Archive for April, 2013

Supplier Performance Management

Most mature companies still lack clear visibility into their Supply Chain. They are happy to hold additional stock (directly, or indirectly) and bear the additional cost rather than defining clear strategies to measure and eliminate Supplier risk. Granted, the lesser the control one has over their Supply Chain, the greater the unknown risk. But in order to measure risk, first we need to understand the capabilities of our Supply Base.

What are the various elements of a Supplier Performance Management program?

The most important element of a Supplier Risk Management program is – the Supplier. (Surprise, surprise!!). The better you understand your Supplier, the lower your Supply Chain Risk . As cliched as it may sound, most organizations don’t really know their supplier….aside from a ERP generated Supplier code, and a lead time associated with a particular product.

The first and critical step in establishing such a program is to

align Supplier Performance Goals with the Organizational Goals and Objectives.

Without this alignment, chances are that the program is doomed to fail. Let’s say an organization is focusing heavily on Six Sigma – then it must be made mandatory for its Suppliers to have key suppliers aligned in the same direction. It can be anything – from Lean Enterprise to Safety or Green Initiatives. But they need to aligned.

The next logical step is to

Determine what to evaluate? And, how to evaluate?

The most standard systems measure Financial Risk, Operational Excellence, Processes and Change Management, Extended Supply Chain Risk (by extending evaluation to Tier 2, Tier 3 and so on). There are several metrics within each of these that help paint a clear picture of a Supplier’s capabilities. Once we finalize the evaluation criteria, we come to the challenging part of the evaluation – evaluating! Since Supplier gain very little from such an exercise, most companies find it challenging to get a timely response from the Supplier. It is here that we need to be creative – use multiple methods of evaluation based on the relationship with the Supplier. For some, a simple paper questionnaire might suffice whereas for others, a detailed on-site assessment must be mandatory. Third party certifications/assessments are also an option.

Designing a visually appealing Scorecard

which lists only the required information clearly and succinctly is imperative. Organizations get caught up in trying to understand everything about a particular Supplier – and end up losing sight of the critical elements. Most often, a disruption in the Supply Chain can be easily mitigated provided we pay attention to the right details. Some organizations learn it from hindsight, some are clever enough to get ahead of the problem.

Every Supplier Performance Management system must be designed to

provide timely actionable feedback

to the Supplier. Fostering a competitive spirit among suppliers can often work to the benefit of an organization. Ranking the suppliers within a particular commodity and letting them know that they are in the bottom 25 percentile can spur them into action. Of course you run the risk of a Supplier in the top 5 percentile slacking, but hey…it has more pros than cons!

And finally to close the loop, the program must be constantly re-evaluated and re-defined.

Continuous Improvement

is the modern mantra.

What has your experience with Supplier Performance Management been? What has worked for you? And what has not?
Have a question? Please let us know.

Posted in: Performance Management, Risk Management, Supplier Management

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