Managing enterprise performance is a critical skill for any company, and the concept of Enterprise Performance Management (EPM) has been around for many years. It is basically a process that plans, monitors, and adjusts the performance KPIs and targets (and capabilities needed to hit them) needed to achieve the enterprise mission. It's basically the process of using balanced scorecards to create alignment – from the boardroom down to the activity level.
For procurement organizations, the concept of Procurement Performance Management (PPM) is no different, in that procurement is a ‘services business’ that must similarly manage its performance to stay aligned within procurement and with various stakeholders. The scorecard component of PPM is typically manifested through things like the “CPO dashboard,” or role-based scorecards for various staff members. But a key element is missing: the notion of Supply Performance Management (SPM). Many people are familiar with SPM as “supplier performance management,” and I won't try to create another acronym or usurp the current one. But supply performance management is really the “Big SPM,” functioning as a superset of supplier performance management.
Supply performance management is merely optimizing the management of supply performance (the “M of SP”) rather than just managing the performance of the supply management function (“P of SM”), which we described above as PPM.
“Big SPM” is about applying a closed loop management methodology to the performance of “supply” in its broadest sense. In fact, the efficient and effective improvement of supply performance is the core rationale of the procurement organization. Procurement is basically a semi-permeable membrane between internal stakeholders and supply markets. It helps the stakeholders improve the performance of supply that they get from suppliers. In other words, procurement is not looking out for its own performance, but rather derives its performance from how well it help stakeholders move the needle on supply performance metrics such as cost, delivery, innovation, risk mitigation, etc.
This difference of focusing on supply performance rather than procurement performance may seem subtle, but it is critical to signal to the enterprise that procurement is focused on helping them build the balanced scorecard of supply that is most important to them. Of course, this stakeholder scorecard must be aligned to procurement's scorecards (which inherently creates alignment between the two!) and the broader enterprise. Likewise, it also helps create a common “language” of a standard palette of KPIs that also links to the overall supply chain, various spend categories, and down to individual items, suppliers, contracts, and the local sites that interact with them.
“Supply” is fractal in the sense that it cascades down from the enterprise to the local level. Alignment must be created so that strategic enterprise objectives are translated to supply objectives at the highest level down to the lowest. This is obviously very challenging – but this is why SPM is such a core competency! It minimizes value destruction through misalignment of supply objectives down these various levels (and of course between procurement and the business) and also makes managing performance for procurement itself more efficient.
In the next edition of this series, we’ll drill down into the mechanics of SPM, some examples, and also examine the capabilities needed organizationally and from a technology perspective.