Supplier Performance Management: Is the Whole the Sum of its Parts?

Spend Matters welcomes a new post from frequent contributor and SPM guru, Sherry Gordon ...

When managing supplier performance, firms are faced with the challenge of figuring out from what angle to view supplier performance. Should they look at the supplier as a whole? By product category? By part? By site? Ideally, you should be able to look at performance from any perspective. But that isn't always practical.

There are disadvantages to each of these perspectives. Ideally, you should be able to look at performance at the part level and roll up to the site. The challenge is that with multi-site suppliers, not all sites make the same product. And, even if several sites do make the same product, there can be vast differences among them. Sites may be located in different countries or regions, which can create varying supply chain risk factors, such as political, geographical, and logistics and have different impacts on performance. Obviously, one supplier site that makes ordnance and another that makes pipe fittings may use forging processes, but can't be consolidated to the overall supplier level for performance purposes without losing important granularity. Within the same site, if there are different product families, then a part-level quality problem in one line can impact one customer's shipments while another part problem may not. So part-level visibility can be useful in this case.

Another factor is variability of management and culture, which explains why a multi-site supplier may behave like completely different companies, which perhaps they may have been at one time. For example, one site may have implemented continuous improvement methodologies and another site may not yet have done so. Thus, quality and delivery problems coming from one supplier may be originating from different sites in different locations, even for the very same part or product. Looking at a multi-site supplier as a whole does not help get at the root causes of performance problems in this case.

Looking at performance by product category within a supplier can be useful for understanding specifics about the items in the category. It works very well for sourcing, since specific category expertise enables better sourcing. But when it comes to performance management, categories are less useful. For manufacturing suppliers, managing performance by category can be like looking at the trees and missing the whole forest.

In working with companies on supplier performance management, I've found that looking at performance by supplier site rather than by the whole supplier enterprise or by category has worked well. If there are different product lines within one supplier site, I have found that the overall management and culture of the supplier ultimately has the greatest impact on performance, though there are always exceptions, of course. And, your suppliers' ability, in turn, to manage their own suppliers is a critical success factor in managing both supply chain performance and supply chain risk.

Sherry Gordon

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