In our last post, I alerted you to a recent SIG article and some posts on Robert Rudzki’s Transformation Leadership blog that had some tips on how to get started with an SRM program and recognize suppliers. In today’s post, I’m going to alert all of you checklist cherishers to an article that appeared in the Supply Chain Management Review last quarter that should also help you down the supplier relationship road.

In a “10-point Action Agenda for Strategic Supplier Relationship Management”, Marc Day, Greg Magnan, and Jon Hughes put forward, as expected, a 10-point agenda for action. In brief, their action agenda is:

1. Assess the Current Situation
2. Build the Business Case and Compute Your ROI
3. Establish a Budget and Commit Resources
4. Establish Key Metrics
5. Establish Your Processes
6. Educate all Involved Parties
7. Manage the Relationship
8. Work Towards the Benefits
9. Share the Rewards
10. Keep on Top of Your Performance Metrics

This is a good starting point. The only big things to add are:

• Put True Leaders in Charge
• Enable Your Suppliers

It could take some serious leadership skills to pull a new program off successfully without alienating your current supply base and your suppliers are more likely to buy in if they see clear benefits to them from day one.

We all know supplier management is important, especially the relationship aspect. We all know that if we don’t manage the relationship, then it could be hard to manage the performance and even harder to manage the risk. But what we don’t often know is where to start.

To that end, an article recently appeared on SIG‘s site that complemented an earlier series of posts on Robert Rudzki’s SCRM “Transformation Leadership” blog which, when taken together, give you a pretty good start.

In “Supplier Relationship Management – How to Get Started with the Program”, Pamela Schott noted that communicating and dealing with a large and diverse supplier community on a daily basis can be a challenge for any organization, and that, when implementing an SRM program, it is necessary to establish and gain executive buy-in on clear, concise objectives that align with the organization’s primary business goals.

She also noted that suppliers should be segmented according to risk and business impact, with the implication that high-risk and high business impact suppliers need to be carefully managed. A segmentation allows you to look at your supply base more pro-actively and identify opportunities to realign the management behaviors for suppliers based on the outcome.

In addition, you should scorecard your suppliers on a regular basis on key internal metrics, such as cost, delivery & support, administration & ease of doing business, quality & partnership, and technology. This will provide you with an understanding of high performing versus low performing suppliers and help you identify where additional effort needs to be extended.

In addition to managing your suppliers, you should also recognize them. As Robert Rudzki points out in “The Role of Supplier Recognition”, recognizing a supplier that does well often yields:

• further performance improvements
• improvements from suppliers who want to be recognized

… and this results in increased ROI across the board.

How should you recognize your suppliers? Robert Rudzki recommends an annual event where your “best of the best” suppliers are publicly acknowledged. Just be sure to note that, to pull this event off right, it will require leadership, effective program management, commitment from top management, a budget, and a long lead time. But considering the ROI potential, it could be worth it.

With skyrocketing costs and stagnant growth, performance is becoming ever more important to your supply chain. But how do you insure you get it? You start with measurements – against good metrics. Today we’re going to tackle supplier metrics.

Back in the fall of 2005, CPO Agenda ran an article titled “Supplier Metrics that Matter” that contained some good advice for developing good supplier metrics – including the following checklist that needs to be highlighted and expanded upon.

1. Measure
   Specifically, measure what is important – not just what’s easy. For example, prompt invoice delivery is easy to measure, but what’s important is invoice accuracy.
2. Develop and Utilize
   Metrics and outcome measurement. Utilization is the key. If you see a performance metric dropping, dig in, find out why, engage with the supplier, jointly develop a corrective action plan, and make sure it’s followed through. Otherwise, the metric will likely continue to drop.
3. Accept approximation
   Some critical dimensions, such as the quality of the working relationship and strategic value, will involve subjective measurements by experts. They won’t be perfect, but without any assessments, you’ll have no foundation for improvement.
4. Embed the Metrics in your Supplier Management Processes
   This process should include a discussion of how a supplier is to interpret the metrics, how they could go about improving their performance (and becoming or staying a strategic supplier), and about how they can improve the quality of the relationship. Furthermore, this conversation should be two way and the supplier should be able to highlight processes, requirements, or directives that are prohibiting them from doing as well as they could. For an extreme example of how arbitrary directives can greatly increase cost or decrease performance, let’s take Alan Buxton’s example of why project design matters. The UK Ministry of Defence was mandating waterproof matches in boxes of 17. However, most suppliers produced these in boxes of 25 by default. In order to supply boxes of 17, the supplier had to unwrap and repackage boxes of 25 into boxes of 17 which increased costs by 300%!
5. Jointly Define the metrics.
   This will insure that both parties understand the metrics, what the goals are, and what needs to be done to meet them. It also makes sure that the metrics match the intentions. For example, if you want to insure rapid replenishment, you shouldn’t be measuring just average delivery time, because replenishment will also require the supplier to produce the goods as well. You need to be measuring average turn-around time from the time the order is placed.
6. Share Competitive Data
   If you want a supplier to understand how well, or poor, it is performing, you need to let it know how well it is doing with respect to its peers, in aggregate and individually. (Just be sure to cleanse the competitive data of identifying information.) If you’re telling your supplier that 93% on-time-delivery is bad, then it needs to understand that average performance is 97%, for example.
7. Focus on Value
   Don’t define metrics for the sake of defining metrics – make sure there is an associated value to be gained by their definition. You can define a metric on everything – delivery, cycle time, invoice processing time, etc. – but if you define too many metrics, or too many metrics that don’t allow you to improve the overall value of the relationship, then you’ll get lost in the sea of data and not make much progress. Start by defining the major operational areas of importance and identifying the three to five most relevant metrics. If you get them right, you’ll likely find that they’re all you need.