Seven Steps to Next-generation Supplier Performance Management

Building a framework for closed-loop performance management requires focusing on four strategy-to-execution processes


Some of the potential initiatives around supplier performance management, using our framework described above, that can have a direct impact on the cost of goods sold and/or days payable outstanding, include those mentioned in Figure 2.

Any combination of those initiatives could potentially improve COGS and DPO by at least 2 percent by giving Lenovo better visibility, believability and accountability into supplier performance. And an investment in improving those processes and technologies is worth $167.7 million in cash, not to mention the recurring financial benefit.

How Do You Get Started?

If you can see the benefit of bringing together the four strategy-to-execution processes (debate, decide, gather and understand) specifically for supplier performance management, and your calculations tell you that there can be a positive ROI, then how do you get started with this new discipline?

1. Enroll the business: Show this framework to your team, to IT and to your senior management. Help them see a vision for the discipline around managing supplier performance and executing on supplier strategy. We have found that drawing it live on a whiteboard, giving examples along the way and highlighting connections that don't currently exist makes a big difference (bigger than showing the framework as a PowerPoint slide, for example).

2. Find your specific drivers of value that materially affect suppler objectives (like we did for Lenovo with COGS and DPO).

3. Map the value chain of those drivers of value right across the organization and down through the layers so your executive management team can see the impact that suppliers have in areas other than production and procurement. This becomes your supplier value map. Also show them how those drivers relate to overall company strategic objectives.

4. Work with your IT team and inventory the current systems (process and technologies) in each area of the framework. Also, understand IT's current roadmap for systems that relate to the value drivers mapped in No. 3 above.

5. Map the current systems and roadmap systems to the value drivers and focus on the gaps: What are you not measuring, monitoring, analyzing or planning for that drives supplier performance? Also, cut out the noise: Prioritize those outputs (reports, analyses, etc.) that have the greatest impact on the business.

6. Realign the IT roadmap and current systems with those areas that have the most material impact on the value drivers that affect supplier performance. Then begin the project of updating the current initiative or implementing the new initiative.

7. Periodically review the systems and processes with the value map you created earlier to see if you are on track or if course corrections are required.

The enrollment and discovery steps above are necessary to align processes and IT initiatives with supplier strategy and corporate strategy. While going through these steps, companies have found additional side benefits that they weren't expecting. For example:

  • One client in the energy sector uncovered 13 technology-related initiatives being undertaken by different business units and departments that the chief information officer (CIO) and his team did not know anything about — each one was duplicating the effort of getting at the data, using a variety of front-end tools, and did not include controls or data governance in their projects. The CIO, with the CEO's support, then used the value map as their "North Star" for the entire IT portfolio.
  • An insurance provider's chief financial officer discovered a plethora of metrics that were being reported monthly for no other reason than "it was easy to get at the data."
  • When finished with the exercise, one healthcare CEO declared that the value map (the entire business on one sheet of paper) would be his "accountability" map to make sure all layers of the business were working on executing strategy.

Hopefully, you can use this new framework to bring discipline to your supplier performance management And you will certainly get benefits (known and unknown) from the seven steps above. And who knows, maybe you'll be able to find $167.7 million dollars for your efforts.

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