Supply management, procurement and quality professionals are increasingly aware that they should be measuring their suppliers’ performance and working with important suppliers on performance improvement. In their enthusiasm for going forward with these initiatives, some people make some errors that can impede or stall progress. Here are a few mistakes people making when trying to justify a supplier performance management program:
- SPM enthusiasts assume that senior management and other functions understand SPM as well as they do. So they may neglect to explain what it is and what it will do for the company. Enthusiasm is important, but it is no substitute for a good explanation of SPM. While managers in other functions may have heard about it, not all will really understand what it is in the context of your company. It’s important to make sure that everyone understands what you’re talking about.
- Others may generally know that SPM is a good thing and that every company is supposed to being measuring and improving supplier performance. But until you explain exactly what it means for your company and what the benefits are, SPM may appear to be, as they say in entrepreneurial circles, just a vitamin, not a real painkiller. Does it just make you feel better? Or does it really solve problems and take away real pain?
- Because quantifying the cost savings of SPM can be more art than science, proponents try to get by with the goodness argument rather than demonstrating potential ROI. The financial benefits of implementing SPM are multi-faceted and not as easy as, say, beating up a supplier up on price. But the benefits are still very real and demonstrable – and much more sustainable than ill-gotten price reductions. So procurement and supply managers need to quantify benefits to the extent possible in order to sell SPM.
- Proponents of SPM sometimes underestimate the effort required to put a good SPM process in place. SPM involves change and change management. For example, different functions may need to work together as never before to address both internal and supplier issues. Feedback may be needed from people who have never been involved. The customer firm may need to make internal changes that will enable improved supplier performance. So don’t undersell or shortchange the planning and implementation effort, or the results will not live up to expectations.
- SPM in general and scorecards in particular can get oversold as a panacea to supplier problems. Scorecards do not equal results. Supplier scorecards help diagnose problems. People solve them.
In summary, to gain full support, define SPM in the context of your company and demonstrate how it can help prevent and alleviate the pain caused by supplier performance issues.