Why do firms find supplier performance management so challenging?

Through my work I see how so many companies struggle with supplier evaluation and supplier performance management. Many are unhappy with their processes or the lack of measurable results and some are just at the starting gate. Some procurement people can’t seem to make a good enough business case to get management’s attention, support and budget for a proper system, yet they certainly get senior management’s negative attention when their suppliers screw up. Management understandably pays more attention to visible costs than hidden costs, even though the latter are quite real, substantial, often risky, and are materially robbing the bottom line like invisible bandits. While no business likes rework, returns and complaints, frequently caused by deficient supplier performance, firms continue to do things as they’ve always done them and institutionalize these invisible costs as a part of doing business.

Many firms think that if they can just put together a scorecard with the right metrics, all will be well. It won’t be. Many companies are starting at the wrong end of the process. Thinking about metrics either in a vacuum or before considering your company’s overall goals and strategies and how your supply chain’s performance can support those goals and strategies can be a recipe for failure. Supplier evaluation and performance management is a business process and as such, involves cross-functional participation and change management. It is more than dumping data into dashboards and or developing the correct formulas for metrics, which in itself can be a challenging and costly undertaking. And it is not the sole purview of the procurement department, as supplier performance (or lack thereof) can impact the entire company.

Challenges exist, but the rewards can be great.

Sherry R. Gordon

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