Rolling out a Supplier Performance Management Program — Key Process Steps (Part 1)

The other week, I had the chance to catch up with an old friend and colleague, Paul Martyn, who runs marketing in North America for BravoSolution. According to feedback I've heard from several parties who've looked at their tool recently, BravoSolution has one of the stronger supplier performance-management (SPM) solutions in the market, tied to an integrated sourcing and spend analysis suite (I've not seen a demo of it in the past year, so I won't pass judgement on the current version). Yet like other providers, including Emptoris, which also has a solid performance mousetrap in this area, BravoSolution has found it somewhat challenging to build high-growth momentum around just supplier performance management independent of other solutions like, say, e-sourcing or spend visibility, which are often discrete purchases. One of the fundamental questions here is whether SPM should stand alone as a separate (yet integrated) technology and process, or whether it should be an extension of other areas. Quantifying the value of SPM is also a constant challenge.

I asked Paul to share BravoSolution's philosophy around how companies should best think about defining and rolling out an SPM strategy, from a process standpoint. Sherry Gordon, a frequent Spend Matters contributor, has her own opinions on the subject, but my analysis suggests that there's quite a bit of overlap between what companies like BravoSolution and Emptoris (to which Sherry sold her last company in this area) posit as the best way to approach the issue. In this series, I'll share Bravo's philosophy -- which I think is a good one -- about how to start making SPM a stand-alone but tightly coupled process inside a procurement organization, to give it the attention it deserves.

Regardless of whether you manage an SPM program manually in Excel (not preferred for various reason) or in a dedicated SPM application, the first step in rolling out a program is to put in place an overall performance scoring mechanism by which to measure and compare different attributes and suppliers. This may range between 1-5, 1-10 or 1-100. After this, it is essential to define how discrete scores represent a specific level of performance, and what kinds of attributes comprise meeting or exceeding a defined level. With these basic characteristics defined, the next task is to begin to capture and incorporate organizational supplier management and performance management strategies within a toolset if the processes were previously managed offline.

With these capabilities in hand, it's possible to define a baseline metrics or scoring templates representing collections of different performance categories (e.g., innovation, customer satisfaction, responsiveness, on-time performance, quality, etc.) and specific key performance indicators (KPIs). The scoring template allows users to define how important different category types are in an aggregate performance score (and to eventually track and monitor these areas independently). Next, procurement and supplier development teams must develop additional insight and context around what each dedicated category scorecard will manage, including frequency of collection/review and the types of specific drill-down information necessary to capture on each.

The final step we'll cover today is around identifying and defining data inputs for each performance category that an organization wants to track, as well as defining and assigning authority to evaluators to provide both qualitative and quantitative inputs. In this area, for a "qualitative measurement such as "consistent service quality," you may wish to ask a number of stakeholders to rate the supplier's performance that quarter on a scale of 1-100 in the manner discussed above. But if you're tracking a more quantitative number, such as on-time delivery, which can be calculated from orders and receipts in your ERP system, you will probably use an integrated data source such as a quality metric like PPM, which comes directly out of ERP, as the basis for the measurement.

Spend Matters' experience suggests it is essential, with integrated data sources, to assign specific ranges based such factors as volume levels by category and frequency. For example, a low-volume item with 20 quality escapes compared with a high volume item with 50 quality escapes should meet a scoring threshold based on its specific business impact based on volume levels as a component of an overall percentage of items received rather than based on absolute numbers.

Stay tuned for further analysis of this topic in the coming weeks. Putting a working SPM program in place requires thinking through as many of the details up front as possible versus learning as you go. Spend Matters contributor, Sherry Gordon, is an expert with helping companies define and set up SPM programs for success. Her book, Supplier Evaluation & Performance Excellence, is a great place to start to learn more about this topic if you're curious to go deeper on the subject.

Jason Busch

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