In this second post in the series on key process steps for supplier performance management (SPM), we’ll turn our attention primarily to monitoring and administering a program once it's up and running. As a reminder to those who may have missed the first part of this column, I'm basing many of these suggestions on BravoSolutions' thinking about the best way to drive SPM adoption inside a company. In many cases, Bravo's experience suggests--and my own research has largely confirmed--that companies often deploy SPM solutions in tandem with other initiatives. Even though SPM should stand alone as a program for companies to reduce total costs, improve internal shareholder satisfaction, lower risk, and drive better and more transparent supplier relationships, it appears (based on empirical evidence) that only a minority of companies are able to prioritize SPM on a stand-alone basis. Rather, they oftentimes roll SPM capabilities out as part of a broader technology initiative, usually tied to sourcing, but also potentially tied to spend analysis or other related initiatives.
As part of the ongoing monitoring of supplier performance, many companies opt to survey internal stakeholders and their suppliers on a regular basis. Taken alone, these types of qualitative measures are insufficient to develop a complete lens into actual performance, but as part of a broader roll-up into a specific KPI, or multiple KPIs, survey responses can provide useful insights. The key to making this type of information count is not only survey design (e.g., question types, length, etc.), but also consistency of execution to create a baseline of information from which to measure changes over time. In many cases, procurement organizations will find even less structured information than other qualitative inputs in the form of comments and observations appended into a particular measure or the broader supplier profile important, too.
Companies must use structured and unstructured measures as well as other scorecard inputs to generate scorecards on a regular basis. Many organizations opt for quarterly updates. Even though it may sound like a mundane element of managing supplier performance, the actual publication, review, and roll-out process for scorecards is important as well. Allowing other users to review information before you publish it to the broader organization and suppliers is one step in the process. This review process may allow supplier performance management leaders a chance to identify or highlight scorecard elements (e.g., related unstructured comments) in the context of ultimately presenting the finalized scorecard to the broader group of stakeholders and the supplier themselves.
Perhaps the most important element of supplier performance management is managing and analyzing supplier trending data over time. Organizations must understand which metrics to pay close attention to versus those they can filter out or flag to revisit later. As the ante to looking at performance trending, Bravo suggests looking at 12-month moving averages from a visual indicator perspective. Automated alerting based on performance deviations (percentage-wise or in absolute measures) that tells stakeholders to look more closely at results is also a useful measure to bring more users into the process around potential issues. The trending process should also allow users to both drill down into more detailed layers for additional insight into performance trending as well as roll-up information (e.g., from individual ship-to locations or individual supplier facilities, from an individual supplier to its parent entity, etc.).
The final essential component of any supplier performance management process is the ability to drive corrective action plans and related requests. In an SPM tool, a supplier development team may opt to include key process steps and plans for procurement teams to execute against, depending on a particular circumstance or deviation (e.g., a performance degradation may set off a series of additional surveys and process steps which may ultimately result in a site visit and specific correction action steps). In the action planning stage, companies must be able to track the progress towards a desired (or not desired) end-state as well as collaborating with other internal stakeholders and suppliers based upon a shared set of information and planning activities.
I hope this exercise in sharing one high-level philosophy around supplier performance management roll-outs was useful. If you have more ideas or best practices to include, please feel free to post a comment. Or, if you have more to say on the subject than you can easily contain within a comment, please drop me a line and I'll be happy to print a guest post (or a series of guest posts). I'll plan to share my thoughts on the subject as well.