Supply Excellence — What Does it Take to Truly Manage Supplier Performance?

What Does it Take to Truly Manage Supplier Performance?

April 10th, 2007 · by Tim Minahan · No Comments · Top 5 Supply Strategies, best practices, supplier management

Last week’s preview of Aberdeen Group’s latest benchmark report highlighted the challenges of supplier performance and risk management. It also raised questions about the lack of progress the supply management discipline has made in tackling these issues. One reason for the discipline’s lackluster performance in this area may be we’ve been viewing the supplier management issue all wrong.

Most enterprises (and software vendors) view supplier management simply as the process of measuring supplier performance. This is a good start, but it often overlooks key factors that contribute to supplier risk, such as financial stability, balance of trade, cost input drivers, etc. A myopic focus on measuring basic performance attributes also lacks infrastructure to support corrective actions or improvements when performance dips below acceptable thresholds.

These oversights are glaringly apparent in Aberdeen’s latest report: ”Programs continue to be focused on measuring supplier performance for goods and service quality, delivery, and price…While addressing these supplier performance issues certainly reduces risk for the organization, they do not necessarily provide solutions based on longer-term horizon, directly address risk identification and notification, or ultimately provide the best buffer to protect customers from feeling the impact of supply disruption.”

Put simply, supplier management programs often fail to gain traction because they don’t fully examine supplier capabilities and risks and, when they do uncover performance or capability issues, they lack procedures and systems for quickly fixing the problem.

The issues strongly suggest that truly managing supplier capabilities, performance, and risks requires a more holistic approach. This was reaffirmed as I previewed today’s webinar, Jumpstarting a Supplier Management Program.

I don’t want to spoil the presentations of webinar panelists Chris Herbst, Supply Chain Program Manager at Constellation Brands, and Dawn Tiura, Partner at Denali Consulting. (There’s still time to register for the 11:00 a.m. event here.) But the experiences of both panelists suggests that an effective supplier performance management program incorporates the following elements:

Supplier Information Management

Too often buyers spend the bulk of their time reactively gathering the latest data on supplier capabilities and documentation (e.g., insurance, certifications, etc.) in response to projects, such as new sourcing events or supply chain or risk audits. This reactive approach is not only inefficient, but it can expose enterprises to undetected risks if a supplier’s capabilities or status changes between project-based audits. (Consider the rail carrier that was sued due to an accident that occurred in its railyard due to the negligence of a service supplier that lacked proper insurance.)

A growing number of enterprises, including Constellation Brands, utlitize self-service, Web-based portals to empower suppliers to manage their own profile and capabilities information and to track critical certification and documentation. This not only creates efficiencies, but also provides an early warning system for external supply risks and helps supply base rationalization, segmentation, and corrective action initiatives.

Supplier Scorecarding and Performance Measurement

Establishing common metrics for assessing supplier performance is challenging enough. (That is why, as noted above, most companies continue to default to measuring suppliers on a limited number of tangible basics, quality/PPM, delivery, leadtimes, and price compliance.) However, truly measuring supplier performance requires a scorecard that balances these hard measures with critical qualitative metrics, such as supplier responsiveness, cost drivers, or capabilities. Top-performers are also using a 360-degree scorecard that allows suppliers to self-score and provides a pulse on the health of the supplier relationship.

The most effective performance measurement programs collect this data through automated means that also provide role-based alerts and reports.

Corrective Action and Improvement Plan Management

The panelists’ presentations and the latest Aberdeen report rank the lack of clear corrective action and improvement plan management capabilities among the biggest gap in supplier performance and risk management programs. Gaining insight into supplier performance is useless without capabilities to quickly establish action plans for improvement.

Attend today’s webinar to learn how Constellation Brands uses these approaches and systems to monitor, manage, and improve supplier performance. I’ll share more details on Constellation’s supplier management approaches after today’s webinar.

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