By Kevin R. Maromonte
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Extra resources for Corporate Strategic Business Sourcing
Even if the internal costs are currently higher than those quoted by external sources, after a short period of time the company would actually incur less cost by producing the Production Services 21 product internally (because of the greater cost reductions being achieved by the internal department). To summarize the performance measurements for cost, the effective hourly cost of production sources, whether an internal department or an external supplier, needs to be determined. For an internal production department, the effective cost is the direct costs incurred producing the product, plus the additional cost associated with settling warranty claims received after the products are delivered to customers.
This will cause warranty expenses to be incurred to resolve complaints made by customers, dissatisfied customers, and a possible loss of market share. To address these concerns, the quality performance of sources being considered for production services has to be measured and assessed before a Strategic Business Source can be selected. Primarily, performance measurements need to quantify the quality of the products produced by the sources, in the form delivered to the company. These quality performance measurements will need to define both current levels of quality being achieved by potential sources for production services, as well as their quality improvement trends.
Specifically, the customer service provided by the sources needs to be quantified and factored into the decision to select a Strategic Business Source. The quality and delivery performance for any submittals required by the sourcing company’s contract needs to be assessed and measured. For example, the sourcing company may require production status reports to be submitted periodically by the source. Of course, the quality and delivery timeliness of these submittals is important; they need to be complete, accurate, and submitted on schedule to the company.