Three weeks ago, I started a series on the components of supplier management solutions. So far we’ve covered the platform capabilities (i.e., functionalities used across the other components/modules) and Supplier Information Management (SIM).
This week we are going to focus on supplier performance management (SPM). SPM is focused on measuring and managing supplier performance. As with any type of supplier management solution, supplier performance management support requirements vary between organizations and industries.
Manufacturing organizations typically go deeper and more granular in measuring supplier performance, have more data-driven KPIs, and integrate supplier performance as a larger part of quality programs such as APQP. This doesn’t mean that SPM is not important and of value for non-manufacturing organizations (or indirect spend categories), but quality and performance are more subjective for those organizations.
SPM solutions designed to support both direct and indirect spend categories must be able to measure and calculate data-driven KPIs (such as delivery performance or conformity) and more subjective KPIs (such as customer satisfaction of various sorts).
Ardent Partners has identified the following key capabilities for SPM.
KPIs and Supplier Scorecards
KPIs sit at the heart of SPM. The ability to measure, calculate, and visualize performance metrics of different types is critical for managing supplier performance. For many KPIs, the underlying data comes from third-party systems (ERPs, warehouse management systems, etc.) or third-party data providers (financial data, ESG data, etc.), so the SPM system needs to be able to manage different data formats. In other cases, the data must be collected from the relevant stakeholders via surveys.
Performance KPIs can then be visualized and shared both internally and externally with the suppliers via configurable supplier scorecards.
Advanced KPI capabilities include being able to identify trends and alert buying organizations to take preventive actions and trigger mitigation and/or improvement plans.
Surveys
As mentioned above, for some KPIs, data needs to be collected via surveys. Thus, having flexible and configurable survey capabilities to capture different types of input from both internal and external stakeholders is important.
Survey input can be used for multiple purposes. Other use cases include ESG initiatives and collecting input for product development and innovation.
Benchmarks
Leveraging benchmarks is a powerful tool to drive supplier performance. Benchmarks can be created in different ways and from different types of data. Internal performance data, aggregated and anonymized SPM solution provider customer data, or third-party data from specialist providers can be used to create benchmarks. The challenge is to verify that the data behind the benchmarks is relevant and statistically significant.
Mitigation & Improvement Plans
Identifying poor performance, potential issues, or opportunities and addressing them requires support for mitigation and improvement plans. This is a specific form of project management with preconfigured templates with the areas of improvement specified and baseline data prepopulated. There should be support for setting targets and monitoring progress and deadlines built in as well.
Quality Management
Supplier quality management is a specific subset and use case of SPM capabilities with the addition of support for audits. Quality management is obviously relying on KPI measurements and the ability to manage non-conformance (a specific type of mitigation or improvement plan) and issue Supplier Corrective Action Requests (SCAR).
Audit support is more unique as it requires offline (or at least mobile) support to verify supplier provided information, provide checklists, and capture required actions on onsite visits.
Next Up: Supplier Risk Management
Next week we will have a look at one of the most complex but also critical areas of supplier management — supplier risk management, stay tuned!
As always, don’t hesitate to reach out if you have any questions or opinions. Ardent Partners is here to help!
