay supplied with the parts it needs.
Sometimes, getting the parts you need may mean having to accept long lead times, or possibly a higher minimum order quantity (MOQ) or price. It’s possible for the purchasing department to handle this calculation themselves, but lots of companies benefit from a supply chain partner in situations like this – by analysing the operation and the current state of the market, the right partner can guide you in the best direction, or even use their wider supplier base to find an alternative supplier with a better offering.
Digitalisation
Similar to sustainability, it can be hard to quantify a supplier’s level of digitalization in a single KPI. However, by focusing on specific aspects of the relationship, it can be done. In my opinion, KPIs related to digitalisation will become more common as the industry matures and more sophisticated digital tools are introduced. In practice, a KPI related to digitalization could be the number of suppliers who can offer things like automatic ordering, or incoming order tracking. Dashboards with information on the status of all your C-parts orders can make a purchaser’s life much easier – and it could potentially be a factor in the overall effectiveness of the entire purchasing team.
A KPI like this is improved by carefully choosing your suppliers according to these criteria, or placing pressure on them to improve their digital tools. In both of these cases, it’s probably best to work with a supply chain partner who has both a much wider base of suppliers than your company, and the size and influence to guide them in the right direction.
This article was first published on 7 December 2022 on the Bufab website. A supporting document is also available.
