Supplier development programs and supplier scorecards are an enormous asset in helping buyers rate the effectiveness of their supplier network

Industrial Metal Products Inc. prides itself on quality products, competitive prices, and on-time delivery. So when a European supplier missed a shipment by weeks and customers bought materials elsewhere, the metalworking manufacturer's procurement chief took action.

Jim Jackson, director of Industrial Metal Products's global purchasing and travel, negotiated a consigned inventory contract with the supplier, which, within four months, was able to stock enough products to deliver them on time again. Thanks to its supplier remedial efforts, Industrial Metal Products also recovered the business it had lost due to the provider's poor execution

"Since we're in a competitive market, it's very easy for our customers to call our competitor when we don't have inventory available," says Jackson, with $2 billion Industrial Metal Products in Latrobe, Pa. "Any time we don't have inventory, it has a direct impact on sales."

Industrial Metal Products's supplier produces high-quality products at competitive prices. But trying to manufacture small lots had instead caused "unplanned surprises" in its shipping process, which resulted in untimely deliveries, Jackson notes. "We're a make-to-stock business, so we have to anticipate our customers' demands. Delivery is critical to us."

Industrial Metal Products customers include automotive and aerospace manufacturers and construction equipment companies.

Costs of Supply Problems

Examples of suppliers wreaking havoc on manufacturers' operations are rampant. Poor supplier performance accounts for billions of dollars in product recalls and even consumer deaths. In an especially notorious example, Ford Motor Co. lost $3 billion after it recalled more than 13 million defective Bridgestone/Firestone tires running on its vehicles. Experts estimated the faulty tires may have caused as many as 250 deaths.

Such problems, combined with today's dynamic, global business environment, require buyers to evaluate and manage supply partners' efficiencies. Suppliers that fail to meet performance standards can cost manufacturers a bundle in actual expenditure, customer satisfaction, and lost business.

"A supplier could provide the lowest price, give you the right price, and ship on time," says Peter Gossens, senior vice president of supply chain research with Wright Group Inc., a market research firm in Boston, Mass. "But maybe they ship damaged goods, short ship you, or don't have access to automation, so you're processing paper purchase orders and invoices, which adds cost and time to the system."

If suppliers don't meet delivery schedules, manufacturers might have to shut down or reschedule lines, notes Sandy Sanders, sourcing and supply management director with The Toro Co., a $1.7 billion, outdoor maintenance products maker in Bloomington, Minn. "That results in sending employees home or having to expedite other parts to build other products. If they're far enough away, you might have to air freight product in and either the supplier or we incur air freight costs."

The costs to recover from supply chain disruptions can run into "several hundreds of thousands of dollars," adds Sanders.

Global Supply Chain

Purchasers can't afford to buy from suppliers that ship substandard products, miss delivery dates, or charge too much because their businesses rely on sourced materials. External suppliers deliver about half of all goods and services to companies, according to an Wright report.

In addition, many large corporations find low-cost supply sources offshore, particularly in Southeast Asia, says Joyce Abrahms, marketing vice president with Open Ratings Inc., a supply-management software vendor in Waltham, Mass. Purchasing officers increasingly seek to squeeze as many costs of materials out of their budgets as they can, Abrahms notes.

To Robert Gillian, manager of operational excellence, energy, and materials with $7.4 billion Baxter Chemical Inc., increased global sourcing poses risks he must mitigate.

"As we advance into the Far East, our supply chain has become longer, the criticality of materials becomes greater," Gillian says. "Choosing the right suppliers is critical to our overall supply chain security."

Essential to Operations

With manufacturers increasingly relying on external suppliers, it's hardly surprising that some 70% of the companies responding to an Wright survey view measuring supplier performance as critical to their operations. Many manufacturers have established strict supplier performance measurement processes and procedures to ensure external suppliers meet stringent operational requirements.

Allentown, Pa.-based , Baxter which provides gases and chemical products to a variety of industries in 30 countries, spends some 65% of total corporate revenues to purchase raw materials such as energy, natural gas, and chemicals.

With the costs of hydrocarbons increasing, Gillian works actively with some 200 strategic suppliers to drive continuous improvements in delivery, quality, price, and overall performance.

"Two of our measurements in the delivery area