884: Beyond On-Time Delivery: Measuring Supplier Stability W/ Shayan Farshid

0:05Hi there, my name is Philip Ideson. I want to welcome you to the Art of Procurement podcast, the podcast that helps you, a forward-thinking procurement professional, position yourself and your team to proactively take advantage of the revolution that's taking place in procurement today. By interviewing industry trailblazers and sharing insights from our own experiences, my team and I pull back the curtain and shine a light on the strategies, tactics, and tools that procurement teams are using to elevate their impact. And today on the show, I'm delighted to welcome Cheyenne Farshid. Cheyenne is a procurement professional in the semiconductor manufacturing industry who has developed an open source supplier stability index to help teams measure supplier performance beyond traditional on-time delivery metrics.

0:49And we're going to talk to Cheyenne about that today. So first of all, Cheyenne, thank you so much for joining me on the show today. Thank you for having me. It's a pleasure to be here. Now, the question I always start the podcast with is, did you find procurement or did procurement find you? Thank you, Phil. That's a great starter question. I would say procurement found me through my background in analytics because I was always interested in the moment when analysis becomes execution in the industry. And I committed to it is because procurement is where that analysis has to earn its place in the real world.

1:23So I was drawn by a really simple but important question. What makes a supplier relationship genuinely valuable? A good procurement decision doesn't just improve the numbers on a report. It gives engineering more confidence, gives production planning more options, manufacturing a reliable path, and ultimately gives the business more room to grow. So that is when supplier performance became my core focus. Yeah. And as you got into and started to focus on supplier performance, I know that, you know, you started to kind of question why supply performance data wasn't necessarily answering all the questions that you needed to answer.

2:04I wonder if you could just talk a little bit about that. Sure. The realization actually came from a familiar procurement contradiction that a supplier could look really healthy on a supplier summary scorecard, while the people closest to the schedule on the manufacturing floor are still seeing an amount of uncertainty around them. So to begin with, this is not an argument against supplier scorecards. The scorecards are necessary. The argument is whether those chosen measures are telling us the entire story. So I wanted to look down on the purchase order line levels and look at the sequence of the dates when we requested the components, when the supplier committed, and when the material was actually received.

2:51that actually showed a standard on-time delivery view that we could miss. So in my findings, the supplier was delivering on time against latest commitment, but the commitment had gradually drifted away from the original need date. So the scorecard on paper was measuring delivery standards correctly, but the business also needed to understand commitment alignment. when the supplier promised was still supporting the production schedule or not. And that was the starting point of the framework to use the data we already have, but ask a more complete question about supply reliability. So, yeah, so the data that we had, you would find kind of a mismatch between what was talked about or what the feeling of a supplier and their performance and their delivery, their delivery kind of data wasn't matching reality on the ground or it had the risk of not matching reality so therefore when there were challenges those challenges got missed or they were felt by you know folks on the shop floor and in production and in manufacturing but not necessarily elevated back up to the procurement team to do anything about it because they just looked and thought well everything is great right exactly like the summary scorecard doesn't actually show the full picture and that's when i realized to dive deep into those sort of metrics um what are the kind of metrics that you wanted to dig into and start thinking about digging into beyond on-time delivery so uh beyond on-time delivery there are a few other metrics as well so we can uh calculate the revised arrival times so when the supplier committed to a date and then revise the date for a newer arrival time.

4:44But ultimately, that's the same issue we face every time dealing with those suppliers. Like if they're revising their date continuously, we aren't able to get the parts in time, which ultimately affects the production floor. So you obviously identified this as a problem kind of in your day-to-day work. What was it about this problem that you felt, you know what, I want to try and solve for this. I want to look at, is there a different way that I can gather data and gather these different data points to create something which is going to give us a more accurate picture of where supplier performance stands when it comes to delivery?

5:23Yes. So in truth, while we're revising our quarterly deadlines regarding supplier commitments, that's when I actually realized that the commit date inflation is one of the core metrics that is causing our production to face massive disruptions. And it can happen for like a lot of legitimate reasons. Could be capacity constraints, material availability, ECOs or engineering changes, changes in demand. But what it needs to be is to be visible in front of us. We have the supplier scorecard on one hand, and on the other hand, we have to meet the supplier deadlines. So the reason this is very expensive is that it often doesn't show up in the single obvious place we're looking.

6:13It shows up ultimately as a cascade of events, like for example, planning inefficiencies, expediting activities, escalations, buffer inventory, and then later on unwanted schedule adjustments and many more. So that is the reason I wanted to deep dive into this matter. And so can you talk a little bit about how you therefore constructed the Supplier Stability Index? What is included in it and how does it gather all those data points to report up to an index which helps you get a better idea of what's actually happening? Sure. The underlying problem is actually quite common, but access to the complex supplier risk tools is often very problematic for mid-size manufacturing companies.

7:03So, large companies can invest in specialized platforms. They can have their own data analytics teams, external data subscriptions and whereas a mid-size manufacturer can face the same operational consequences from an unstable supplier but that might go unresolved in many cases due to a budgetary constraint so there are plenty of sophisticated risk models available provided you also have a sophisticated budget which unfortunately a lot of mid-size manufacturers don't and ultimately a late critical component doesn't become less disruptive because a company has a smaller technology budget we're often dealing with multi-million dollar tools that can be a problem in the long run if we don't address the source of issues and so you as you were building the index you chose to open source the framework so the other small and medium-sized manufacturing firms could actually take the car of the index that you built and use it for their own, you know, within their own material planning, purchasing logistics organizations.

8:16Right. Yeah. So open source was important because the framework should be inspectable. Procurement professionals should be able to see the inputs, understand the logic, challenge the assumptions, and then finally adapt it according to their environment. The goal was never for me to say that one universal model can replace all the procurement judgment. The goal was to offer more of a transparent, accessible starting point that helps teams have a more informed supplier conversations that can ultimately help the business in the long run. So that is why I wanted to start with the open source. Can you talk a little bit about the framework itself?

8:55I'm sure. So the framework is built on a purchase order line data and quality recovered data that most manufacturers already have. At the line level, it uses order date, request date, supplier commit date, actual receipt date, order status, and component criticality. The last one is kind of optional, but the first five measurements are most critical in this case. So it incorporates quality signals such as material discrepancy events, fault ownership, rework costs, and more importantly, the days lost due to the discrepancy. So those inputs are ultimately combined into a composite stability score.

9:42One design choice is especially very important here. The framework does bring current unresolved exposures into the picture. that allows procurement and planning to see where the attention may be needed while there is still time to influence the outcome. So in practical terms, if I sum it up, it considers three things altogether. Is the supplier commitment aligned with when the business needs the material? Number two, is the unresolved delivery exposure building up now while the procurement and the supplier can take action? and lastly how consequential is that exposure given the criticality of the part and the supplier output level so you can do a prioritization on where you where you see issues based on criticality exactly right and the output is finally translated through an a through f grade and the grading system is partly because the management teams are really busy no one wants to open a supplier review and discover they've been assigned homework on a friday evening yeah i'm so sorry go ahead and underneath every grading is like a supporting evidence like i said the commitment alignments delivered exposure quality friction uh component criticality and order history all five of these are assigned a score which ultimately grades the supplier holistically so to sum up the grade gives the management the headline and the underlying data gives procurement the evidence to charge the suppliers.

11:20How do you think about the weightings behind all the different elements to make up the composite index? And I guess a follow-on question is, are those changeable within the model for each, you know, a company who may, with it being open source, may find it useful to use the index, but they have different prioritization over different elements. Did you build that in or did you kind of stick with a fixed weightings for each category because then the composite is something that could be benchmarked company to company to company because it's based on essentially the same logic underneath it? That's a great question.

11:56Simply put, the framework that I use should be accessible based on these simple metrics. But if a company does find the grades being skewed towards more on the favorable size or want to see more skewed towards the unfavorable suppliers to filter them out, it is possible to tailor them based on the data a midsize manufacturing company already has. But the underlying purpose, again, is to just identify those suppliers that we're not seeing on the supplier scorecards themselves, just to try to filter out some of the suppliers and let them know that overall what their position is based on their on-time delivery, not just the on-time delivery date, but also the commitment dates.

12:46and and so then this would roll up um so the index would roll up into a broader supplier scorecard then as i imagine is one of the you may still have uh cost you have quality but the delivery component can be measured uh using um the supplier stability index is that kind of how you thought about it all coming together correct yes uh moving forward i know um it says manufacturers have higher expectations as well. We can add more data, more fields into it, but I wanted to keep it simple just to give everyone a glimpse of how we can evaluate our supplier in the long run based on the previous quarter data.

13:27And so for when the index is being used, what kind of conversations did you find that became possible once that procurement can actually quantify supplier delivery stability ultimately instead of just relying on intuition or perhaps the single metric that didn't necessarily tell the full story? Right. So traditional scorecards are often built around the cost, quality and delivery good reasons. Those are the actual core outcomes that procurement has to manage. What stability framework here adds is a way of looking across them and asking whether the supplier is likely to remain dependable as conditions change.

14:07So a supplier can have competitive cost, good quality, strong on-time delivery in a particular reporting timeline. But the stability lens would ask, are the commitment dates staying aligned? Is unresolved exposure building up? Are quality events consuming recovery time? And lastly, how important is this supplier in the production plan? So I would describe this more of as a fourth pillar. So cost tells you the commercial result. Quality tells you where the product aligns. Delivery tells you when the commitment was made. But stability tells you how much confidence you should have, given that those outcomes will continue to support the plan when volume changes, supply tightens, disruptions, or the business might face any sort of disruption.

14:59Yeah, it's kind of like a trust index. You know, understanding who you can rely on. or who has been trustworthy and followed their commitments as they've been made. How forgiving is it? And so what I mean by that is, does a relatively minor delivery issue suddenly cause the index to go from, well, you're an A rating and now you're a D rating or a C rating? Or is it looking for patterns of performance over time? And then that's how the grade kind of either improves or degrades over time. Correct. So the mathematical perspective behind it would be logistical, right? Like a supplier who had 100 orders and missed their commitment dates for 10 of them.

15:50if those parts would be like more in terms of cost, criticality, they would be penalized more if those parts are really more critical for us compared to say an off-the-shelf part which are readily available. Say for example, wires and simple circuit board components that are readily available. So it takes into account more of a logistical trajectory so that we can penalize those suppliers more, like the fabricated parts that are custom-made that are really essential for the business. We can tailor the framework so that those can be graded more heavily. Yeah. Based on their impact. And even within an individual supplier, we often get components from an individual supplier, some which are custom and some which are off the shelf.

16:38So it would look at criticality, for example, within an individual supplier as well as it grades the individual supplier rating. Is that right? Precisely, yes. So have you seen the framework actually influence sourcing decisions inside organizations where you've seen it put into practice? Yeah, so what I have done deliberately is put the methodology in front of a few experienced procurement and supplier performance practitioners for critical feedback. And some of that feedback has been genuinely valuable because those are the people who live with those supply relationships. And based on the feedback I got, the feedback was really consistent that on-time delivery does really matter.

17:23The framework matters. But what it may not tell you is whether the supplier's commitments are gradually becoming less useful or whether open orders are beginning to create real schedule exposure. That is why the framework looks at two things as well. While there's still time for procurement and the supplier to do something about them. And the purpose of establishing it as an open source is to invite more scrutiny, testing, and adaptation by the practitioners. And I hope it'll get better and better with more feedback. Yeah. Do you see the framework kind of remaining open source? Or how do you kind of see the evolution as it's used more in practice?

18:08You get more kind of learnings. You get more data behind it. Like what's you thinking about how you take it to the next level from here? Yeah. So open source should remain the foundation because the logic needs to be viewable. Yeah. Different manufacturing environments have different operating realities, like you mentioned. And teams should be able to understand and calibrate those methodology rather than inherit a score that they cannot explain. given that how organizations race to AI, we need to establish the basics clearly and concisely so that AI does not hallucinate while making procurement decisions.

18:47There can be instances where you can put an AI on top of an unclear supplier data, but you'll simply get a faster, more polished version of the same confusion. So we need to understand the basics clearly and concisely so that we can establish the supplier management discipline and the data definitions first so that the AI can extend that discipline, not just bypass it without understanding the fields that are relevant. And so if someone who's listening who works, it's primarily for small or mid-sized manufacturers, as we talked about before, who don't necessarily have access all the technology budgets to access some of the more complex tools that are in the market.

19:29What are some of the first steps that you would advise them that they could take today to start measuring supplier stability? I would say start small with the data you already have. Just select your top 10 most important suppliers. To diversify it, it could mean top suppliers by spend, ones that are operationally critical, say for top customers, even if spend is not the highest. and then pull up the past 12 months of your purchase order line history and place three dates next to one another. The original request date, the supplier commit date, and the actual date you received the items on an Excel sheet.

20:13So most ERP systems have these fields. So once you separate the orders that are still open and late from the orders that were late and now closed, you can identify the current exposures, like which ones need a different level of attention. So you can take that into your next supplier business review and ask the important questions. Are the commitment dates drifting a lot? Is open exposure accumulating? What's driving it? What action should we take together? You don't really need an advanced platform to begin. You just need consistent definitions, discipline, look at the data, and a willingness to move beyond the on-time delivery average to make really good decisions.

20:54Yeah. forward i think that um you know the it's part of a of a procurement professionals role really is is to of course we focus on the cost we look at the quality but the delivery is such a big part of just ensuring that we're selecting and managing suppliers who can do what we need and give us what we need as as the organization that's doing the buying for whatever we're bringing in and sometimes delivery is something that you know i know in my past i worked in automotive manufacturing procurement, I would sometimes think, you know, that's kind of somebody else's, like, don't tell me, only bring me in when there's a problem.

21:30I wasn't that proactive. What I love about this is it's actually giving you data and insights that you can be proactive in managing your suppliers. And as you said before, kind of understand whether you can trust supplier commitments, but that's something that you as a buyer has leveraged to talk to the supplier about, that perhaps folks who are in the manufacturing planning or they're in, you know, logistics team don't necessarily have that same amount of leverage that somebody in procurement does. So when there's decisions and conversations to be had around how to improve it, you now have insights that allow you to address it directly with the supplier.

22:04So I want to thank you, Shane, so much for coming on the show. One last question is, if anybody's listening to this and they'd like to know more about the index and possibly how they can get their hands on it and use it within their organization, what would be the best place for them to go? Sure. You can connect me with me on LinkedIn. I can put down the link in the podcast would be helpful. Yeah. And the framework and code are pretty much open source. So, and the, there is a paper established on this on SSRN for anyone who wants to review the methodology in more details. And like I said, the framework is really open source on GitHub as well.

22:43So I would really encourage procurement leaders, supplier performance managers, especially those in small and mid-sized manufacturing businesses to reach out. So try to create the framework on your own data, challenge the assumptions, tell me where it works and where it doesn't so that I can improve it. And the most useful feedback would come from your practitioners who know the operating reality behind the score. So I would really appreciate it if you could reach out. Yeah, so what I'll do is I'll put a link in the show notes to today's episode. That's going to be at a procurement.com slash podcast.

23:17I'll put a link to your LinkedIn profile. I'll also put a link to the Index GitHub. And so people can go and check that out there if they're able to. And yeah, I think that it's kind of a, it's interesting to see tools like this that we can really start building today that smaller and medium-sized organizations didn't really have access to because you were kind of left out because you didn't have the big budgets. So I want to thank you for coming on the show, Shane, and just talking about what you've built, how you've built it, the logic behind it, and anyone who's interested, I encourage them to reach out.

23:56Thank you, Phil. Thank you for having me. All right. Well, thank you very much for joining us today. And we'll be back again with Atta Procurement next week. Take care, everybody. And thank you very much, Shane.

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