Supplier Performance Management (SPM) is increasingly seen by companies as a key competitive advantage, however we observe that it is still often practiced too partially. So what are the conditions that enable you to have a comprehensive and structured SPM approach so that your company gets the best value in a sustainable way?
Until recently, in many companies, supplier performance was synonymous with on-time delivery, which is obviously a very simplistic view. Moreover, the performance management process was too often stopped at the step of performance criteria evaluation so it did not really go up to the step of improvement plan development.
Today things are changing, not to say they are being accelerated; Procurement boards have understood that extending supplier performance to other dimensions and criteria than the sole on-time delivery is a great opportunity of contribution to value creation for the company. Moreover, the trend is to go beyond the step of evaluation. Incidentally, we also note that having a robust SPM process is becoming a necessity for ISO9001 certified companies.
Whatever their motivations, we observe that more and more companies have a genuine SPM process with a genuine SPM program to concretely apply this process, and the most advanced ones have adopted or are currently adopting a tailored IT solution to help structure their approach and make it more effective.
In summary, Managing a Supplier’s Performance consists in applying the below macro-steps:
- Measure/evaluate supplier performance according to a set of criteria defined at company level
- Identify the criteria whose performance needs to be improved
- Define, for each of those criteria, the action of improvement
- Estimate the value related to the implementation of each action; note that this value may be financial or not (eg in the case of an action to improve a safety criterion, it may be unappropriate to estimate a financial value to this action)
- Control the improvement plan implementation
- Go to step#1 periodically (usually annually)
This being said, what are the key factors that will make your SPM approach a sustainable success?
- Always keep in mind that you will have the suppliers you deserve
- Explain to your board that having an effective SPM process will contribute to value creation for your company
- Explain to your board that having an effective SPM process will contribute to Control Supplier Risk for your company
- Always keep in mind that SPM is a continuous improvement process that needs to be run in a complete way, i.e according to the above mentioned macro-steps
- Rely on an effective but simple evaluation model; do not reinvent the wheel, keep in mind that even if there is no standard regarding supplier evaluation criteria, the most usual models cover 5 sections (Health/Safety/Environnment, Commercial policy, Quality of Goods & Services, Logistic of Delivery, Continuous Improvement & Innovation)
- Select a rating system for continuous improvement; a range of scores from 1 (basic performance) up to 5 (excellent performance) is particularly well suited
- Involve your team of buyers upstream; without their full adhesion, nothing is possible
- Rely on your quality manager; if there is one in your company, the quality manager will be a great ally to support your approach especially if your company is certified or pending certification (ISO9001 for example)
- Involve your internal customers; invite them to assess/evaluate each supplier whose they use the goods & services, and share/build with them the supplier improvement plan
- Focus your efforts on your key suppliers (class A or strategic & critical); you can not do everything, « do not bite off than you can chew »
- Involve your suppliers and you will get many benefits in return; engage them upstream by inviting them to self-evaluate and encourage them to be proactive in offering their ideas for improvement and innovation.
- Celebrate/Reward your most efficient suppliers; periodically – eg annually – organize a supplier event in which you will recognize the contributions of your best suppliers
- Be progressive in the deployment phase; if you are starting the implementation of your SPM approach at company level, avoid trying to do everything in just one year; a roll-out over 3 years is preferable: 10-20% of your key suppliers in the first year, 30-50% in the second year, 80-100% in the third year, then aim 100% for your cruising rythm.
- Spread your yearly campaigns of assessments over the year; i.e do not concentrate them on a single period, thus you will spare the agendas of your internal customers so that the process is not seen as a constraint
- Adopt a suitable SPM IT solution; this is undoubtedly the best way: to structure your approach, to effectively share data with your internal customers and with your suppliers, to ensure data integrity and also, as appropriate, to instantly prove the soundness of the SPM process to any quality/ISO9001 auditor
And of course, Have Fun!
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