Supplier Performance Management II: The Road to Success

July 29th, 2006 at 09:00am Michael Lamoureux

Yesterday we introduced you to supplier performance management, a methodology for reducing supply risk, driving continuous cost reductions and performance improvements, and accelerating savings. Proactive supplier performance management programs can improve service levels by 10 to 30%, improve invoice accuracy by 10 to 20%, and reduce inventory levels while increasing on-shelf availability. (For more advantages of supplier performance management, check out Aberdeen Group’s recent Supplier Performance Measurement Benchmark Report.)

Today we are going to talk about the road to success, some of the challenges you will face, the requirements you will need to address, and the operational framework that will get you there. Tomorrow we will continue with a discussion of some best practices and steps to success.

Successful supplier performance management is a continuous cycle of supply and capability assessment, performance monitoring, and improvement identification. A good starting point is the Aberdeen C⁵ operational supplier management framework: connect, coordinate, check, control, and cultivate. (Aberdeen uses monitor and improve, but I prefer check and cultivate.)

The cycle starts with integrating suppliers into an exchange, proceeds to a synchronization of buyer requirements with supplier capabilities, implements scorecards and metrics to measure performance, tracks performance against SLAs, identifies exceptional situations, resolves problems and disruptions according to business objectives, and employs analytics to identify defect patterns and unpredictability to eliminate root causes and identify new opportunities to remove cost from the supply chain.

The cycle defines a number of requirements that must be met before a good performance management methodology can be put in place. Collaboration systems are required to successfully integrate suppliers into your systems and processes, visibility is required to properly align supplier capabilities to your requirements, well-defined metrics need to be defined to asses performance, and monitoring systems that support granular data need to be implemented to automatically detect deviations and exceptional events. Data needs to be timely and reliable in addition to your suppliers.

These requirements are wrought with challenges. Without good data collection and analysis systems, the detection of defect and supplier unpredictability patterns can take weeks or months. Without good collaboration systems, coordinating internal functions is challenging enough without trying to coordinate internal functions and external schedules. Thus, the selection of appropriate technologies is critical.

A synchronized view to the data for all internal and external shareholders is critical. There can be no meaningful discussion about performance improvement if different users are measuring data points against different metrics. However, this is challenging since every company operates differently, follows different processes, and interprets data in different ways. Again, good technology choices will help you in this endeavor.

So, how do you get to a synchronized view with shared scorecards and metrics? Hardwork, dedication, and outside expertise. I firmly believe that this is not an area that you should attempt to master on your own. Bring in consulting experts to get you on your feet quickly and deploy best of breed solutions. Although I’m not going to recommend a specific solution, I will point out three companies in the space, in alphabetical order, that you could start with in your search to meet your technology and consulting needs: Apexon, Nexprise, and SupplyWorks. Just make sure that whomever and whatever you select for supplier performance management integrates well with the e-Sourcing and e-Procurement systems you are using, since SPM tools are another piece of the framework, and not a be-all end-all solution.

For more information on supplier performance management, see the Supplier Performance Management: Measure, Analyze and Manage Suppliers in a Supply Organization wiki-paper over on the e-Sourcing Wiki.

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Entry Filed under: General, Global Supply Issues/Risk, Supplier Performance, Suppliers