Category Archives: Supplier Management

Supplier Performance Management – Learn the Basics for Free!

Supplier Performance Management (SPM), which is defined in Wikipedia as a business practice that is used to measure, analyze, and manage a supplier’s performance to reduce costs, alleviate risks, and drive continuous improvement is extremely critical now that inflationary times are back, supply risk is reaching new highs every year, and GDP growth is minimal or flat around the globe. For some organizations, it’s the difference between life or death.

It’s a critical aspect of Supply Management, and one your organization should have a good grip on. If your organization is new to the SPM game, there are two great, free, resources that can start it on its journey.

The first resource is the Supplier Performance Management wiki-paper, which overviews the basics of

  • Creating an Effective SPM Process,
  • Aligning SPM to the Organizational Goals,
  • Choosing the Aspects of Performance that Will be Measured,
  • Segmenting the Supply Base for Optimal Application, and
  • Creating an Evaluation Strategy.

The second resource available to you is the Free Express Course from Next Level Purchasing on Managing Supplier Performance. This short course, sponsored by Sourcing Innovation, is free for all Next Level Purchasing Association (NLPA) members and teaches you how to:

  • develop powerful performance measures,
  • articulate the criticality of supplier performance,
  • select suppliers for a supplier evaluation program,
  • involve internal stakeholders in the supplier evaluation process,
  • decide between supplier evaluation methods such as supplier scorecards and system metrics,
  • determine if Supply Chain Event Management software will work for your organization,
  • reward suppliers, and
  • correct poor supplier performance.

To access the course, simply sign up for a Free NLPA Basic Membership. Both of these SPM resources are worth your time.

The Other 1%!

These days, we’re hearing a lot about the 1% — the percentage of the population who control over 35% of the nation’s wealth, and control, at a minimum, 23 times the wealth controlled by the average person. And while it looks good on the books, right now, this isn’t the 1% anyone wants to be in, given the ire directed their way. But that’s not the 1% this post is about.

This post is about the 1% of companies that have implemented ILO (International Labour Organization) compliant supplier codes of conduct that are monitored and enforced. As per a recent publication by Zurich and Rockwell Automation entitled “Safe Supply Chains Help Produce Sustainable Business”, only 43% of major US companies have implemented supplier codes of conduct. Of these codes, only 10% reference ILO conventions. In addition, only 25% of companies perform even minimal monitoring against their supplier codes of conduct. In other words, the percentage of companies that have codes of conduct that reference ILO conventions and that are monitored is 0.43 * 0.10 * 0.25 = 0.01, or 1%! Ouch!

This is a disgrace! This is not the 1% we want in the Supply Management world! Every organization needs to shape up and do something about this right now.

  • Step 1: Get a supplier code of conduct. If your organization doesn’t want to invest the time drafting its own, borrow one (such as the publicly available JLP Responsible Sourcing Supplier Workbook) and modify it as appropriate or simply state that your organization complies with all relevant ILO labour standards, summarized in the Brief Introduction to International Labour Standards, and you have the right to monitor and inspect supplier operations to make sure they do the same.
  • Step 2: Make sure all relevant ILO standards are referenced.
  • Step 3: Monitor suppliers and, with other customers, insure an audit is done on an annual basis (by a responsible, neutral third party)*.

This isn’t hard. Just do it!

*It’s too disruptive to a supplier, and too costly, for every customer to audit the supplier every year. Instead, big customers should band together and hire an independent third party who’s good at conducting audits to perform an annual audit and make the results available to all customers, who can collectively apply pressure to a supplier violating ILO and individually take issue with any aspect of the supplier code of conduct that goes beyond ILO that is specific to that customer.

Why is Supplier Relationship Management (SRM) Under-delivering?

It’s a good question, and it needs some good answers. As a result, I was drawn to Bill Young’s two-part blog (Part I and Part II) over on Procurement Leaders earlier this month as I have some ideas, but wanted to see if they matched up with the insights of others.

Most of his observations were correct, namely that:

  • There is a confusion over what SRM is.
    It’s not just software or handholding – as Mr. Young points out, it involves organizational structure; governance; supplier engagement model; joint activities; value measurement; systematic collaboration; and technology/systems.
  • Current incentives focus on short term results.
    Most organizations are laser-focussed on the mythical goal of “savings” and immediate payback, not long-term value generation.
  • Lack of clear accountability and who takes the blame when something goes wrong.
    So no one is incentivized to do anything beyond what they are minimally required to do.
  • Legacy attitudes and behaviours.
    Not only do many old-school negotiators believe that every deal is a win/lose zero-sum game, but organizations that need SRM most are broken and (still) believe that “coordination and relationship management” is not part of a well-oiled organizational machine (that should work like an automotive assembly line).
  • Suppliers’ unwillingness to challenge customers.
    They don’t want to speak up in case the extra air movement will rock the boat.

However, the observation that I believe is closest to the truth is the one pointed out by readers who noted the

  • Skills gap.
    There is a huge gap between the skills required for normal category management, and the competencies needed for complex, ongoing, internal and external relationships. (This is because, as SI has repeatedly pointed out, the average Procurement professional does not get nearly enough training.)

As far as SI concerned, the primary reason that SRM under-delivers is that it is not embedded in a category management lifecycle. Because it is misunderstood and because there is a huge skills gap in the average Procurement professional where SRM is concerned, it tends to be pigeonholed into the “procurement” part of the category lifecycle (which is phase 6 of the 9 phase strategic category management lifecycle), driven off of a balanced scorecard, and managed by a SPM (supplier performance management) solution. However, as pointed out in Part II of the strategic category management post, formal supplier management starts as soon as the contract is signed and doesn’t stop until the last unit of product is recovered or returned. And formal supplier management is only part of Supplier Relationship Management which starts with the first reach out to a potential supplier in the supplier identification phase and continues until a contract award phase where the supplier fails to win any additional business from you (and you brief the supplier as to why in an exit briefing).

In short, it’s underdelivering because it’s under-applied, undermanaged, and mis-understood.

Decideware: An End-to-End Agency Lifecycle Management Solution Part III

In our first post, we re-introduced you to Decideware, global providers of an end-to-end Agency Lifecycle Management (ALM) solution, with offices on three continents (in Sydney, San Francisco, and London) and quickly overviewed the five core modules of the integrated ALM solution that they offer. Then, in our last post, we dived into the Capability and Scope of Work modules and quickly touched on the briefing module. Today, we are going to dive into the Evaluation and Dashboard Modules.

Evaluation

When it comes to cost, most Marketing agencies have a terrible grip on this issue. Generally speaking, they know what they were budgeted at the start of the year, and what they spent at the end of the year when the Controller or CFO tells them. They do a terrible job of tracking costs by project, and if you asked them budget vs spend vs results for any one Agency, you’ll get a blank stare as if you asked them to explain why the tentative confirmation of the Higgs particle by the Large Hadron Collider is important when it comes to the validation of the Standard Model. It’s not a good state of affairs.

However, if they had a proper Agency Lifecycle Management solution where they could enter all cost information at the desired level of detail, or force the Agency to (if the Agency wants to get paid), the state of affairs is completely different. After every phase, they can find out where they are vs. where they should have been and, possibly with Supply Management’s help, take corrective action.  In addition, they could track feedback and get an overview of the supplier’s running (balanced) scorecard (as this module grew out of their initial Supplier Performance Management offering).

The evaluation module, combined with the reconciliation sub-module (that is tied to the scope of work and collects the quoted cost data) allows an Agency (Relationship) Manager to dive into actuals vs. cost for any time period, at any level of detail, at any time and determine how spending is tracking according to budget. If costs are high, they can drill down into the primary components, and go right down to the resource level and, possibly, determine that Joe, the highly paid creative resource, who was budgeted to work 10 hours, worked 100 hours. They can then determine if this was a data entry error or a grossly inaccurate estimation on the part of the Agency, and use this data in the post-mortem Agency evaluation.

In addition, they can bring up the Agency’s (balanced) scorecard (history) and see (and compare) the Agency’s performance on each phase, for the project, and across all projects.  They can even compare Agency scorecard to see if an Agency is performing average, better, or worse than the other approved agencies.

Dashboard

As noted in our first post, the dashboard, another new module from Decideware, provides a unified interface to all of the modules and functionality contained in the system. From the dashboard, which is designed to work like the user interface to a web-based cube-based spend analysis system, the user can search all of the Agency data, retrieve lists of agencies by geographies, capability, scope of work, and other relevant criteria, and drill down into any data category until they retrieve the (fine-grained) data they are looking for. The best thing about it is, unlike the dashboard offerings of many spend analysis or Supplier Information Management (SIM) providers, it’s almost devoid of fancy graphs and charts. Decideware understands it’s the data that matters and focussed on building an easy-to-use, yet powerful, search, and saved the real estate to display the requested data in an easy-to-understand tabular view with as much drill-down support as you will need.

In addition, from the dashboard, the user can quickly get to all of the reporting functionality embedded in the system, which includes scope analysis reports that summarize resource and fee schedules; organizational analysis reports that summarize costs and actuals; comparison reports that allow the user to compare agencies, fees, capabilities, and functions; and contract generation reports that can generate scopes of work and supporting contracts. (The platform has embedded contract management functionality just like it has embedded SIM functionality.) All of the data can be exported to Excel, and the system can automatically generate work-grids and rate cards.

Overall the system is well-designed and so easy to use that even a Marketer can do it. 😉 So if you want a solution to bring to the Marketing table, make sure Decideware is on your short-list.

Decideware: An End-to-End Agency Lifecycle Management Solution Part II

In our last post, we re-introduced you to Decideware, global providers of an end-to-end Agency Lifecycle Management (ALM) solution, with offices on three continents (in Sydney, San Francisco, and London). We quickly overviewed the five core modules of the integrated ALM solution that they offer, and indicated that we would dive into them in the next two posts. So without further ado, here we go.

Capability

The capability module walks you through the six-step process of gathering appropriate information and approving the Agency as a potential supplier to the organization.

  1. Entity
    The first step is to gather the firmographic data, including the geography, the number of employees, the administrative and legal contacts, the revenues, the primary office locations, and vendor status information
  2. Type
    The next step is to determine the primary, secondary, and tertiary type of the agency. Is it creative, digital/interactive/social media, planning, relationship marketing, public relations, branding, investor relations, etc? An agency can only have one primary focus, and that focus must contribute to 50% or more of revenues to be primary. Similarly, it can only have one secondary focus, and that focus should contribute to 25% or more of revenues. Any additional focii are tertiary.
  3. Specialties
    In this step, a more complete picture of the Agency capability is created through the gathering of supporting data related to market segments, experience, media creation, etc. to fill in a more complete picture of the suitableness of the Agency for the company.
  4. Conflicts
    The next step is to determine if there are any potential categories of conflict for the company. If you’re in Pharma, and they are currently working on a campaign for a new heart disease prevention drug for your competitor, then you don’t want them working on a campaign for your heart disease prevention drug.
  5. Engagements
    What engagements for your company has the Agency worked on, and what engagements is the Agency currently working on? (It’s not uncommon to find out that another Marketing division in another geography is already using another office of the Agency for their campaign!)
  6. Approval
    Once all of the data has been gathered, and an individual with decision authority has decided that the Agency is qualified to work on (select) marketing campaigns for the organization (subject to no conflict), the Agency is approved as a potential vendor.

Scope of Work

The scope of work module walks you through the six-step process of creating a scope of work and approving the scope of work for execution by the Agency.

  • Scope
    Defines the scope of the project being undertaken – duration, geography, contractual details, and summary.
  • Objectives
    What are the objectives? More visibility? Market share? Better brand ratings? And how will they be measured.
  • Work
    The specific deliverables – tv commercial, print advertising, radio segments, etc.
  • Staffing
    The staff available to work on the projects.
  • Costs
    The costs, according to the costing model specified. This is one of the highlights of the Decideware Scope of Work solution. With a custom Excel-like spreadsheet interface, costs can be captured by resource, by function, by campaign, or by deliverable to the desired degree of detail. This not only lets the organization get a grip on what the main cost components are, but how one agency compares in fees and rates to another.
  • Approval
    Once all of the data has been gathered, and an individual with decision authority has decided that the scope of work is complete, a contract is cut and the work can begin.

Briefing

One of Decideware‘s newest Agency Lifecycle Management module, this module is designed to capture the day-to-day interactions with the Agency. It’s like a Community Communications Management and Balanced Scorecard rolled into one. Since this is still in beta with select customers, we’ll cover it at a later time once the first version is finalized and we’ve dived deeper into the nuances of Agency Relationship Management.

Tomorrow we’ll cover the Evaluation and Dashboard modules and talk about some unique capabilities of the Decideware platform.