The Role of Technology in Supplier Performance Management

For years companies have tried to tackle the area of supplier performance management.
Large organizations spending billions of dollars per year across multiple supply chains with thousands of vendors involved understand that even small improvements in supplier performance can yield millions in cost savings per year, improving profitability and productivity. But transforming an entire approach to procurement programs and supplier management can be a daunting task requiring a lot of investment and time.

Working with multiple tiers of suppliers in disparate locations dealing in multiple currencies and languages requires much time and effort.  Yet nonetheless companies strive to gather quality benchmark information.
They know they need to be able to manage their suppliers performance against agreed objectives and to do that consistently they need strategic key performance indicators. In my experience organizations addressing this area fall into one of three groups.

Unstructured/Ad Hoc Approach – Excel Hell

Group one involves companies who have an unorganized unstructured approach.
They understand the value of gathering this information but typically it will be ad hoc in nature, with no agreed, over-arching, approach to SPM.
Excel spreadsheets coarse through these organizations.
Information is often held or collected for 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 Information is often out of date, inconsistent or weighted to try and compensate for variations.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.

ERP/Financial Systems – Servants to a ERP Master

Group two involves companies who have made a significant investment in an Enterprise Resource Planning system or a financial system such as SAP or Oracle.
These systems tick a lot of boxes across the organization, but many don’t go into the level of details 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 ERP run can take 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. It is important that core data held within ERP systems can be poured into an analysis tool and the results fed back into the ERP.

Seeing the Light!

The final group includes companies who have invested the time and resource in supplier performance management tools and processes such as those provided by Biznet.

These companies understand the benefits of a documented system that gathers key performance indicators through regularly completed scorecards. They understand the performance management loop, the infinite process involved in identifying an organizations supplier performance management information needs.

The Performance Management Loop diagram (below) shows the loop split into three distinct areas. Implementation, execution and delivery.

The first area is essential, determining business drivers and defining key performance indicators.

The execution element requires a dynamic tool to create scorecards and KPIs, capture data online and produce real-time reports.

The delivery part to the loop is the real benefit of the process where operators can see th e benefit of improved performance, productivity and profitability.

How many KPIs should a company use?

Obviously that depends on the nature of the business and the business line in question, but typically best practice shows that 8 – 12 KPIs tend to work best.

Comparing the Technology Options

Biznet’s SPM Tool (BiznetP6) Vs Unstructured/Ad-Hoc Approach

Biznet P6 provides the following features not provided by spreadsheets:

  • Real-time data
  • Automated analysis and reporting
  • Data easily compared across users, systems and sites
  • Trusted data – data cannot be manipulated
  • Full audit trail
  • No version control issues
  • Data easily shared across organization and with suppliers

Biznet’s SPM Tool (BiznetP6) Vs ERP/Financial Systems

BiznetP6 provides the following
features not provided by ERP/Financial Systems:
  • Real time reporting
  • Short implementation process achieving ROI quickly
  • Central location to store and track organizational KPIs
  • Specifically designed for the purpose of SPM.

Biznet Performance Managment Loop

About the author
Chris Bohill is VP of Consulting and Product Strategy at Biznet. He is based in Biznet’s Houston office and has over 15 years experience in developing and implementing supplier performance management solutions.
Chris holds a BA and MSc from Queens University Belfast