There’s a new article on the eSourcingwiki, Understanding and Improving Supplier Performance. The wiki paper is also available for download on this page. It’s a good overview of the benefits and process of supplier performance management. If you haven’t read my book yet, this article provides an overview of some of the key concepts in it. In general the eSourcingwiki is an excellent source of information about many facets of sourcing and supplier management.

Also, please stay tuned to the next issue of AME Target, the magazine of the Association for Manufacturing Excellence. Coming out in the September issue is a feature article that I wrote about two companies and their supplier evaluation processes and journeys, “Supplier Performance Management: It’s More than Scorecards.” I’ll add an update to this blog as soon as the issue is published.

-Sherry R. Gordon

I’ve discussed previously how supplier performance metrics work best when they are aligned with and support overall corporate goals and strategies and reasons why they can fail. But the challenge remains of how to tell whether you’ve come up with a good metric.  There are many ways to look at a metric to judge how effective it will be. Here are a few basic questions to ask about a metric:

• Does the metric support the expectations you have of your suppliers’ performance?

Firms need to define and communicate performance expectations for suppliers. Then they should measure supplier performance against these expectations. Thus, the metrics need to provide insight into whether performance expectations are being met. For example, if you expect your suppliers to be responsive when problems arise, how do you measure that? You many need to measure more than just the quantity of corrective actions (CARs) you’ve issued to a supplier. The metric may need to be CAR response time and how many CARs are resolved or closed. Or alternatively, track how quickly suppliers resolve performance issues by tracking when identified and when resolved.

• Is the metric based upon reliable and credible data?

Disputes over inaccurate performance data cost time and money and they can result in distractions and misplaced focus. For example, if you measure suppliers for on-time delivery, is your data accurate? Be sure that items are not sitting on the dock for days before they are received. Or, if you measure product or service quality, having a common understanding of the definition and the calculation of the metric is necessary to avoid a distracting focus on the calculation rather than actual quality.

• Is the metric relevant?

If you track a supplier’s inventory turns, what does that tell you? Do they have internal bottlenecks? Do they use poor inventory management practices? You will never really know from tracking their inventory turns. It is preferable to find metrics that provide more insights.

• Is the metric actionable?

Some firms choose measurements simply because they are readily available.  Metrics calculations can expose problems, but cannot always lead to resolving them because it is unclear why a problem is occurring. For example, knowing a supplier’s quality performance is important. But you may need to track additional metrics to understand other dimensions of quality. Knowing why it is getting worse helps the supplier take action. Often underlying business practices will reveal the root causes of problems.

-Sherry R. Gordon

Last year I read with great interest about the results of the Supplier Relationship Management survey done by State of Flux, a procurement and supply chain consulting firm in the UK. The headlines about the results stated that companies were confusing supplier performance with supplier relationships.  The 2009 survey found that companies were largely monitoring supplier performance and were not getting to the next step — viewing supplier relationships as collaborative. Customer-supplier collaboration is a key business practice for deriving value from SRM. Last year’s survey produced some good insights into SRM adoption, which is still in its early stages or not adopted at all in many companies. And, as one might expect, many in purchasing functions felt poorly-equipped to handle SRM effectively despite its perceived importance and had difficulty demonstrating its benefits to senior management. Tyically supplier performance issues and cost reductions tend get management’s attention. SRM requires the development of close customer-supplier relationships so that considerable value from areas such as innovation, new product development, operational improvements can be derived.

I thought readers of my blog would be interested in participating in the 2010 SRM survey and in getting the results of it.

Here is some information about the 2010 SRM survey from State of Flux and a link to the actual survey:

“State of Flux has launched its 2010 survey on Supplier Relationship Management (SRM) and is reaching out to supply management and purchasing professionals to complete it. Individual responses are kept confidential. We know that SRM remains a hot topic for organisations, and creating the business case for change in this area is often challenging. All of us understand intuitively that SRM is the right thing to do, but it is difficult to put absolute values on the benefits that can be achieved through an SRM improvement programme.

In 2009 State of Flux focused their survey around the 6 steps for SRM success and for the 2010 survey they have extended the survey to not only focus on how organisations approach SRM and their business cases for change, the implementation and overall approach to SRM, but to also allow organisations to benchmark where their programs are in comparison to the leading practices. 

It would be appreciated if you could take 10 to 15 minutes to complete the survey. State of Flux will happily provide the results upon completion of the survey and like last year they are planning to run some cross organisational workshops to discuss further so I’m sure they will be happy to invite you to join those.”

 The link to survey is http://www.stateofflux.co.uk//surveys/srm_survey.aspx

-Sherry R. Gordon 

At the end of the year, and especially at the end of a decade, many top ten lists are popping up. So I’m joining in this list-making with the top ten reasons why firms should implement supplier performance management (SPM).

1. Find out how well suppliers are really performing
2. Improve supplier performance such as quality, responsiveness, customer satisfaction and delivery
3. Reduce the cost and operational impacts of poor supplier performance
4. Derive value from suppliers beyond lower prices, such as collaborative product development and business development opportunities
5. Better understand the supply base and who the most critical and strategic suppliers are
6. Find out current or potentially risky suppliers
7. Uncover and reduce supplier-induced problems (and cost drivers) such as customer complaints, quality problems and warranty returns
8. Gather the information that will help you set criteria for new supplier on-boarding and approved supplier lists
9. Find and disengage with low-performing suppliers
10. Identify specific, value-added supplier performance improvement opportunities

Supplier performance management is more than the quest for the perfect scorecard. It is a business process for measuring, analyzing and monitoring supplier performance and suppliers’ business processes and practices in order to develop productive customer-supplier relationships and to reduce costs, mitigate risk, drive continuous improvement and leverage supplier value. While firms can certainly derive “quick hits” from SPM, it yields the most value and impact when viewed as a premeditated, ongoing business process with multi-function participation and ongoing care, feeding and continuous improvement.

-Sherry R. Gordon

Boeing recently announced that it was planning to replicate all 787 parts built in the Puget Sound area in a new facilities being built in North Charleston, South Carolina. According to a recent article in the Seattle Times,  Boeing machinists are seeing this as the first step toward moving all parts out of Boeing’s Puget Sound plants. The two-month machinists strike in Boeing’s Commercial division in 2008 seriously disrupted production. It was one in a series of glitches that has forced Boeing to postpone the 787’s inaugural test flight and deliveries to its customers five times. Boeing is now over two years behind schedule. The cost and penalties to Boeing are in the billions of dollars in addition to a huge loss of credibility. Boeing  is claiming that it is expanding production and not duplicating production to move away from unionized machinists.  However, their spokesman cited strikes as a major reason for doing so. South Carolina plants will not have to contend with the International Association of Machinists.

As a company that has experienced failures in its supply chain in the production of the 787 Dreamliner, this was an expected move that Boeing has made to avoid supply chain risks. When it bought the Vought Aircraft Industries plant in North Charleston, SC, it was ostensibly to stabilize a shaky critical supplier and also to avoid having to fly parts to the Puget Sound plants. Now it is clearer that Boeing is trying to avoid being at the mercy of its unionized machinists. Realistically, it is these highly skilled machinists who are needed to produce a high-quality airplane.  Boeing can’t seem to live with them or without them. It will be interesting to see whether or not using less experienced machinists in SC will prove to be a problem.

The other big supply chain risk that Boeing has experienced is in its poor selection and management of its global supply chain, which may be an even greater risk than machinist strikes. For a company that practically wrote the book on supplier certification, their losing control of their supply chain has been mystifying. There may be some parallels to the “too big to fail” mindset or “the left hand doesn’t know what the right hand is doing” situation that occurs at such a behemoth corporation. Even when processes such as supplier performance mangement are world class, they don’t do much good if they aren’t used.

As of this writing, Boeing is on track to meet its deadline of having its first Dreamliner test flight before the end of the year. It’s aiming for next Tuesday, December 22nd. In the meantime, in regard to its supply chain and machinist issues, Boeing needs to fix the problems, not the blame.

-Sherry R. Gordon

You’ve heard of supplier rationalization and “rightsizing” the supply base. What about too many KPIs on the supplier scorecard? I’ve mentioned the problem of measuring too many KPIs in previous posts. In 11 Reasons Why Supplier Scorecards Fail, I list measuring too many KPIs as a reason for failure. In Supplier Scorecard Metrics: Easy vs Meaningful, I discuss how KPIs can proliferate on scorecards just because they are available, not because they are particularly  meaningful. What could be the downside of too many KPIs? Isn’t the more KPIs the merrier? I know of a manager who had 80 KPIs on her scorecard. She found that it was impractical to manage that many metrics. The scorecard looked impressive. But the company found it impossible to get actual results with this huge list of metrics.

What are some ways to reduce the number of KPIs on a supplier scorecard to the most meaningful? How do you decide which KPIs to get rid of? Here are four approaches.

1. Look at each metric and test the extent to which it relates to your firm’s goals, objectives and strategies. If the metric is not directly related, it should not be on the scorecard. Supplier metrics need to support your overall objectives and help you achieve your  goals. Otherwise, they are taking up resources and space.

2. How realistic and achievable is the item being measured on the scorecard? Is it something that is likely to be achieved in your company? For example, if you are measuring supplier contract compliance, but have no solid means of determining compliance (or at least one that doesn’t require armies of people), then the metric needs to be rethought. Stretch goals are great. But until the business processes and resources are in place to achieve these goals, the metric isn’t ready to be on the scorecard.

3. What is the cost/benefit of the KPI vs the resources required to create the KPI? The effort to obtain the data should be commensurate with a KPI’s usefulness and ability to be actionable. If a KPI is more trouble than it’s worth, it falls into the category of “data for the sake of data” and should be eliminated.

4. How actionable is a KPI? If you look at it and cannot think of ways you can connect it to supplier performance improvement or to the improvement of the customer-supplier relationship, then it may no longer belong on your supplier scorecard.

When it comes to KPIs, sometimes less is more.

-Sherry R. Gordon

In the past couple of months I wrote two guest posts on Spend Matters about an independent  cycling trip that I went on in France. In the first post (An Uphill Battle with a Poor Supplier), I described how the tour company rented us supplier-provided bicycles  that were in less than top condition, ill-fitted, missing air pumps and having other mechanical issues. In a follow-up post, I responded to questions from a reader regarding how the tour company should handle the bicycle supplier in this situation and gave my views on ways to handle an offshore supplier.  The cycling tour company had done a terrific job of planning the lodging, the route and other trip details, but had not done so well with a key aspect of a cycling trip — the bicycles.

In this post, I’d like to report the results of our giving the tour company our detailed feedback about the bicycles (as well as about the positive aspects of the trip). Two months after the trip ended, the response regarding the bicycles was: “I will speak with our local contact about this situation.” WILL speak with the contact? It means that the bicycle supplier still does not know that its performance was unacceptable for the past 2 months and other clients on cycling tours still had to use these bikes. Having quickly and neatly dispensed with my feedback, the email then asked us to become their fans on Facebook and to send them any blog entries about our trip. Hmmm. Should I send them my Spend Matters blog posts? I don’t think that those posts are exactly what they have in mind.

I am disappointed and actually surprised that this company, who did such a good job in every aspect of the trip apart from the bikes,  is so tone deaf to customer feedback about a key supplier, who is absolutely critical to their customers’ satisfaction.

-Sherry Gordon

I recently gave a workshop on supplier evaluation in a lean environment as part of the AME Lean Conference. Because the attendees of my workshop already had a working knowledge of lean principles and practices, they were quite different from many audiences I have presented to and interacted with on the subject of supplier evaluation and supplier performance improvement. They wanted to find ways to improve their suppliers performance AND they were already familiar with a proven continuous improvement methodology — Lean.  These folks have the means but needed to understand the how to.

Too often I have seen procurement people who want and need improved performance from suppliers but aren’t sure how to make it happen. They may use scorecards to diagnose problems and opportunities, but find the next steps challenging — how to get at the underlying causes of performance issues and how to help or lead suppliers to addressing them. High performance and continuous improvement systems such as lean can provide the tools and the path. Improving supplier performance is very challenging. It requires both hard skills (continuous improvement methodologies and skills) and soft skills (communications and relationship building skills).  But having capabilaities in a proven methodology can provide a huge advantage.