Applying Net Promoter Scores to Procurement and Suppliers: Lessons from IT and Vendor Management
As I continue my coverage of lessons learned for procurement from Lisa Erickson-Harris’s article in Nearshore Americas, Vendor Management Heads Speak Out: The Trouble With IT Service Quality, I’ll zero in on the area of net promoter scores – a topic that is likely very familiar among those with a marketing (and sales) background but less so for procurement, operations and IT managers. The concept of a net promoter score is simple – having multiple stakeholders and those impacted by supplier decisions answer the question what is the net (positive or negative) view of a company (or supplier) and subsequently, do we (as an organization) want to keep working with this supplier.
Tim Norton, Director of Vendor Management at UPS, captures it perfectly in the article:
“One approach to maintaining the pulse of the outsourcing relationship is the Net Promoter Score. This technique enables an enterprise to contribute to the determination of whether or not it makes sense to keep a service provider onboard. It uses a single question: Would you recommend the outsourcer to a peer? A range of stakeholders in the organization are questioned, responses are averaged using a ten point scale. The service provider needs to maintain a high average when measure each quarter or the company begins the process of moving to a more effective provider. This approach uses overall satisfaction and avoids nitpicking details that may not add value.”
How can we apply net promoter scores more broadly to procurement? For one, we can embed them as a central KPI in supplier performance management (SPM) programs. But even more fundamentally, we can tie them back to contracts and define the expectations required by them for suppliers. For example, in a manufacturing environment, if a supplier’s Net Promoter score drops below a certain number (based on commonly agreed to measurements) the organization shall have the option of terminating a contract if a remediation plan is not successful and having the supplier pay for switching costs, such as tooling, to another vendor (or having these costs subtracted from final invoices as dilution).