Beyond the Traditional SRM Scorecard: Supplier Management Metrics to Diagnose Your Supplier Management Operations (Part 1: Search and Enablement)

Editor’s note: This is a refresh of our 2017 series on supplier management metrics, which originally ran on Spend Matters PRO.

In recent years, prominent procure-to-pay (P2P) providers have increasingly offered opt-in peer benchmarking capabilities. This newly available data has changed the way consultants and advisors evaluate procurement performance. Benchmarks and key performance indicators (KPIs) once analyzed on a periodic basis, for instance, are now becoming embedded into procurement processes and continuously updated with new information as it becomes available.

Because of this, procurement organizations are becoming increasingly aware of the benefits measuring performance based on a standard set of benchmarks and KPIs can bring to overall P2P performance. Yet the same cannot be said of supplier management activities, despite the significant cost and risk they pose to procurement. In fact, Spend Matters has found that most procurement organizations are not yet measuring a complete set of KPIs to manage the lifecycle of supplier activities and associated supplier information. Solution providers have not helped this situation, either, instead glossing over supplier management in favor of KPIs and peer benchmarking services in core transactional procurement areas.

It’s time to change this. To give procurement organizations operational metrics that mirror the KPIs available in P2P, this multipart Spend Matters PRO series provides an action guide for measuring and quantifying some of the benefits of “day in the life” operational supplier management activities. It also provides a roadmap and foundational input for building a business case to support these initiatives, including investments in dedicated technology solutions and tactical KPIs for managing them.

Part 1 of this series offers diagnostic KPIs for self-assessing supplier search and enablement performance. For each metric, we include commentary and insight on why it matters to procurement, guidance on enablement and measurement, suggestions for procurement technology systems that can be used for support and variable inputs for tracking.

We also encourage all Spend Matters readers, including non-Spend Matters PRO subscribers, to download our recent 2017 landscape definition and overview on supplier management and supply risk management, which provide details on the different technical components of these solution areas.

Supplier Search and Discovery: Background

Despite the constant march to rationalize the supply base in larger procurement organizations, procurement teams will always need to find and qualify suppliers to support specific initiatives (e.g., supplier diversity). Most organizations, however, have not defined the supplier search and discovery process steps in the same rigorous manner as they have strategic sourcing or transactional enablement processes. Many procurement groups, even advanced ones, often loosely couple supply market intelligence research from their core procurement systems.

The KPIs outlined below can help procurement organizations begin to think about, quantify and measure these efforts while also driving toward more standardized processes — often leveraging common technology at the core.

Supplier Enablement: Background

Aside from transaction-based enablement (e.g., mapping or standardizing on data structures/formats for document exchange), supplier enablement and the ongoing management of supplier information — whether to support P2P initiatives or strategic procurement activities — is fundamentally a data-driven exercise. Incorrect or missing information, as well as the various cycle times to manage this information when not fully automated, can prove costly to both procurement and finance organizations.

As with supplier search and discovery, it is possible to quantify the costs of these activities through specific KPIs:

Building a KPI and Cost Model  

Spend Matters has built a working Excel model that includes assumed costs of different resources and activities covering the areas of search and discovery and supplier enablement from a supplier data perspective.

We encourage Spend Matters PRO members with advisory time to reach out to their client manager to learn how this model may be appropriate for their requirements. It can be provided “as is” to advisory clients or custom tailored for unique organizational requirements by a member of our team as part of a specific client program.

Up Next

In the next installment of this Spend Matters PRO series, we turn our attention to additional KPIs for supplier management activities focused on the cost to support vendor credentialing and compliance activities.