Supplier Performance Management methodology looks to improve a number of areas for organizations.
With over a decade worth of expertise in implementing and developing SPM solutions Biznet have identifies 5 clear areas of pain to address. These are:
- Poor supplier performance visibility
- Developing Key Performance Indicator metrics
- Timely access to performance data
- Ability to generate presentations for performance reviews
- Communication with suppliers
These 5 areas of pain are constant regardless of industry. We will now take an in-depth look at how Supplier Performance Management solutions can address each of these.
1. Poor supplier performance visibility
Organizations are increasingly aware of the strategic importance of supplier relationships. Responsiveness of the supply chain does not depend solely on the single organization’s performance but on the suppliers’ performance as well (Wong and Wong, 2008)
Visibility is ideally the goal of organizations across all of their operations. Within the context of managing a supply chain, visibility and communication are two key factors.
The ability to have a clear and accurate understanding and grasp on performance is priceless. The greater dependency on suppliers and relationships with them dictates the need for greater control & visibility.
Currently a lot of organizations rely upon tools such as excel to capture and record supplier performance. However these are cumbersome and lack in-depth analytical functionalities. A major weakness is the inability to provide reporting across the supply chain when factoring in variables such as geographic location, time period or product line.
Global organizations with business units and product lines spread worldwide have an increased need for a tool to provide performance metrics for potentially thousands of suppliers.
Through the implementation of an SPM methodology and solution organizations can benefit from unparalleled supply chain visibility.
The system allows for users to create customized reporting hierarchies that reflect the nature of their industry. For example, many of Biznet’s oil clients have customized geographical hierarchies that provide performance reports on suppliers within;
- Business Unit
This level of reporting & analysis allows for better insights to improve overall decision making and supplier management.
This process now allows for a centralized system that enables visibility of an entire organizations supply chain. Whereas before this process would have involved masses of labor intensive data entry into excel, it now is simply captured and reported on in an easy web-based solution.
Many supply chain writers refer to the phrase; `it is no longer product vs. product, it is supply chain vs. supply chain`. Using an SPM approach companies can manage their supply chain performance better than competitors.
2. Developing Key Performance Indicator Metrics
Key Performance Indicators are in place to help organizations define and benchmark progress towards achieving set goals and targets.
For many organizations understanding and implementing KPIs proves a unique challenge. A large problem for companies that have no supplier program in place is identifying what metrics are relevant to their needs. There is no need to capture and measure data for a supplier that is totally irrelevant or adds no value to managing the relationship.
Using an SPM system users can build customized KPIs that are created into scorecards and issued to suppliers. The KPI Builder is unique in that it ensures all of the KPIs built are relevant and add value to the reporting process. Users are thus able to create in-depth and unique performance reports.
The system allows for an organization to monitor the performance of suppliers across a number of different areas. Therefore areas like HSE performance can be tracked and reported on.
The KPIs that an organization use are ideally created to ensure that they deliver on the long term strategic goals in place. Using an SPM system the KPIs deliver increased visibility, improved supplier management & reporting.
3. Timely Access to Performance Data
Performance reviews are a useful exercise for managing supplier relationships. Managers can better manage the key strategic relationships when they have easy access to performance data.
As mentioned, many organizations still use tools such as excel to capture performance data.
Excel is being phased out by the larger organizations as they recognize that it can no longer meet their needs using simple spreadsheets to manage suppliers across continents and business units. Much of their data has to be manually imported and then processed to provide an overview of performance.
An SPM process however ensures that users have access to approved, measured and relevant data. The ability to ‘drill-down’ into this data & using features such as performance filters and heat maps, a suppliers performance data is accessible and transparent.
The ability to cite and refer to performance data enables improved communication. Strong lines of communication from both parties develop strong, trust-worthy strategic relationships.
Performance reviews on the performance of Supplier A are made easier with the live dashboard highlighting key areas of concern or strength.
4. Ability to Generate Presentations for Performance Reviews
The key word and theme that runs through a number of these pain areas is ‘visibility’. For a lot of organizations the failure to both capture and display performance metrics meant that performance reviews are not being as constructive as they could be.
The ability to have a review every six months, quarterly or monthly allows for improved supplier management. Not only can you address the performance of a supplier but you can better develop and nurture strategic relationships.
Much has been written on the need for enterprising relationship management to capture real ‘value’. Supply chain management, it can be argued, is almost entirely focused on managing these relationships.
Therefore any such functionality that makes managing these relationships easier has to be recognized for its necessity. Whereas before senior management may have had to rely upon excel spreadsheets they now have the option to export dashboards to PowerPoint.
The sophisticated analytical functionalities of an SPM system provide supplier managers the opportunity to address both specific and overall performance.
The lifetime performance of Supplier A can also be tracked and addressed. Previously having been tracked using a network of spreadsheets this would have been an arduous task. However to ease this pain, performance can be mapped and tracked from the start of the supplier relationship right through to the present day. This legacy data of a supplier can be imported into your SPM system once it has been implemented to provide a more accurate overview.
Performance reviews are not only used in working directly with the suppliers in question. They are also a common place when reporting to a senior management team or board of directors.
The easy to configure dashboards are easy to understand and even easier to export to PowerPoint or Word. Heat maps and color coded tools allow for quick summaries that will help provide overview presentations. To provide a more in-depth review is as easy with a full range of analytical tools to create graphs, charts etc. that are quick and easy to export into presentations.
5. Communication With Suppliers
For all organizations, large and small communication is absolutely vital to success.
When managing key strategic supply chains, lack of communication is the single greatest barrier to success. The failure to synchronize and manage your supplier relationships can be disastrous. This is an area that all organizations address at some stage.
As mentioned earlier the need to develop relationships with your supplier is so important to developing a supply chain that performs well.
An SPM methodology aims to keep open and nurture two way communication channels. For example the distribution of supplier scorecards is a simple way to provide a consistent level of interaction.
For each supplier in the system there will be data that identifies recent performance trends. Therefore, as was the case for many organizations, six months will rarely pass with any interaction or communication.
On the contrary; using a performance early warning system issues can be addressed as and when they occur. The advantage of this is that it provides transparency for both supplier and buyer. If performance has been below par for six months there is a good chance that the reason will have been addressed one month into the decline.
All too often supplier performance reviews have been viewed as an opportunity to highlight poor performance problems over a long period of time. Supplier reviews, if conducted in this manner, can be viewed with dread and trepidation instead of creating a culture of continuous improvement.
In some instances poor performance can be grounds for dropping a supplier. However this process is far more transparent and warranted when complimented with performance data.
However communication is not just for addressing poorly performing suppliers. It can also be used to highlight those suppliers who have excelled. The use of Supplier Awards to these suppliers is a fantastic opportunity to strengthen relationships and encourage consistency.
Supplier Awards are win-win in the sense that:
- The strongest suppliers are credited and acknowledged
- You have established a strong understanding with a supplier
- Your supply chain is performing well in at least one area
- The system incentivizes further good performance for the rest of your supply-base.