Supply Excellence — Supplier Performance Management: Keeping Score

Supplier Performance Management: Keeping Score

September 15th, 2008 · by Nima Bagheri · No Comments · best practices, supplier management, supply management

One of the best regular features in Purchasing.com is their monthly Black Belt Negotiators column. Great advice on playing hardball while improving relationships. July’s edition dealt with improving supplier performance management (SPM) and focused on how a security products manufacturer has begun keeping score on their suppliers’ price, delivery, cost, quality and service.

The most interesting thing about how this company, led global procurement manager John Martin, put their scorecards into action was their follow through. They identified habitually late suppliers, trained them on the importance of punctuality and began a chargeback program to drive accountability (and incidentally rake in $100k from late/problematic shippers).

There is little doubt that measuring, analyzing and managing supplier performance can improve quality, reduce costs, mitigate supply risk and drive continuous improvement in the supply base. In fact, according to the Aberdeen Group (Sep 2005) Organizations that implement formal systematic SPM programs are associated with at least a 20% improvement in various supplier performance categories. These categories include on-time delivery, quality, service and price competitiveness.

SPM programs can also be used to ensure realization of great online events, ensure adequate delivery, review performance and drive quarter over quarter reductions. Additional factors influencing the need for SPM are Outsourcing, Extended Supply Chains, LCCS, Globalization, Regulatory oversight and instability of supply markets. Many companies face all of these factors on daily basis. SPM helps provide insight into the supply base, clarity into critical areas such as delivery and service, and the ability to discuss issues directly with suppliers.

Obviously, companies have a lot figurative and literal moving parts to juggle in their supply chains. Keeping track of the performance of suppliers is a critical piece of the puzzle for any company that thrives on data to make decisions and results to make a profit.

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

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