This week's Knowledge Nugget is on Supplier Performance Management. In part 2 we covered the first step in the program - the need to view your supplier management as a program not just a scorecard. This is part 3, where the second step of the program is discussed. Links at the bottom of this post will direct you to the other segments of this discussion. Enjoy!
How are you managing suppliers today?
The forces of globalization are fundamentally changing the way that companies operate and compete, offering both business opportunities and challenges. The quest for lower-cost sources of supply and the promise of new markets are driving organizations of all sizes—from large, Fortune 50 enterprises to small Midwest manufacturers—to venture into the global economy. At the same time, increased competition from emerging markets, a sagging U.S. dollar and tightening supply markets are quickly erasing the lines between local and global supply chains.
Even as companies seek to sell, compete and secure supply in far-reaching corners of the world, they also must contend with challenges inherent to the global supply chain. Longer lead times mean that supply chain executives are recalculating the balancing point between “too Lean” and “too much inventory.” Supply uncertainty is forcing a greater emphasis on supply chain risk management as a discipline. And the need to negotiate and govern business contracts across multiple jurisdictions is adding new complexity to the supply management process and prompting procurement executives to reexamine the skills necessary for managing a global supply base.
The second step in the program is to set measures and targets that will tell you whether you are creating value and achieving the strategy:
Key Performance Indicators (KPIs)
KPIs are quantifiable performance measures developed to monitor the progress towards the achievement of strategy and the creation of value
KPIs are the primary means for communicating business results
Targets are set for KPIs to ensure focus on continuous as well as breakthrough improvement
Four Inputs into the Target-Setting Process
On a going basis, the metrics begin to have power when:
- It is based on analysis, hard data, reality
- When everyone in the organization understands how key metrics link to overall procurement and corporate objectives
- When the targets set are credible (no point insisting on 99% on-time delivery when bulk of the reason for late delays are due to recognition problems in your receiving docks – sometimes refining the definition of on-time delivery where the goal is within the control of the supplier makes more sense)
- To this point, target setting for suppliers have to be incremental – reviewed on a consistent basis
Performance Management is a business process and needs an owner
- Oversee, maintain and improve PM processes
- Support users and resolve issues
Each scorecard has an owner
- Responsibility, authority and accountability for results
- Achieving/ influencing results is within their span of control
Most successful programs also have a strong executive champion
- Active top-down support is critical to establishing new programs and driving needed changes
Links to the rest of this topic below:
This has been another Knowledge Nugget post brought to you by Beverly Dunn.
For more information or details please feel free to contact me!