Spend some time, to save some time! Taking time to step back and look at your current processes with a critical eye, is the first step to making things work a whole lot better.
Then again, isn’t that just the thing that is required to save time, become more efficient, manage change, automate and implement new processes and technology?
Sometimes, taking time to step back and look at your current processes with a critical eye, is the first step to making things work a whole lot better.
By spending 10 minutes on this resource today, our team at Kodiak Hub hope to provide 7 Best Practices that will save you & your team 10+ days of work in the coming months!
The Current State of Supplier Performance Management
So, what is the current state of Supplier Performance Management, and more specifically - Supplier Performance Evaluation?
The graphic seen below in Figure 1 from Ardent Partners, CPO Rising Report shows that 41% of procurement teams currently use a modern digital Procurement solution for Supplier Performance Management.
44% plan to apply a solution for SPM within the next 24 months, while only 15% don’t plan on using a solution for SPM
A 2020 report from WBR Insights & Mintec seen above found that Supplier Performance was one of the top digital procurement priorities in the coming year.
The tribe has spoken, the verdict is in, and it’s pretty clear that the digitalization & development of Supplier Performance Management is a key focus for procurement teams globally in the coming years.
Interestingly enough the same WBR Insights & Mintec report - from above - made a key finding that, “[...] the top concern for procurement professionals surveyed is having to “make buying decisions without necessary buying insights” (WBR Insights 2020).
Lacking buying insights is a reasonable and legitimate concern a lot of procurement professionals are facing. Research suggests that 55-65% of innovations are sourced through external suppliers and partners (ISM). This makes supplier and partner contributions to a business’s profitability and market competitiveness; very important.
In a post COVID19 world, businesses & global supply chains are more vulnerable than ever before. Having a finger on the pulse of your supplier base is becoming increasingly important. Having better buying insights gives your team the means to leverage the value of your suppliers performance, backed by data.
Which leads into the 2 questions every procurement team needs to ask themselves:
- How can your procurement team turn Data & Information into Insights & Intelligence?
- Furthermore, how can you turn Insights & Intelligence into Improvement & Innovation?
Drowning in Information, Starved for Knowledge...
The global availability and spread of information & data has grown at a tenacious speed in the past 20 years. Looking at this graphic Figure 3 to the right from a 2019 Harvard Business Review article, we can determine that the globalization of information has grown at 4x the speed of the global population, capital, or trade.
The cherry on top...
IBM’s Marketing Cloud reported in 2017, “90% of the data in the world today had been created in the last two years alone”. Meaning year 2015 & 2016. I wonder, how much data has been created since then?
Kodiak Hub hypothesizes that current state of Supplier Performance Evaluation is as following:
Procurement, Sourcing & Supply Chain Teams are drowning in information & starved for knowledge.
Our team at Kodiak Hub believes you are capable of focusing on the data/information that matters and building deeper buying insights.
Our 3 promises to you right here, and right now:
- You are capable of harnessing information & data
- You are capable of creating buying insights & intelligence
- You can save time on supplier performance evaluation
This eBook will provide you with 7 practical & applicable ways to get the ball rolling, and start saving time on SPM!
7 Practical & Applicable ways to save time on Supplier Performance Evaluation:
1. Align on KPIs
You may already have Supplier Performance Criteria & KPIs that are well defined, and if so, that’s great.
If you don’t have KPIs in place, a good starting place is to build a simple model for identifying and aligning on evaluation criteria, or KPIs. This can serve as a white board for team workshops & brainstorming sessions. In below Figure, you can see some example modelling for KPI mapping that is 3-Tier. This model is similar to the KPI mapping utilized in the Kodiak Hub solution, and the individual criteria always feed back, or roll up, into an overall supplier performance, at the top of the diagram.
Kodiak Hub helps our customers & users to evaluate overall supplier performance within 6 different Key Performance parameters. These are labeled "Tier 1"
Tier 1 performance parameters:
- Supply Chain & Delivery
- Innovation Capacity
- Sustainability Performance
Locating these (Tier 1) key performance parameters are important to build sub parameters (Tier 2), and structure your performance evaluations properly.
You may not have 6 key parameters, or your performance parameters may be named or look slightly different, but this type of performance criteria definition is suggested nonetheless.
After you’ve identified tier one parameters, you can focus on moving down to formulate the Tier 2 - performance sub-parameters.
Under Supply chain you may have sub-parameters such as Delivery or Logistics, under Quality you may have Production Quality, or Product Quality, under Sustainability you may have Waste, Emissions and so forth, and so on.
Underneath each sub-parameter, you can begin to look at the individual supplier performance activities that you’d like to evaluate. This is the 3rd Tier of identifying KPIs.
Under the Tier 3 area of Delivery you might evaluate specifically OTIF, under Innovation Capacity you may dig into Investments in R&D or Product Innovations.
Keep this in mind... As you begin to define the content of these various KPI Tiers, you’ll need to align stakeholder expectations, requirements & preferences. Team members will likely have strong feelings about what should be measured, and how it will be measured, but it’s important to remember that the end goal is a common one.
2. Capturing & Aligning a Broader Stakeholder Perspective
In order to align on KPIs, and have a robust criteria for supplier performance evaluation, you need to locate KPIs that are outside of the scope of solely Procurement, Sourcing & Supply Chain.
This will require a development manager, a program manager, or a project owner to align supplier KPIs, targets & goals cross-functionally.
To achieve a broad range of stakeholder perspectives you’ll need to include Production, Quality, Sustainability, Finance and even Sales & Marketing in order to truly capture the various Supplier KPIs that exist within the broader value chain. This will help you to bridge functional gaps, and gain perspective for the necessity of supplier performance within various functions.
Knowing the difference between the Quality team’s concerns for supplier performance & the Marketing team’s concern will help you to locate commonalities in the KPIs, and understand which supplier performance parameters can be addressed more generically & which need to be addressed more individually.
Which leads into the 3rd tip, helping you to save time on Supplier Performance Evaluations:
3. Typify. Typify. Typify.
Supplier performance parameters & KPIs will look very different from organization to organization and industry to industry.
Most importantly, supplier performance evaluations should be adapted based upon a supplier’s characteristics, or a supplier type. It’s important to evaluate supplier performance in line with supplier typification; this could be based on category, country, spend, criticality, or other typifications.
You need to make sure your supplier data & information is typified and apply that same ideology to your supplier performance evaluations.
Performance parameters, as well as targets & acceptance criteria, should be relative to the type of suppliers you’re evaluating.
You want to compare Apples to Apples & Oranges to Oranges.
If you’re evaluating the performance of a PR/Comms Supplier to a Direct Material Supplier then you should have a variation in the performance criteria, in order to achieve the desired result. This means two different templates for 2 different performance evaluations.
An example is visualized here below
The Innovation of a PR/Comms Supplier may be gauged upon their capacity for creativity, or general ability to deliver innovative ideas during a project. At the same time, a Direct Material Supplier’s Innovation Performance may be gauged on the their delivery and supply chain performance or the amount of their revenue invested back into product Research & Development.
This is where the previous KPI work, and alignment of broader stakeholder groups will come in handy.
You can create a master database of performance evaluation criteria, or performance attributes. This KPI Bank of evaluation criteria should be organized based within the Tier methodology, keeping performance parameters where they belong, and typified based on what kind of supplier the evaluation criteria pertains. This will help you quickly and dynamically insert performance criteria into supplier performance evaluations when needed.
Leading us into point number 4 on this journey towards better and faster Supplier Performance Evaluations
4. Don’t forget about Supplier Governance & Risk
Though not focused on a supplier’s actual output performance, gauging the management of supplier operations and supplier risk are equally important to gain a holistic understanding of a supplier’s overall performance profile.
By measuring supplier compliance and risk, in parallel to performance, you’ll be able to more quickly spot trends, or discrepancies in a supplier's performance.
Seen above in Figure is a high level example of what kind of buying insights one can gain from looking at a broader range of performance criteria. Here we’ve compared our supplier’s quality management capabilities to their actual quality perf. output.
A supplier that lacks quality management, will likely not excel in quality performance, and should they show high quality performance, but lack management capability, this discrepancy could also cause issues/incidents.
Taking Governance & Risk into consideration gives you a 360° picture of a supplier’s overall value profile, and it will ensure that your supplier partners won’t negatively impact brand or shareholder value.
Seen below is a screen shot from Kodiak Hub’s Supplier Scorecards, which focuses on building holistic profiles of supplier performance.
No matter how high performing suppliers are, if they put your brand, or business at risk, the collaboration will need to be reconsidered. The more you know about the supplier’s existing mode of operation & potential risks, the more you can modify the risk status of a supplier, and tailor performance evaluations that will follow.
Risk/Compliance areas you should consider covering are listed on the screen below in Figure:
As stated at the beginning of this eBook; Procurement is drowning in information, and starved for knowledge.
You have enough on your plate. Don’t try to reinvent the wheel when it comes to supplier governance, due diligence & risk management. Just like Kodiak Hub, there are a plethora of great solution providers as well as open databases, international agencies & NGOs that can provide you with valuable insights about your suppliers within these various areas.
5. Know what’s going on
We’re living in a new reality where the value of a brand is directly linked to, and impacted by, the operational activities of a global supply chain and its many Tiers.
Consumers aren’t sympathetic to supply chain complexity.
If something happens in the world, you need to know about it.
If you have a global, complex, or large supply chain, then Media Monitoring of some sort is suggested, to stay on top of current events, news, happenings, updated sanctions, blacklists and more.
Performance Evaluations are important, but they’re also rather redundant if a supplier is experiencing poor financial results. If a supplier is going through a M&A process, or has received negative media exposure, these are facts that needs to be taken into consideration during a performance review or evaluation.
Staying on top of what’s going on will help you focus your energy in the right places at the right time!
6. Locate the right Data Sets
Now, you’ve put in the work to align supplier KPIs, your team knows the targets for supplier performance, and you’ve identified the evaluation criteria.
Instead of rushing ahead, and sending out performance evaluations via an Excel Template, take a step back and ask yourself a few questions, starting with...
Where can you gather supplier performance data from?
Do you need to send a performance evaluation to an internal stakeholder, or a supplier, or both?
Do you need to send a performance evaluation to multiple stakeholders?
If so, do all stakeholders need to respond to every area of the evaluation?
Most importantly, do you already have the responses to the evaluation in another business solution, such as an ERP, or quality solution?
Take the time to locate where your supplier performance data can be sourced from, and it will streamline the process of gathering information. This will save your team time, and headaches.
A triangulation of data sources is important to gather a robust view of supplier performance, and having API integrations to an existing ERP (or other solutions) will avoid the duplication of work as seen below figure.
Sourcing performance data directly into evaluations will, of course, require the adoption of a modern supplier management solution or IT capabilities to create cross-system integration. It will also require a predefined definition of performance acceptance criteria.
To further explain, here’s a classic use case we see from customers at Kodiak Hub:
A customer wants to evaluate a Supplier’s Performance. Quality Performance is one of their key performance focuses. They’d like to gauge deviance of compliant parts per million, number of complaints, and number of claims. These are all numerical, quantifiable values, and data points that are already reported by a Quality Control or Quality Assurance professional in the customer’s ERP solution or another Quality Management solution. Upon triggering performance evaluations, these sub parameters of Quality Performance won’t be sent out in a questionnaire format to internal stakeholders for feedback. Instead, a customer is able to predefine what data points should be pulled via API integration and fed directly into the performance area. When the evaluation is triggered, the quality data is sourced directly into the evaluation, based upon predefined multiple choice acceptance criteria for excellent, good, satisfactory, and poor performance.
7. Adopt a Rating Methodology
I’ll say it one last time: Procurement is drowning in information, and starving for knowledge.
One of the simplest ways to make sense of supplier performance, fast, is to automate the scoring of supplier performance, and visualize that data in the form of ratings or supplier scores.
This is why it’s so important to first align around performance criteria, align on KPIs, targets, goals, acceptance criteria, and then to locate the right data sources.
Organizing your supplier performance parameters into Tiers, as explained in tip number 1, allows you to goal set, and weigh the evaluation criteria at various levels, as seen below in Figure. Using the mix of these two ideologies, you can also assign weights dynamically to create averages that are unique to a supplier type or grouping. Rating within the performance Tiers also allows you to have different levels of transparency or granularity into performance ratings for quick analysis.
Check out the screenshot below from the Kodiak Hub solution. The Tiers of granularity are visualized, and display the power of adopting a rating methodology. The overall Supplier Performance Rating is to the les (Tier 1), the 6 Overall
Supplier Ratings will help you spend less time with your nose in an excel spreadsheet and give you more time to drive value with the right suppliers at the right time.
Much of performance evaluations are based upon qualitative experiences and stakeholder evaluations of a supplier's performance. Focus on Quantifying the Qualitative. Create opportunities to make your supplier evaluation criteria into a multiple choice format. The more you can turn into multiple choice options, the more you can weigh the questions you ask, and automate the scoring of responses, which will also serve as a time saver.
Supplier ratings will save your team time on those lengthy quarterly supplier performance reviews by helping you quickly spot risks & opportunities, they will provide you with better negotiation power, help you quickly compare or contrast suppliers, and they will certainly make you the smartest buyer in the room.