A flood of recent studies indicate that the road to supplier performance management is paved with good intentions. The latest Aberdeen Group benchmark found that, while most businesses have prioritized investments in supplpier performance management programs and systems, few have effectively executed on this plan.

In last week’s webinar on Jumpstarting a Supplier Performance Management Program, Denali Consulting Founder and President Dawn Tiura reaffirmed the disconnect between corporate intentions and execution in this area. In a study Fortune 100 supply chain groups, Denali found that, after two years, 70% of companies reported losing up to 100% of the savings they initially negotiated with suppliers. “Companies have to begin to realize that, if you don’t follow up with supplier performance, you can’t claim that savings.”

What’s the problem? Tiura and fellow webinar panelist, Chris Herbst, Supply Chain Program Manager for Constellation Brands, pointed to the following hurdles to effective supplier management — and how to overcome them:

• Most companies try to manage the performance of the suppliers they have, rather than selecting suppliers that meet their performance goals. Tiura says successful supplier performance management starts with the sourcing process: “Set your performance goals. Then choose your suppliers.” Tiura says defining performance goals before engaging suppliers helps secure the right suppliers to meet your company’s needs. It also ensures alignment with internal stakeholders early in the process, increasing their support and participation in the performance management program. Tiura adds that the sourcing process often offers a wealth of ideas for process and infrastructure improvements that can be used as goals to continually enhance supplier performance and relationships.
• Many companies try to measure and manage too much. “You can’t have an effective supplier development program for all suppliers,” says Tiura. She recommends prioritizing development for those suppliers with which you have high spend volumes or those that have a strategic impact to your business. “You need to choose the right suppliers to manage and develop strategically and use automated tools to measure performance of others.”
• Companies fail to align supplier performance measures with the goals of the business. Says Tiura: “You need to start by examining your corporate goals and the business unit’s long-term strategic plans. Then ask, ‘How do my supplier performance measures help meet these goals?’” Constellation attributes its supplier performance management program success to this technique. Says Herbst: “Corporate supply chain provided the template [for a supplier scorecard] as a starting point. We then sought feedback from our [seven] operating companies, allowing for category and regional customization of the scorecard.” Specifically, Constellation uses some common global measures in the areas of cost, innovation, quality, and service. The supply chain group works with the businesses to add measures that support unique attributes of specific spend categories or regional jurisdictions.

Don’t just listen to my recollections. Download a free replay of the entire webinar to hear first hand from Denali and Constellation Brands on how to launch and sustain a successful supplier performance management initiative.

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