Supplier performance management has been the elusive brass ring of the supply management discipline. Long recognized as vital to supply management success, a consistent and efficient method to measure and manage supplier performance can help companies focus resources, identify performance glitches, develop strategies for supply chain improvements, and determine the total cost of ownership (TCO) of supply relationships, products, and entire supply chains. But launching and sustaining a performance management program has often taken a back seat to other supply approaches - such as strategic sourcing - that involve fewer stakeholders and have a more immediate and measurable impact on the bottom line.

In short, many supply management organizations have shied away from supplier performance management programs because of the challenges in defining common metrics, systems, and reporting across multiple stakeholders and businesses. However, with compliance and risk management high on executive agendas - and pervasive unstable economic and supply markets - measuring and managing supply performance has become a priority. It ranks number four on the list of Top Supply Strategies that will be employed within the next two years, according to the 300 supply management and business executives attending Empower 2006.

Case in point: executive and regulatory pressures for enhanced supplier visibility, risk management, supplier diversity, and continuous improvements prompted one of the nation’s oldest and largest manufacturers to launch a formal supplier performance management program earlier this year. In his presentation at Empower 2006, the company’s head of procurement operations said the program is based on two pillars:

• Cross-functional participation - representation from procurement, logistics, and raw materials ensured alignment on standard performance metrics and program adoption.
• Supplier performance portal - Web-based automation enabled rapid program and adoption and measurement standards among global suppliers and internal stakeholders.

The cross-functional team began by defining 76 common metrics - including both quantitative (e.g., on-time delivery, quality, etc.) and qualitative (e.g., service levels, responsiveness, etc.) measures — to evaluate supplier performance. The team solicited management input to ensure that the metrics aligned with current and future corporate financial and operational goals.

To ensure success, the program was rolled out at a very measured pace (pun intended). The team selected the top 25 suppliers from each functional group to participate in the first wave of registrations and assessments. Targeted suppliers cut across 27 of the company’s most critical commodities, such as electrical, energy, mechanical, transportation, and construction.

To speed system deployment and adoption - and to limit risk for future development requirements — the company adopted a commercially available Web-based supplier performance portal that was easy to use and configure o meet its standards and requirements. The company uses solution in two key areas:

• Supplier registration - the system includes a self-service, Web-based portal that enabled suppliers to register and manage their profile and capabilities information according to the company’s pre-defined requirements. The manufacturer also uses the portal to put suppliers through online assessments.
• Supplier performance evaluations - The company’s performance metrics were built into the portal and corresponding measurement system to ensure consistency across all global business units. The system gathers qualitative measures through standard surveys among internal stakeholders - weighting individual questions as well as individual scorers. The system incorporates pre-defined formulas or “calculators” to automatically score and rank suppliers based on their performance.

The Web-based system enables the company’s supply management team to quickly assess capabilities, segment the supply base, and prioritize which suppliers to qualify, which to improve, and which to rationalize. According to the manufacturer’s top procurement exec, “the supplier performance portal is an instrumental tool that enables 360° performance feedback between the vendor, purchasing, and the requisitioner or other stakeholders.”

Indeed, in the first 90 days of deployment, the manufacturer reported 84 suppliers registered and approved by more than 290 evaluators across its global business units, including locations in North America and Eastern Europe. At the time of Empower 2006, the company had an additional 500 supplier evaluations in the queue.

The manufacturer’s procurement exec segments the value of the program into three areas:

• Strategic: “We have aligned common objectives and measures between [ourselves] and our suppliers. The supplier capabilities and performance information is vital for our development of global sourcing strategies with proven vendors.” He adds that the program complements the company’s supplier development and diversity initiatives and is critical for supplier performance trending.
• Operational: “We now have accurate company and contact information for our suppliers and improved visibility into the potential suppliers that have the capabilities required for upcoming sourcing projects.” He adds that the system also acts as a repository for up-to-date supplier certifications and insurance documentation, lowering supply and regulatory risks. “The system also provides consistent feedback between the internal customer, purchasing, and the vendors.”
• Value add: “We really view this as a critical supplier relationship management tool, giving us a supplier account record we can use to truly manage the relationship and drive continuous improvements.”

Launching a supplier performance management program is no trivial undertaking, particularly for a global company. The change management and recruitment issues alone can be overwhelming. But, as evidenced above, utilizing a methodical approach that fosters cross-functional alignment, common metrics, and leverages Web-based portal and performance measurement capabilities is the surest way to ensure success. And the benefits of supply base optimization, supply assurance, innovation, and continuous improvement are well worth the effort.

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