Here we go again …

Performance Management is the focus for today’s article, the second of my four part series, where I’ll be giving you my view on what good looks like and why you simply cannot afford to ignore this for the key services that make up your supply chain.

Isn’t it just relationship management?

The discipline of Performance Management (or as its often known – SPM) is, and always should be, an integral part of any supplier management strategy. Does performance management need to go ‘hand in hand’ with relationship management? Yes, it does, but the two shouldn’t be confused as the same thing. Interestingly as this State of Flux article reports, even senior procurement leaders can often confuse the two, but in my mind there’s a very clear distinction. The article distinguishes it simply as; “SPM is about getting what you have been promised in a contract, whereas SRM is about collaboratively driving value as part of a two-way relationship”. Largely I agree with this and certainly the definition of SRM is in line with my own thinking, but I think there’s a little more to the SPM side of things than that.

I’ll be covering relationship management in the last of my series, but put simply, my description of supplier performance management is; ‘ensuring that the key obligations of the service are delivered in line with the agreed performance metrics and that such metrics are measured, monitored and reported against.’

Is it important?

In a world where the attention on the agility, transparency and quality of supply chains has come into acute focus, reporting to your CEO that ‘nothing is flashing red’ and that everything “feels OK” is no longer enough. Time has passed where we can merely rely on our gut feel or a lack of angry phone calls, in todays fast moving and data-driven world we need to be able to understand and demonstrate how our supply chain is performing. Without having a handle on where we’re at, we cannot determine which areas need attention, which areas are shining examples and fundamentally, which of our contracts are being adhered to.

What should I be measuring?

Answering the question of what to measure is something I could write several articles on. My view being – it really depends on the goods or service you are buying, how mature you wish to be in measuring your key supply partners and what is critical to your business. What I would recommend however, is that you measure things at three levels; relationship, service delivery and compliance.

What I am passionate about though, is making sure that the performance metrics you agree are achievable, fair and measurable. I’ve seen numerous contracts include KPIs that can never be achieved and are utterly pointless. This does nothing to foster the right environment to deliver a quality outcome and often has the opposite affect by demotivating the supply partner.

Shape it early

Similar to my views on contract management, I believe that good supplier performance management doesn’t just kick in downstream after the contract is signed, it should actually form part of your ‘sourcing’ phase. In fact, I’d actually go so far as to say that not including the performance expectations you have as part of your sourcing activity is a fundamental mistake and one you are likely to regret.

When it comes to measuring the performance of your suppliers there are of course many tools on the market, some specialist and some wrapped up as part of a wider “end to end” offering e.g. Coupa or SAP Ariba These can come with a hefty price tag so I would encourage you to do your research and identify what’s right for the size and shape of your business, but if for whatever reason you feel that the technology is not for you, then make sure you have some way of demonstrating performance even if it’s just an Excel spreadsheet.

In terms of the key aspects you should be addressing, this Forbes overview is helpful at a high level, but below are my recommended areas to cover, both upstream and downstream:

Upstream

Approach to Market. When looking to source your goods or service have as clear a view as possible on what specification and standard of delivery you need. Yes, some projects may start off quite conceptual and take several steps to actually shape what you really need, but when you’re clear on your requirements, it’s always wise to ensure that you are as explicit as possible when it comes to the description of them, how they are to be delivered, when, and to what level. As a buyer of software applications for many years, I’ve seen numerous misunderstandings when it comes things like platform ‘availability’ and what for instance 99.9% availability actually means! So be as clear as you can and also understand the offer fully.

Contract Execution. It goes without saying that documenting your agreed position and negotiating any final tweaks is paramount. Ensure that the agreed performance criteria is clearly laid out, is well defined and easily referenceable. Avoid ambiguity at all costs and ensure that those responsible for monitoring performance fully understand the metrics and what drives them.

Downstream

Reporting & Dashboards. As part of the contract you should be setting out the key performance metrics to be measured. It is then crucial to ensure that you agree how the performance against the agreed metrics is to be captured. What can be useful is a balanced scorecard type approach and if possible, try to think 360 degrees and capture your own part in the end to end performance. As a minimum however, ensure that reporting in an agreed format is captured and then made accessible to the nominated stakeholders. The creation of dashboards summarising the full range of metrics can be extremely helpful too, especially for obtaining a ‘global’ view and reporting upwards. Integrity of the data sources should always be on your mind here.

Governance. You ideally will have an agreed governance structure when it comes to working with your key suppliers and as part of that its essential that performance is covered and discussed. You may find it useful to split sessions into two to allow sufficient focus on performance as well future direction, but whichever is your preference, ensure its given sufficient airtime.

Consequences & Remediation. I’ve included this as I feel having clear and fair recourse in respect of non-performance is hugely important. This should be documented within the contract, but you should also understand the affect on the relationship if the full contract consequences are always followed. Clearly, some sectors such as financial services that are heavily regulated come with hefty penalties from industry watchdogs or governing bodies so flexibility cannot always be shown and some would no doubt argue that they expect the level of service they have agreed to pay for! Personally, I prefer the ‘firm but fair’ approach.

In summary, and as I alluded to in my previous article, it’s important that you take an approach that works for you and your organisation. However, what should not be underestimated is the ground you will have to recover if you don’t have your finger on the pulse when it comes to the performance of your key supply partners. It doesn’t have to be overly complex, but you must capture what is important to you in a way that is easy to understand and easy to track.

Whats next?

Up next in my four-part series is the increasingly hot topic of Risk Management and I look forward to sharing this with you in a couple of weeks-time. In the meantime, if you require support on any of the areas covered above, please feel free to contact me on 07834 452333 or at Marriage-Stanley Associates via this link.

James Cowley

Principal Associate, Marriage-Stanley & Associates