Over the last few years, the Supply Chain industry has introduced various factory/supplier categorisations in order to determine the status and performance of their whole vendor base. The way it’s normally communicated is in the form of a traffic light colour code. The suppliers are measured against various performance factors (quality, sustainability, logistics and price) that determines whether they are red (poor performing) or amber, green, gold or champion suppliers!! Usually the total vendor base performance is a Pareto curve. 20% at the top, 70% in the performance improvement category and 10% in the poor performing category.
The increasing demands on performance in price development, quality, delivery and sustainability need to be measured and analysed through all parts of the supply chain. Stakeholders need to make the right purchasing, investment and performance improvement decisions. This can best be achieved through understanding and benchmarking the supply base through a categorisation reporting system.
From my own experience I always preferred the Staircase Model. This approach communicated a more positive message rather than a GO – NO GO of a traffic light colour code.. The staircase provides a 4 step level route that is more about development and improvement rather than just compliance to a standard performance criteria:
Staircase Level 1: Provides a clear entrance level for a factory to be considered for business e.g. they are legal and have a proactive management approach. The factory can at least quote for some test business and within a very limited timescale have a plan to achieve level 2.
Staircase Level 2: Achieving a performance that meets the minimum requirements and would qualify to have the minor part of the buyer’s total business. This business would be for a limited period – max 1 year and is dependent on a continued improvement progress to level 3.
Staircase Level 3: Conducting business to the full requirements; the supplier is operating at a high level of proficiency and reliability on price, quality, sustainability and delivery. They are always part of an RFQ quotation activity for the major part of the buyer’s total business volume.
Staircase Level 4: Working in partnership with the buyer. Being part of a supplier development programme that improves sustainability, reduces costs and improves efficiency for all parts of the supply chain. The factory agrees with the buyer a level of business commitments on volume (number of pieces), capacity and value that can be valid for many years.
The Staircase Model provides:
- A vendor base status programme
- A business development programme for the Factories and the Buying Teams.
- An improvement process rather than a compliance project
- Brings Quality, Social and Environmental requirements into the business decision process, rather than being solely technical issues.
- Be the main agenda points for factory visits rather than quick tours around the operations, enjoying a nice lunch and then the rest of the time is spent in the showroom!
- Secures Price with a Meaning: The volume of business for level 1 suppliers should be considerably less than those of level 3 and 4.
- Secures that all parties focus on the right issues and not personal/ subjective points of improvement e.g. installing air conditioning!!!
Conclusion: Gone are the days of just supplying a cheap product for the buyers to negotiate and the factory to make. The product range must constantly develop along with the production process. The Staircase Model provides a clear framework for knowing the performance of suppliers and then what needs to be done in a step by step development for both parties – achieving Good Business Growth.