What is Supplier Performance Management?
You can’t manage what you don’t measure!
Large organizations spend up to 80% of their cost base with thousands of suppliers globally. However research shows that up to 75% of the value identified when developing a procurement strategy is lost, because delivery of the benefits identified is not managed. In a world where companies cannot rely on price alone to achieve value, the effective management of suppliers constitutes a major lever to success on a local as well as a global level.
A company that deploys effective Supplier Performance Management (SPM) ensures that a supplier’s performance meets the expectations defined in the contract and against market norms. It includes the management of actual performance, identification of performance gaps and agreement of actions to achieve desired performance levels. SPM not only ensures that those benefits identified in the contracting stage are delivered, but that value delivery continues for the life of the contract. As companies increasingly focus on their core competencies and outsource a greater percentage of work, their success becomes ever more dependent on the performance of strategic suppliers. Ultimately, the objective of SPM is to improve the performance of all parties involved in the contract and Service Level Agreement.
Performance Management Choices
Organizations face a number of choices in dealing with performance management information.
Companies who have an unorganized unstructured approach understand the value of gathering this information but typically it will involve review meetings, telephone calls, web-ex presentations. Excel spreadsheets coarse through these organizations. Information is often held or collected locally or regionally. Analysts are left with the unenviable task of supplier data collection, analysis and reporting. Information is often out of date, inconsistent or weighted to try and compensate for variations. Reports are estimates of over or under performance. The true value of information is continually left on the table and contracts are negotiated on “gut feel” rather than hard facts.
Companies who have made a significant investment in an Enterprise Resource Planning system or a financial system such as SAP or Oracle tick a lot of boxes across the organization, but many don’t go into the level of detail required for true analysis of supplier performance. Their “inside out” perspective of the world makes it difficult to incorporate data from external organizations as anything other than reference information. Evaluating situations needs to happen in seconds, not hours or days. When a single Manufacturing Resource Planning (MRP) system run can tale a full working day, there is little opportunity to investigate and evaluate alternatives, let alone quickly reach a decision. These ERP systems often turn out to be monsters with difficult and costly implementations. ERP suites provide multiple, separate modules, almost always with different data models. Therefore, they require different user interfaces and integration among the modules. Customizing these systems is difficult. Even minor tweaks often require committee meetings and long lead times. Supplier Performance Management is often included in areas like contract management as a generic offering. When information flow is slow, companies struggle to get alignment across the supply chain. Agility and adaptability are nearly impossible to achieve. Companies that have made ERP investments must have the confidence of knowing that their system can co-exist with specific SPM solutions such that the core data held within ERP systems can be poured into an analysis tool and the results fed back into the ERP.
The Benefits of SPM
SPM provides organizations with a quantifiable bottom-line impact. It also provides companies with constant performance information and enables them to establish productive and sustainable relationships with strategic suppliers.
SPM enables your company to provide a process to manage suppliers and ensure that the benefits and requirements identified at sourcing and acquisition stages are delivered throughout the life of the contract, while enabling you to focus resources on value added activities instead of reacting to supplier performance induced problems.
