Supplier Performance Management (SPM) is the process of measuring, analyzing and managing supplier performance to improve quality, reduce costs, mitigate supply risk and drive continuous improvement in the supply base. That all sounds very straightforward and simple…until you try to get the program up and running for the first time. How does a company that has never measured a supplier’s performance accomplish this task?

First, let me emphasize that SPM is not merely a scorecard and survey. SPM spans the continuum of the Spend Management process. From identifying qualified suppliers for sourcing events to measuring adherence against contracts, invoice payments or on-time delivery, SPM enables an organization to have a clear line of sight into the performance of suppliers. That something a scorecard - although it is a valuable component - cannot do alone.

The danger of a poorly designed or executed SPM program is the failure to realize potential savings or watching those savings deteriorate over time. You and/or your procurement department may have conducted a successful negotiation or online event. But if your hard won savings are leaking away, it’s all for nothing.

So, what makes up a successful SPM program?

• Measure, rinse, repeat - Create a standard, repeatable process that can be used across various business units/categories to drive consistent SPM within an enterprise.
• Knowledge Management - Store supplier presentations, yearly goals and objectives, scorecard results and Corrective Action Plans in a single, searchable location. The increased transparency and efficiency will yield greater understanding, adoption, ROI, and sharing of information and best practices.
• Scorecard/Survey - The scorecarding process must facilitate consistent review of suppliers across the organization. Focus on the top 3-5 areas an organization needs to improve. For example, looking at quality, service and cost competitiveness will provide focused, actionable information.
• Reporting Tool - Effective reporting of results goes a long way towards ’selling’ the SPM process internally in an organization. Highlighting Scorecard results in easy to read data, text and tables not only helps current users understand their role in improving the supply chain and Spend Management ROI, it helps potential SPM users identify suppliers and digest the process for measuring the buyer/supplier relationship.

Nima Bagheri is a Senior Consultant in Ariba’s Spend Management Services group.