Five Rules for Short-listing Supplier Performance Management Solutions

How to pick the best solution to enable world-class supplier management

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August 23, 2010 — Supplier management today is widely recognized as a strategic enabler. In today's world of complex business environment and global supply chains, effective management of suppliers not only gives a competitive advantage but also has a direct impact to the organization's bottom line.

Such criticality of supplier management makes it important for organizations to constantly evaluate supplier performance, assess risk and find opportunities for improvement in the value chain. Simple price-based evaluation of suppliers has long become outdated. Today organizations need a 360-degree evaluation of suppliers on multiple parameters. In addition, supplier evaluation isn't just limited to procurement but also involves evaluation by multiple internal functions.

These requirements have led organizations to formulate complex key performance indicators (KPIs) and supplier performance scorecards requiring inputs on multiple parameters from different internal stakeholders. Until recently supplier performance management (SPM) was manual or based on rudimentary information technology tools that at best could be described as ad hoc, cumbersome and time consuming. These evaluation processes were plagued by lack of visibility, absence of collaborative platform and process inefficiency.

Thankfully, information technology is rapidly changing the way, organizations are evaluating supplier performances. The best-of-breed SPM solutions available today are widely being recognized by organizations as an important enabler to manage, monitor and find opportunities for collaboration with suppliers. The usually cumbersome, time-consuming and opaque processes are now getting a facelift with efficient and simplistic SPM solutions.

However, with the SPM market being largely fragmented, and given the availability of a number of solutions to choose from, organizations still require careful deliberation as they shortlist solutions that can address their specific SPM requirements in line with the overall objective of supplier management.

To help select the most appropriate SPM solution, here are five rules that organizations should keep in mind while short-listing potential solutions:

1. Ease of Use: Simplicity pays! You want a solution which can address SPM while simplifying the process for application users. An elaborate and complex solution may only add to complexity, no to mention adding to the solution's total cost of ownership. A simple, easy-to-use solution, on the other hand, can minimize training requirement while also enabling easy adaptability by application users. User-friendly dashboards, easy data entry and search mechanisms and user-friendly interfaces for defining KPIs and scorecards are thus absolute "must-haves" for deriving maximum value from an SPM solution. In addition, an efficient SPM tool should have a simple workflow to create surveys and to collate relevant information after the survey. Before selecting an SPM tool, ask the SPM vendor for hands-on experience with the tool for a limited-time trial period. This will enable the application users to get a feel for the solution and assess the tool's adaptability within the organization.

2. Flexibility: Each organization has specific SPM-related requirements and focus areas that are in line with its unique strategic objectives. Any SPM tool therefore must have the requisite flexibility and configurability to effectively address those organization-specific requirements, and conversely it is important that, before short-listing an SPM tool, an organization should clearly assess its requirements. The organization should typically define clear-cut, quantifiable performance metrics in terms of KPIs and scorecards as well as processes to collate information required from appropriate sources. Subsequently, the short-listing of SPM tools should be based on the tools' ability to map to these processes and to define the KPIs. In addition, look for the ability to configure user-specific dashboards and access control. A high level of flexibility in the tool would also allow any changes in defining KPIs and any other modification that may be deemed necessary in the future. Remember the Golden Rule that a tool will only be relevant if it can define performance parameters and processes specific to your requirements. SPM tools that are based on standalone metrics or metrics borrowed from other companies are bound to fail as they will not be aligned to the procurement goals of your organization.

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3. Focus on Fundamentals: The market today is flooded with products that claim to be loaded with endless features and capabilities. However, a tool that boasts an endless list of features may not be the best for your organization's requirements. What may be more relevant is whether the tool addresses your fundamental business problem in a simplified and transparent way while maintaining absolute visibility to all stakeholders. An SPM tool essentially should help you to manage, monitor and find opportunities for further improvement in your supply chain. It is these fundamentals that should play a major role during the short-listing process for an SPM solution. Anything over and above the "basics," though sometimes welcome, should not be at the cost of added complexity or a preference for features that do not serve the abovementioned fundamentals.

4. Integration: It is important for an SPM tool to have seamless integration with other information tools, such as supplier information management and enterprise resource planning (ERP) systems. The obvious benefit of such integration is automated collection and updating of supplier data. Integration also enables access to a single interface to provide comprehensive and up-to-date information about suppliers. In other words, the amalgamation of all information tools results in a manifold increase in their efficiency. Though most SPM vendors provide integration with ERP systems, integration with other information tools is generally limited to solutions offered by the same vendor. An organization that is in process of short-listing SPM tools should thus consider their long-term strategy that may include the subsequent implementation of other solutions. In such scenarios, it would be wise to evaluate a vendor not only on the basis of capabilities of its SPM tool but also on the basis of the capabilities of other solutions from the same vendor.

5. SaaS versus BTF: Whether to opt for a software-as-a-service (SaaS)-based or behind the firewall (BTF) tool is an important consideration before implementing any information tool. Clearly the market for SaaS-based solutions is growing, as they can enable an organization to save on tool-specific hardware installation, are typically easier to implement and have lower associated upfront costs. These characteristics also mean that SaaS-based applications can enable relatively smaller companies to use advanced applications that historically were only accessible to larger organizations with larger IT budgets. Moreover, the SaaS model can lower switching cost for users while enhancing accessibility to all stakeholders, and SaaS vendors can deliver major upgrades online so that users can access them automatically. On the other hand, unlike SaaS, a BTF may provide better customization and foolproof data security. Companies looking for information tools should carefully analyze both the approaches to select the one best suited for them.

With supplier performance management gaining ground as a "must-have" tool for world-class supply management, selecting the right SPM solution is becoming increasingly important as the first step to enabling best-in-class supplier management processes. By following the five guidelines set forth in this article, companies can be more certain that they are selecting the SPM solution that best meets their specific requirements – and that can best serve as a platform for their SPM success.

About the Author: Niren Chaudhary is global product marketing manager at Zycus, a provider of spend management solutions, including for supplier performance management. A thought leader and specialist in the field of supplier relation management and contract management at Zycus, Niren has been a key strategist at all the stages of the product lifecycle from conceptualization to growth. Niren holds a management degree from Indian Institute of Management-Kolkata and served as an officer in the Indian Army for over seven years. More information on Zycus at