Daily Archives: March 20, 2008

Foundational Principles of Supplier Performance Management

The Supply Chain Management Review recently ran an interesting article on Embracing Supplier Performance Management for More Profit, Less Risk. The article noted that if each business unit is measuring suppliers with a different set of criteria, and not sharing data at the corporate level, how do you know which suppliers are achieving the desired outcomes? With no real visibility, how can you be sure that your most important suppliers won’t suddenly experience quality issues that disrupt deliveries? How do you know if your business practices, and those of your suppliers, are in compliance with the latest government and industry regulations?“, which are all good points. If you don’t have a good supplier performance management program, how can you expect good results?

So what is SPM? According to the article, it is a management program and set of processes that help define, measure, and collaboratively enhance supplier performance and business goals. Although, as the article correctly notes, SPM will never eliminate uncertainty, it will help you understand where the uncertainty is and what the risks are – so that you can take appropriate measures to minimize the uncertainty and the risk.

The article then goes on to define the basic components of a SPM program as:

  • Defining SPM objectives aligned to a spend management strategy
  • Defining a straightforward, repeatable process
  • Establishing a supplier ownership and segmentation strategy
  • Establishing KPIs
  • Defining scorecard and survey templates
  • Gathering performance data
  • Analyzing results and communicating to suppliers
  • Collaborating with suppliers to improve performance

And follows these with it’s 7 foundational principles of SPM:

  1. Know Your End-Game
    And set metrics only for the elements that bring you there.
  2. Face Facts
    Employees must understand that SPM provides a more accurate assessment and that KPIs need to be held steady for at least 12 to 18 months.
  3. Be Firm
    Suppliers must understand the program, goals, and benefits before it is implemented – and you must be willing to follow through with corrective actions when required.
  4. But Work With (not on) Suppliers
    It’s not a student-teacher relationship or boss-subordinate relationship – it’s a collaboration.
  5. Assign SPM Owners
    Someone has to take responsibility.
  6. Drive Ongoing Improvement & Reset Metrics
    The output of the last performance review, and subsequent action plan, should be the input to a supplier’s next review period.
  7. Automate Whenever Possible
    Implement resources that automate surveying and scorecard functions to minimize resource requirements.

This is all great advice – but it misses one very important element: the supplier! Everything that the article outlined was to help the buyer manage the supplier’s performance – there was not a single recommendation to help the supplier manage its own performance! When all is said and done, it’s the supplier that has to perform – not the buyer. Thus, it’s important to provide the supplier with tools and processes that it can use to perform better. In other words, you need to provide them with an enablement solution that allows them, at any time, to see how they’re performing, collaborate with you on improvements (and, when necessary, corrective actions), and manage their own processes and procedures. Only then will all the great advice provided in the SCMR article take you as far is it should.