Supplier performance management
Supplier performance management scorecard
You just need to lay foundations via clear agreements, set great examples by being a good customer , maintain collaborative rather than adversarial relationships, measure performance objectively, and make judicious use of penalties and incentives. Measurement needs are established with the business considering the business continuity requirements and the corresponding cost impacts. Or, how many fewer sales dollars would you need to make up for poor supplier performance? Do you want to use different scorecard flavors for different supplier segments? In many cases, suppliers may be able to address most of the issues that arise out of SPM by using their own internal resources. An important business practice where some companies fall short is following up on performance issues and corrective actions uncovered during performance measurement. While ROI estimates are just that, estimates, they demonstrate the types of cost benefits that SPM can bring in monetary terms. SPM can help you track supplier performance against these KPIs which will enable you to enact corrective actions early and keep your brand and reputation strong in the eyes of your customers and partners. Metrics typically are expressed as KPMs or key performance metrics. Being recognized reinforces desired supplier performance, presents role models to other suppliers, and demonstrates that a company is serious about supplier performance standards. Executives are focused on bottom-line improvements and continue to expect them as their firms adopt improvements in strategic sourcing methods and supporting technology. Typically, suppliers are divided into strategic, collaborative, custom and commodity quadrants, with strategic suppliers being the primary focus and commodity suppliers requiring fewer resources. Please follow and like us:. Would the supplier help the firm become more competitive in cost, quality, technology or responsiveness? Figure 5 details some characteristics of good metrics: Another challenge is the question of qualitative versus quantitative information.
But what are other characteristics of good metrics? With performance data in hand, procurement can make data-based decisions regarding where to direct spend.
Alignment is important throughout the value chain. Do they need manual manipulation, cleansing or adjusting?
And if it's mostly about supplier scorecards, can't SPM just be left to Procurement to take care of? It also sends a positive message to customers about a company's commitment to excellence. Supplier scorecards are a means not an end.
Supplier performance management application
Approach 1 - One approach to calculating SPM ROI is to estimate failure costs - the costs associated with poor supplier quality such as defective materials or late delivery, etc. Even then, you should be sure your own organisation is not at fault, before leaning on suppliers with charge-backs or other penalties. Many companies pursue SPM as the quest for the perfect supplier scorecard. All of those qualities can be applied to supplier performance management. Contract lifecycle management The contract lifecycle management is a proactive process that can lead to significant cost savings and service quality improvements. Supplier recognition should not be approached casually. Would the supplier add more value if its performance improved? Figure 2 illustrates an example of the flow down of corporate goals and the alignment of supplier performance expectations and Key Performance Metrics KPMs.
Additionally they are better prepared to manage and allocate resources. Industry analysts have found that SPM is a meaningful and valuable addition to any business.
Supplier performance management pdf
Supplier scorecards are a means not an end. For example, firms may wish to measure strategic suppliers in more detail and custom suppliers primarily in service and reliability. Having an SPM program in place helps your organization: Avoid supply chain risk and disruptions If you are not deeply familiar with the third party vendors making up your supply chain, it will be difficult to put measures in place to prevent interruptions and reduce the incidence of risk exposure. Contact Mark to discuss how you might introduce, or improve upon, your supplier performance management and how your risk and sustainability programmes can work within this framework. So often the customer's own business processes, practices and behaviors can prevent suppliers from performing well and need to be addressed and improved. So far this article has focused on SPM as a means for improving supplier performance. Whether you start big with a comprehensive SPM program, or small, with measuring a critical group of KPIs or suppliers, initiating SPM activities will put you on a path to making your supply base work for you in ways beyond simply providing a product or service. And if it's mostly about supplier scorecards, can't SPM just be left to Procurement to take care of? With the old saw of "you manage what you measure" ingrained in many people, some managers do not believe a metric is valid unless it is quantitative. Developing Good Metrics and Scorecards This article has described how to create metrics that are aligned with the rest of the company. In many cases, suppliers may be able to address most of the issues that arise out of SPM by using their own internal resources. Additionally, service managers, together with sourcing, should keep track on available services, quality standards and service pricing on the market place to enable comparison and fair benchmarking of sourced services. Improve internal processes Creating a SPM process is a great step towards optimizing your supplier management program. Some improvement will occur, however, just from the act of measuring suppliers. The Supplier Performance Management tool is THE main driver of all supplier management, relationship and innovation programmes.
For example, SPM gives procurement groups visibility into specific groups of suppliers and their overall ability to meet your organizations expectations and requirements. Sometimes the top level elements on a scorecard are calculated from several KPMs and rolled up into an overall score in areas such as quality, delivery and responsiveness.
These are key questions to service managers and OPS leads Risk classification: What kind of risks are inherent with the supplier e. Instead, these companies take a partnership approach, recognising that supplier management is all about relationships.
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