When measuring supplier performance, it's how well, not how many

Recently I was asked about how many suppliers are typically monitored and measured, on average, using a supplier performance management (SPM) system or solution and whether there is a best practice. I have never come across a best practice in terms of numbers of suppliers to measure.

I know of one large company that was measuring 1200 suppliers and another large global company that is tracking about 35 and trying to increase to maybe 75. For some companies, 100 is too many and for others it is too few. The SPM process is much more scalable using a system rather than say, Excel spreadsheets, and the information can be much more timely. The number of suppliers that can be monitored is typically limited by one thing — the size and bandwidth of the staff managing the suppliers. How much time do purchasing or supply management staff need to monitor the performance of suppliers? How much time do they have to do so? People should focus on the quality rather than the quantity of customer-supplier relationships and interactions.

An SPM system helps scale the performance management process and there is typically exception reporting.  That means that one could, in theory, measure a large number of suppliers. In contrast, a manual process is far less timely and can suck up a lot of staff time that should otherwise be used for more strategic and important activities. One large company that I know had a manual scorecard process that took so long that the information was already too old and did not to have much credibility with the suppliers by the time they got their scores.

But supplier managers should not lose sight of an important aspect of the SPM system — giving feedback to suppliers on their performance, typically in the form of periodic reviews. Less important suppliers can access their scorecards without actually having to speak or meet with them and you can contact them on an exception basis if performance issues arise. But you should communicate with the key and critical suppliers on their performance at some regular interval not only to discuss any performance issues but also to develop the relationship and share information. Such communications help companies develop customer-supplier relationships, share information and derive the true benefits and value of SPM. So the question is not how many but how well. One large global company, for example, starts with a face-to-face performance review meeting whenever possible, then subsequently meets regularly via a web meeting, spacing out the review meetings as time goes on and as the supplier gets the hang of the scorecards and improves and stabilizes or improves performance. These meetings are, of course, for key and critical suppliers — not for just any supplier.

When companies first implement an SPM system, they should start out with a subset of suppliers and expand the rollout as they use the system. So while some companies may eventually want to track hundreds of suppliers, most probably do not want to start out measuring that many until they get a good business process up and running and see how many suppliers they actually need to track, adding more as they derive value out of the evaluation and have adequate resources to expand the process. The ROI comes from closing the performance loop, not just from sending out large numbers of scorecards.

Sherry R. Gordon

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