What Are You Really Measuring? Effectively Managing Supplier Performance

Spend Matters welcomes this guest article by Jim Kiser of GEP.

You can't manage what you don't measure. This is an old adage that is still pretty accurate today. Really, if you don’t put in place the criteria to measure something you don't know if it is improving or getting worse. Managing for improvement in today’s business climate is essential, and with regards to supplier performance management, you have to measure to see what is improving and what is not.

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Over the years I have found it interesting that most suppliers, while not being managed very well by procurement professionals, tend to know more about you as a customer than you know really know them as a supplier. Sales people are trained over years and at large expense by their organizations to know as much about your company, its capability, needs, budgets, stakeholders/decision makers and future goals. Why do buyers do such a poor job overall at understanding the critical areas of their suppliers?

It all goes back to supplier management and departmental expectations. Over time, procurement becomes focused on really getting the deal done as expeditiously as possible, sometimes under time constraint from other department’s stakeholders and management, with the intent to “just get a good price and the contract in place.” What most fail to do in the front end is to plan and prepare accordingly, before a contract comes to term, their current suppliers costs, capabilities, performance guarantees and improvements that can be offered as part of the commercial deal. Even in the back end, as a result to putting in loose or less than optimal/rigorous performance measurements, they have allowed the supplier to control and manage the contract and commercial arrangement more effectively than them. Really, the supplier should be working for your organization, not your organization working for the supplier.

Here are some steps that can be taken in the front end to make sure you are getting what you measure:

  • Understand not only your suppliers’ capabilities and costs but understand the overall supplier market.
  • What are the business needs of my organization for this spend and whose capabilities can match those needs?
  • Do I have the best decision maker from the supplier/suppliers, not just a salesman?
  • What checklist have I created for pre- and post-contract negations with suppliers?
  • Have I detailed, validated and reached agreement regarding all supplier performance requirements for the deal before I negotiate?
  • Has the optimal supplier relationship strategy been decided before I engaged into the commercial deal? Is leverage or a strategic relationship needed?
  • What penalties, financial and otherwise will I put in place to either correct poor performance, impose financial costs or replace the supplier altogether if they cannot meet our requirements over time?

Putting in place “what you can measure” will help your organization keep a closer eye on the performance of a supplier, and really, in the end will allow you to create a more viable, robust and optimal supplier performance program. This can only lead to better costs, capabilities and performance overall.

For more interesting thinking on procurement, visit the GEP Knowledge Portal.

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