27 September 2013
Can you answer the following questions?
How many suppliers respond to our RFQs and how long does it take them?
Are we always delivering spares and stores on time during port calls?
Do we ask for at least three quotes per PO?
Do we receive enough quotes on our RFQ’s to make sure we are able to source in a timely manner?
Are our suppliers responding in a timely fashion or are we creating problems by asking for too rapid a response to RFQs?
Are we using the right suppliers? Do they respond at all?
Do we take advantage of the latest tools in our supply process – are we using e-commerce and to what extent?
How are we doing compared to the rest of the industry?
ShipServ has been making available the data that answers questions like this for the last 11 years.
We call it our Key Performance Indicator (KPI) dashboard and you should receive your KPIs by email every quarter:
Used properly it can be really helpful to improve any company’s ship supply operations, as well as relationships with your supplier partners.
The below is a snapshot of the ShipServ KPI Dashboard, which shows several important data elements:
E-Enablement Status: this figure is the percentage of POs the company sent through TradeNet compared with the estimated total no. of PO per vessel per year as reported by the shipowner/manager. Useful in seeing progress on getting electronic trading going with your suppliers.
Supplier Response Rate: this figure is the percentage of supplier responses to all RFQs divided by the number of RFQs themselves. The number may be below 100% because:
– Invited suppliers may not stock the items requested or supply the requested ports.
– The RFQs have too short a response time due to insufficient information, or the fact that the RFQ was sent over weekend, or the supplier is simply too busy etc.
RFQ to PO Ratio: Shows the ratio of the RFQs issued in the period compared to the number of POs issued in the period. Ship owners will need to drill into the data to find the balance between on-contract and off-contract transactions. This will ensure sufficient RFQs are sent out.
Run Rate: The annualized number of POs per vessel sent via TradeNet. This number is the annual projection of your current POs sent over TradeNet
Line Items per PO: As with the response percentages, the absolute number for this KPI is less important than the improvement over time. However, this can have as large an impact as unit prices for the lower value items because each PO carries a fixed overhead cost (including handling the invoice), believed to be between $50 and $150 for each PO.
KPIs are very helpful, but they have an important limitation – they operate in a vacuum. Benchmarking compares the performance of a company (i.e., its KPIs) against those of similar organizations or internally between business units.
It is a useful tool that can help make a company more competitive while providing an objective picture of the business’ strengths and weaknesses.
In the table below we have expanded the KPI Dashboard to include industry averages (using example data only). What we can see from this data is:
– FleetCo is at a high level of e-enablement, but there’s still room for improvement. Why are the remaining 24% of supplier still not trading electronically?
– The supplier response rate is close to the average, but still way below what is achievable by best in class.
– The percentage of one day turnaround for quotes is just below the average, but again way below best in class.
-The RFQ to PO rate is slightly below the average.
-The number of Line items per PO is fairly low leading to the issue of more POs than average.
The data for this type of benchmarking is based on transactions from almost 8,000 vessels in the period.
KPIs and benchmark statistics like these help identify and correct weaknesses in critical business processes before they are noticed.
Over the next few issues of Connect, we’re going to be investigating several different aspects of our KPI and benchmarking data to show how they can improve business processes and overall performance.
In our next column, we’re going to spend some time analysing the importance of understanding RFQ response rates, but before then here are some questions for you to think about:
Do you know how many responses you get to your RFQs compared to the number of RFQs you issue? Is it a low response rate or a high one?
How do you establish what is low/high?
If you think your response rate is low, why is it? Are you sending your RFQs to the right suppliers, ones who can provide the equipment you need in the places you need it?
Are you truly being “fair”? – i.e. do not actually favour certain suppliers despite the results of the quote phase (and, btw, if that’s the case why not enter a contract and stop RFQ’ing!).
Are your deadlines for quote submission reasonable? Or are they too short?
Is the data you provide on your RFQ insufficient or inaccurate such that it prevents a supplier from responding appropriately?
By knowing your RFQ response rate, you will be in a much better position to improve the rate because you’ll be able to analyze exactly where the problem lies. And better rates of response hold out the prospect of better prices.
If you would like to know more about KPIs please contact your Account Manager.