5 Ways Organizations Sabotage Supplier Performance Management
We are kicking off our Supplier Performance Management series detailing five tips on how to make SPM more effective.
Supplier Performance Management (SPM) drives meaningful results and improves your business. But how do you ensure that the practice provides the necessary data to achieve the promised results? How do you make supplier performance management meaningful rather than an exercise in futility?
Here are five pitfalls to avoid if you want your SPM efforts to succeed:
1. KPIs not aligned with corporate goals
Setting supplier-related KPIs might seem straightforward, but if they are random and chosen without purpose, the outcomes will not be useful or beneficial to the business. When measuring supplier performance it is important to align KPIs with corporate goals. This way you ensure improvements contribute directly to valuable areas and metrics for the overall business. This transitions the supplier performance management program to an organization-wide value-add rather than a function isolated in the procurement realm.
2. Using only quantitative or qualitative KPIs
Capturing both quantitative and qualitative metrics in your supplier scorecard will provide a complete picture of your suppliers. A supplier might deliver on time 90 percent of the time, but if they are hard to deal with or impossible to get in contact with when the 10 percent occurs, there is room for improvement. Including a mixture of qualitative and quantitative KPIs will allow you to understand supplier performance at a deeper level, which will, in turn, allow you to make more informed decisions regarding your supply base.
3. Not weighting the supplier scorecard
When you issue a supplier scorecard to your evaluators it is imperative that they have a clearly defined scoring system to complete their evaluations. Putting time and effort into developing complete and clear definitions for each score means you will have consistent, reliable and clean data to analyze after the evaluations are completed. Don’t leave room for evaluators to guess at how they should score a supplier; give them a clean structure and framework to operate within and you will uncover more powerful data as a result.
Also, don’t forget about weighing your KPIs. There are many things organizations will want to measure across their supply base, but some KPIs are not as important as others. For example, you might want to know how all suppliers are performing on year-over-year cost reductions and how responsive they are to communications. Be cognizant of assigning relevant weighting to your KPIs as you create your supplier scorecards so you are able to evaluate them according to what is most important to your organization.
4. Skipping supplier surveys
Often it’s easy to assess supplier performance and review their scores with them as a means for extracting value from the relationship. However, you could be missing key information by skipping the step of surveying your suppliers. If you ask your suppliers to answer specific questions such as “how can we help you reduce lead times?” and “what is something that your best customers do that you wish we would replicate?”, you will reveal ways in which you can contribute to the business relationship that can ultimately benefit you as well. While you find new opportunities for improving supplier performance by doing your part as their customer, you will also strengthen your relationship with your suppliers by being a partner to them in return. In this way conversations around pricing, SLAs and corrective actions become more collaborative in nature and you become a trusted partner to your supplier.
5. Not taking action
The process of assessing supplier performance is not complete until you have final data and reports on the outcome. Now, what do you do with the results of scorecard evaluations? First, the results should be communicated to internal stakeholders and the suppliers themselves. From there you can collaborate with the suppliers to create any necessary corrective action plans, or to discuss how they will continue or sustain improvement. Internally, the results can help sourcing and procurement groups develop spend strategies based on what they learn about active supplier performance. So, when the results come in, don’t just file them away, instead share them and make them an effective tool for sustained improvement.
By avoiding these common supplier performance management pitfalls, you can ensure you will have the opportunity to capture value from the process and provide value to your organization through in-depth supplier-related data.
Supplier Performance Management software provides the tools to collect, measure, analyze and report on supplier-related KPIs in one centralized and standardized system. Supplier Management incorporates SPM functionality to deliver a complete supplier lifecycle management solution.