In the digital age, organizations as a whole and procurement departments in particular swim in data. It is everywhere, spread across an alphabet soup of internal and external systems – some connected, some not; some refined, some not; some structured, some not. It wasn’t always this way. Twenty-five years ago, the procurement function was manual, paper-based, and transaction-oriented. “Data” was but a character on Star Trek: The Next Generation. All of that has changed in the past 15 years, following the dot.com bubble and the wave of digitization, connectivity, and automation that has swept over the world. Now, “Big Data” permeates and drives the digital world, and it will only get more intense from here.
There is a Big Data “crisis” sweeping organizations and procurement teams today. But with the right people, processes, technologies, and ultimately the right attitude, this “crisis” can be an opportunity for Chief Procurement Officers (CPOs) and their teams to transform operations and deliver more value to the enterprise. Technologies exist today that allow procurement to not only manage Big Data up and down the source-to-settle value chain, but also leverage it for greater value.
This series explores further each of the eight sub processes of the source-to-settle process to illustrate just how Big Data can be managed and leveraged to make procurement’s life easier and extract the most value out of the data residing inside and outside of the enterprise. Next up, supplier performance management.
What is Supplier Performance Management?
Supplier performance management (or SPM) is the process of reviewing, rating, tracking, and developing or incentivizing a supplier’s performance across the duration of the contract period. In large enterprises, the task can fall to dedicated buy-side supplier liaisons that work directly with their supply-side counterparts to ensure that the supplier delivers the contracted goods, services, and quality according to the contract terms and conditions (T&Cs). But in small-to-mid-sized organizations, SPM may be one of several processes that fall to the procurement or supply team at large. Whoever is tasked with it, it is a vital process to ensure that the enterprise receives the very best goods and services from their supplier base; that they work with the best suppliers in the market; and if not, that they take the necessary remedial steps to get there.
Supplier Performance Management Processes and Tools
For enterprises that have hundreds or thousands of suppliers in their supply base, conducting SPM is vital, and it can be a challenging endeavor. To help them out, procurement and supply management practitioners leverage several specific tools to perform SPM. These include:
- Performance benchmarks: it can be helpful for buy- and sell-side practitioners to understand baseline performance levels and also how other suppliers in the market perform, which can help both teams set expectations moving forward.
- Supplier scorecards: these handy little tools provide specific, measurable, actionable, relevant, and time-bound criteria – also called key performance indicators (KPIs) – that buyers can use to track and rate their supplier or suppliers throughout the duration of the contract.
- Supplier surveys: these are custom-built questionnaires designed to explore the soft underbellies of their current and prospective suppliers, like a supplier’s commitment to corporate social responsibility, sustainability, and human rights, that metrics may miss.
- Supplier codes of conduct: these binding agreements address specific supplier performance and risk criteria, like a supplier’s commitment to sustainable, ethical, and other desirable behaviors in fulfillment of the contract. Adherence to these agreements can be rewarded with follow-on contracts and discounted pricing; but running afoul of them can jeopardize buyer-supplier relationships and lead to termination (e.g., Chipotle broke with one of its major pork suppliers after it broke its code of conduct).
How Do Source-to-Settle Solutions Manage and Leverage SPM Data?
Like many facets of supply management, it is important to conduct SPM holistically – that is, in the context of the greater source-to-settle process. Modern solutions, particularly solution suites that link strategic sourcing with procure-to-pay, afford enterprises with an ecosystem that captures most, if not all, of the relevant procurement and supplier data so that they can conduct more holistic and accurate performance assessments.
Many source-to-settle solution suites feature a supplier management or a supplier performance management dashboard that consolidates all of the relevant pieces of information, like performance benchmarks, KPIs, supplier scorecards, surveys, and codes of conduct. Driven by automation and interconnected process flows, SPM dashboards can fuse disparate pieces of procurement and SPM data into central portals for quick views and drill-down capability, and they help practitioners conduct performance assessments. For instance:
- Bpend analysis can help validate supplier performance against a given contract or category, particularly when it is compared to performance benchmarks and KPIs.
- Contract management tools can show compliance criteria, like on-time/on-budget rates, product and service quality, and even whether the supplier attempted to renegotiate contract T&Cs or upsell for goods and services already covered in the contract.
- Supplier risk management data, including internal and third-party assessments, can round out SPM assessments. Negative publicity, lawsuits, and criminal activity must be included in a supplier performance assessment; they could jeopardize their supplier code of conduct, tarnish the enterprise brand, and/or be grounds for terminating the supplier relationship.
- AP/Finance data can illuminate whether the supplier is electronically enabled to issue invoices and receive payment, how fast the supplier invoices the enterprise, how often it has to handle exceptions, whether or not they overcharge the enterprise, and other considerations.
From there, it is on the procurement team to make the appropriate decision regarding their suppliers – either to renew or extend the performance period, renegotiate T&Cs, work with low-performing or non-compliant suppliers to improve their performance, or terminate relationships with suppliers that do not pass muster.
Source-to-settle solutions, particularly end-to-end solution suites, allow procurement practitioners to “plug into” all of the structured and unstructured SPM data that they have created and captured in the various parts of the system in the execution of other processes, and leverage it for a holistic view of their supplier base. Conducting performance assessments in this manner makes for a well-rounded, empirical approach to SPM, one that is based on many inputs rather than one or two. CPOs and procurement teams cannot go wrong by “going deep” on their supplier performance data. And with the help of source-to-settle solutions, they cannot get lost, either.