Supplier segmentation is not a science. The next question is: An SPM program helps highlight these qualitative measures. Then, interpolate how much these costs could be reduced by implementing SPM.
One of the biggest challenges, however, is that the business case for SPM is not cut and dried. But what are other characteristics of good metrics? Review and recalibrate goals, strategy and metrics periodically — As a business grows and changes, the goals, strategies and metrics must be recalibrated so that everything is aligned.
Sometimes the top level elements on a scorecard are calculated from several KPMs and rolled up into an overall score in areas such as quality, delivery and responsiveness.
If data integrity becomes the focus, then SPM can become derailed. Many other firms are unable or too small to deploy in-house supplier development resources and may ask suppliers to hire outside consultants, if required, to tackle targeted supplier development projects.
Some firms have found that in-house supplier development for key suppliers pays for itself and can document healthy returns on investment. Or do they need to be developed? However, gaining support and budget for SPM solely on the promise of qualitative benefits may not succeed.
Supplier scorecards are a means not an end. Depending upon the scope of supplier improvement, supplier development resources may be required. One important aspect of capturing and tracking value is communicating the results both internally to stakeholders and externally to suppliers.
Developing Good Metrics and Scorecards This article has described how to create metrics that are aligned with the rest of the company.
Executives are focused on bottom-line improvements and continue to expect them as their firms adopt improvements in strategic sourcing methods and supporting technology. Many companies have uncovered significant supplier cost-savings and other mutually-beneficial ideas through regular interactions with suppliers.
It continues to reap additional savings and benefits as it extends the use of the SPM program. A large manufacturer of environmental care products calculated its total failure costs and then estimated how much a supplier performance management system could potentially reduce costs.
If a firm bases their own metrics on what other companies are trying to achieve rather than their own objectives, then they will not derive full value from SPM.
They are convinced that supplier performance will improve and the results will speak for themselves. Procurement should avoid being too internally focused.
Set improvement goals and plan — Companies must act on the performance data collected so they can influence supplier behavior. How credible are the information sources? This gives senior management information on what types of savings can be expected and a better idea of cost of SPM versus return on investment.
SPM involves more than supplier scorecards, which are only one element in the process. Qualitative information about supplier performance is successfully used by many companies. Being recognized reinforces desired supplier performance, presents role models to other suppliers, and demonstrates that a company is serious about supplier performance standards.
For example, if asked to give feedback on suppliers, will internal stakeholders do so regularly and reliably? Is information relevant to supplier performance available?
How does a firm know that it has chosen the best or right metrics? How hard can that be? What percentage of, or how many suppliers should be measured? Supplier recognition should not be approached casually. Figure 5 details some characteristics of good metrics: Supplier segmentation also helps identify supplier relationships that should be targeted for termination.In summary, the SPM process includes the following steps: 1.
Establish an SPM strategy and plan – Any supplier scorecard should be developed with corporate goals in mind.Download