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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?
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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