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Modeling Software and IT Development

Benefit of Supplier Assessment

Supplier Assessment is a quantitative methodology used to evaluate potential suppliers of Commercial-Off-The-Shelf (COTS) end items. The result of Supplier Assessment is to establish a portfolio of preferred suppliers for use mainly during the proposal process and post-award. Supplier Assessment is also applied to current suppliers to benchmark/monitor performance to evaluate if a provided quotation is a reasonable expectation prior to commencing negotiations. Once established, a ceiling price based on evidence from a data driven expectation becomes an effective tool when negotiating with suppliers. Ultimately, the buyer has a much stronger position for negotiating lower pricing from the suppliers based upon evidence findings from past procurements of like items using the Supplier Assessment methodology.

Supplier Assessment Methodology

Implementation of effective Supplier Assessment methodology requires the organization to establish a series of best practices to collect, track, monitor and evaluate supplier data. Over time, this information when collected establishes a rich repository of information that can be mined to find specific relationships or “findings”.  These “findings” are then used to establish the ceiling price used in supplier negotiations. Over time, this leads to a quantitative understanding of “preferred suppliers” based on statistical analysis of past data rather than ad-hoc claims.

Once established and combined with predictive cost analytic techniques, Supplier Assessments and selection of preferred suppliers can be quickly conducted on a rational basis. Effective Supplier Assessment requires the establishment of several best practices shown in the table below. 

 

Effective Data Driven Supplier Assessment

Implement Data Collection
Consistent collection of supplier cost / performance data associated with each end item. Typically, this must be specified within the RFP to ensure that suppliers are providing the data in a consistent format suitable for future analysis. 
Establish the Data Repository
The ability to consistently store supplier cost / performance data for statistical analysis. The repository should allow for rapid filtering / analysis of data to establish technology/product groupings with low variance among data points. This is a critical step to deriving significant benchmarking data. The repository should also allow for the development of statistical “findings” based on the product groupings. 
Conduct Technology Normalization
Establishes the key product cost metric for estimating reasonable cost expectation as well as allows for the empirical comparison of different suppliers producing the same technology. Accomplished through calibration of Manufacturing Complexity representing normalized cost density of an end item. Since Manufacturing Complexity consists of both technology and a measure of productivity, different values can exist for the same end item. Thus, comparisons between suppliers manufacturing the same end item are possible. Since technology is constant, the only parameter changing is productivity. 
Benchmarking
Once supplier data is collected and normalized (Manufacturing Complexity), benchmarking provides the organization with a process to analyze the data to both measure performance and understand cost trends of both products and product supplier organizations over time.  For example, Preferred Suppliers can be chosen based on the empirical factor of the lowest Manufacturing Complexity over time for a given end item.  In addition, benchmarking identifies the range of reasonable expectation for a given end item. Items falling outside of this range can be effectively negotiated with suppliers since the assessment is difficult to refute since it is based on actual cost data.
Establishment of the Ceiling Price for Negotiations
Once benchmarking it completed, using predictive cost analytics, an independent ceiling price is established. The ceiling price is based on “findings” derived from statistical analysis of the benchmarks. As the findings are based on actual benchmarks, the negotiator has a strong position in identifying and agreeing on areas of cost savings.   Ultimately, since the findings are tied back directly to the data though the benchmarks, data-driven negotiations are effectively supported.  These findings may take the form from simple relationships (mean values) through sophisticated multivariate statistical analysis.

 

The following case studies (Commercial and Aerospace & Defense) illustrate the Supplier Assessment methodology using both TrueFindings and TruePlanning. They outline how TrueFindings provides the capability for data repository, and benchmarking. TruePlanning provides the capability for Technology Normalization and establishing the ceiling price for negotiations. Used together TruePlanning and TrueFindings provide the complete capability for effective supplier assessment and data-driven negotiations. 

 

Case Study - Commercial Application: Hydraulic Pumps

Download commercial case study and related files on effective data-driven supplier assessment for Hydraulic Pumps.

 

Case Study - Aerospace & Defense Application: Actuators

Download the Aerospace & Defense case study and related files on effective data-driven supplier assessment for Actuators:

 

Watch how to effectively use Data-Driven Supplier Assessment for Actuators in the webinar recording below:

 

Download the Supplier Assessment used in the webinar presentation above slide deck: