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Seven Steps to Next-generation Supplier Performance Management

VIEWS: 18 PAGES: 5

The framework says that you take your strategic supplier objectives and you debate them: Are we able to achieve those objectives? Do we have sufficient capital, people, customers and markets? What if we negotiated different terms with suppliers? What if we acquired some of our suppliers? What if we outsource more logistics services? What if fuel costs become even more unpredictable? Should we buy or build a certain component?

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									best practices                                                                                         Sourcing/Procurement




Seven Steps to Next-generation
Supplier Performance Management
Building a framework for closed-loop performance management requires
focusing on four strategy-to-execution processes
By Ron Dimon and Simon Tucker

         anaging the performance of your suppliers, a critical        improve your fact-based decision-making capabilities that get you

M        component of overall supply and demand chain management,
         can have a material impact on your company’s revenue
growth and operating margin. Not investing in how you manage
                                                                      closer to realizing your strategy.
                                                                         To do this, you must be able to rigorously answer these questions:
                                                                      “What do we want to happen with suppliers, and how do we want it to
supplier performance, especially in a down economy, can have a        happen?” and “What actually happened, and why did it happen?”
negative impact on your profits, assets and cash flow. This article      Here’s the framework:
lays out a framework – a “management operating system” – for
the discipline of closed-loop supplier performance management
(SPM) and shows the hard-dollar return on investment that this
discipline can deliver.

A Framework for Next-generation SPM
   We developed this framework based on our work
with overall enterprise performance management
and have found that it works well when focusing on
supplier performance or any dimension of
the supply chain.
   The goal of the framework is to help
manage the process of strategy to execution.
You already have overall company strategic
objectives: a certain level of revenue growth
at a particular target margin, or an expected
level of market-share and brand recognition,
for instance. Within those corporate objectives, you
have specific supplier performance objectives: a certain
level of material quality, cycle times, inventory levels and
so on. The challenge is to ensure that you efficiently – and
sustainably – execute on those objectives and continuously

14 Supply & Demand Chain Executive December 2008/January 2009
Sourcing/Procurement                                                                                   best practices
   The framework says that you take your strategic supplier objectives      operational plans such as your production plan, materials purchasing
and you debate them: Are we able to achieve those objectives? Do            plan, workforce plan and even your capital expenditure plan.
we have sufficient capital, people, customers and markets? What if             Having a systematic debate that informs your decision helps prevent
we negotiated different terms with suppliers? What if we acquired           the institutional amnesia that occurs when results aren’t delivered
some of our suppliers? What if we outsource more logistics services?        as expected and senior management asks why the bar was set too
What if fuel costs become even more unpredictable? Should we buy            high or too low. When plans are consolidated from each function
or build a certain component? This is where you build financial and         and each business unit around the company, more constraints and
operational models to record constraints and vet your assumptions           assumptions are uncovered – and those should be fed back into the
about suppliers. Instead of a few spreadsheets run by a few analysts,       models so that the next model (next week, next month, next quarter)
this is an open process by the executive management team from all           is even better than before.
business functions – sales, marketing, procurement, and customer               While you are busy buying materials and services from suppliers, making
and supplier operations – with multiple scenarios recorded in a             products and services, and delivering 
								
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