The Three Deadly Myths of SPM

Today we are happy to bring you some very thoughtful comments from Kevin Brooks at Apexon, a leading vendor in this section of supply management. Kevin’s background is originally with Ariba and now heads up marketing for Apexon in San Jose.

Anyone with even a passing interest in supply chain issues will tell you that managing supplier performance is important. As E-Sourcing Forum and others have been pointing out during this week’s series of posts, effective supplier performance management yields bottom-line savings and top-line competitive advantages most companies can’t afford to ignore. Analysts have been saying this for years. Consulting firms have been preaching the benefits of a collaborative supply base since the dawn of time. Software companies continue to promote a variety of SPM and supply management solutions.

So why is good supplier performance management the exception rather than the rule in most manufacturing companies?

I think part of it has to do with the name. “Supplier Performance Management” or “SPM” is too much like SRM. Too techie. Too tactical. Too prone to spark debates about whether you mean, “supply” or “supplier.”

Whatever you choose to call it, SPM is a more nuanced concept with more long-term benefits than straightforward cost cutting. U.S. automakers are learning that lesson the hard way. A recent survey by Planning Perspectives, a Michigan-based research firm examining supplier relations in the auto industry, found that GM’s relations with its suppliers are at an all-time low. The survey also found that Tier 1 auto suppliers throughout the industry are shifting capital and R&D investment, service, and support away from customers who treat them with a single-minded focus on cost, like GM. Other U.S. carmakers with an equally single-minded focus on cost fared poorly as well compared with generally strong showings by the Japanese, who took a more balanced view of supplier performance. As a result, suppliers see value in improving quality for Japanese OEMs, whereas they just maintain quality for those in the U.S.

But let’s suppose a company does come to some agreement about the meaning of SPM, and what it can do for them. That’s when they fall prey to the Three Deadly Myths of SPM.

Myth #1: You’ve got to fix the data first

This is a version of the often-repeated “garbage in, garbage out” mantra. I saw a variation on this myth when I was at Ariba in the early days of e-procurement. Then, the issue was getting data into online catalogs. Over time it became apparent that customers who went “all in” (buying everything through a single system) even with just a small percentage of supplier-enabled catalog content, were getting far more value than those who waited and conducted online commerce solely with suppliers that had been catalog-enabled. The lesson was that more value came from getting as much spend as possible flowing through a single system as quickly as possible. Getting the spend managed in this way actually accelerated the process of cleansing the data.

It is reasonable to assume that you need good data before you can embark upon a data-intensive effort such as SPM. Just don’t let fear of perfect data become the reason for significant delay. Any competent SPM vendor should be able to deal with your data today, and they should also be able to get you value from what you’ve got, regardless of data quality. Besides, as one manufacturing company CPO recently told me, if the data is truly garbage, getting started with SPM is often the fastest way to begin cleaning it up.

Myth #2: Supplier scorecards are the same thing as SPM

The danger of this myth is that it equates reporting with managing, and it keeps companies from seeing SPM as something more than a tactical exercise in monitoring suppliers. Scorecards are an important component of SPM, but they are not the same thing as having a strategy and a process for getting more value out of your supply base. For one thing, they take too long to produce. Most scorecards require significant manual effort and are little more than custom Excel spreadsheets. Quarterly scorecards are the norm because it takes that long to assemble the data in most companies.

There is some indication that this may be changing. AMR Research, for example, sees investment in performance scorecards and dashboards jumping 26% to $5.2 Billion this year. One hopes that this is more than just a shuffling of deck chairs, and that companies use the new and better tools they are buying to graduate from information-gathering and reporting to true proactive management of their supply base.

Myth #3: Once we get our ERP upgraded, we’ll have what we need for SPM

If you assume that ERP will truly deliver most of the required SPM functionality (something that took nearly a decade in e-procurement, and some argue still hasn’t happened), the main danger in this myth is unnecessary delay and increased risk. I’ve read estimates that a $1B manufacturing company experiences 30-50 moderate-to-severe supply disruptions a year, each costing about $100,000 to resolve. Those disruptions aren’t going to wait for the ERP upgrade, so why should the supply teams?

Rather than tackle this myth head-on, which will inevitably end up as an unproductive battle with the IT department, I would suggest that the SPM strategy begin with the ERP vendor itself. Is the supplier able to deliver what the business needs, at the quality level expected, and in a reasonable timeframe? If so, then by all means use them. If not, look for alternatives.

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I think the up tick in interest in SPM that analysts like Aberdeen and AMR Research are seeing is a hopeful sign, but unless interest translates into action, I suspect that SPM will continue to be the exception defining leading companies rather than the rule defining industry best practices. So what will it take? For starters, companies need to realize that managing supplier performance is about more than just cutting costs. Then, take aim at the three deadly myths of SPM. >From there, the market offers a wide range of solutions to help expedite the journey.

Oh, and somewhere along the way we probably need to come up with a better term.

Kevin Brooks – Apexon

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