Outsourcing Governance and “Who Owns Supplier Performance Management?”
What the $^^@#$ is supplier performance management?
Procurement? Operations? That’s exactly the discussion Tim Cummins relates in his latest discussion on relationships and vendors. Evidently, at the close of International Association for Contract & Commercial Management (IACCM), the final executive roundtable debated this issue. As Tim says, they “questioned whether it is a role that Procurement groups are equipped to perform.” Clearly, it’s a hot topic, as Forrester’s Sourcing and Vendor Management analysts have put governance on their 2010 agenda. In my opinion, vendor management organizations are a bad design, but what about Supplier Performance Management?
First, what is Supplier Performance Management, also known as Supplier Relationship Management? Is it tracking contractual commitments? Is it driving greater value and innovation from vendor relationships? Is it hosting quarterly meetings with vendors? We don’t have the foggiest clue because the definition is broadly different from organization to organization. In fact, one could argue that SPM and SRM is nothing more than consulting babble or analyst hype because it clearly is not a well defined process, like inbound customer service or accounts payable. What is the day to day life of a SPM/SRM leader? Why did the organization even create a SPM/SRM team? Was it failure of one team to track the contractual commitments of a vendor? Or was it the need to find greater value in existing relationships through broader, more strategic dialogue?
Who knows. And I’ve read the literature available from analysts and consulting firms. Outsourcing advisors call the function governance. Manufacturing companies call it supplier relationship management. IT organizations call it vendor management. Procurement teams call it supplier performance management. No one is in agreement on the name or the responsibilities.
What is clear is that there is a real need for companies who rely on strategic vendor relationships to manage these relationships from a perspective of value. However, how do you do that? What do you do in January? In August? In December? The third week of the month? How often to do you talk with vendors? What are the topics of discussion? What is the benchmark of a strongly performing SPM/SRM team?
Given the complete gap of substantive literature, I would like to invite your comments on what goals a SPM process has and how it should achieve its goals. I will consolidate your feedback and, for those who contribute in a meaningful way (meaning more than a sentence or two), I will provide the analysis. For a simple of investment of 10-15 minutes of your time, you’ll get a free consolidated perspective. And, if you’ve been reading the blog for a while, you know this will be a high quality perspective.
Providing me you thoughts is easy: either leave a substantive comment below or email me at tony (at) 360vendormanagement (dot) com
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I’m in the telecommunication industry in Canada and there seems to be a gap on this topic within our own company/industry. Here are some goals and ways to acheive them but certainly there are many more that can be added.
Goals of an SPM process
1. Ensure agreed upon metrics are being met or advancing in the right direction.
2. Ensure pricing and delivery agreed upon are being met.
3. Ensure contractual obligations are being met by both parties.
4. Seek to leverage value-adds from the vendor that will increase efficiencies to the organization
5. Keep internal stakeholders apprised of issues, opportunities and successes.
6. Work to lower costs; including inventory investment, unit pricing and other expenses related to procurement of goods
How to achieve its goals
1. Meet with vendors on a regular basis to access progress and track results even if there were none.
2. Verify invoices against contractual pricing and track audit results.
3. Track key contractual obligations and ensure stakeholders are aware of milestones
4. Work closely with key vendors to create value adds that supports your organization and in turn increases the profile of the vendor for future opportunities
5. Document results related to key vendors and share status with all stakeholders on a monthly/quarterly basis.
6. Understand the abilities of the vendor to support vendor managed inventory and obtain written commitments to hold stock exclusive to your companies needs.
7. Understand the vendor’s process to help streamline and reduce wasted efforts to drive their costs down and in turn reduce the unit cost to your organization; note this will require a more mature relationship with your vendor that must be built over time and with trust.
We believe that supplier performance management is a key ingredient not only to high performing sourcing relationships but also effective cost control. We are currently working on a model which allows all contracts in an organisation to be scored – based on weighting assigned to individual KPIs and also performance against the KPIs. We are in the process of trying to align that to an ongoing value analysis and cost management model. I will be happy to post you a link to our blog piece on this when we get something more concrete.
In the meantime this went up today which may be of interest – http://blog.serviceframe.com/index.php/2010/01/what-do-you-mean-by-vendor-performance-management/
Like you said, we need to be able to measure the value that the vendor management program offers the firm. For example, a company looking to hire employees on a contractual basis might have the following metrics in place:
1> Turnaround time from request to delivery of pesonnel
2> Quality of personnel provided e.g. no. of candidates hired
3> Rates of the candidates compared to what was being paid before
4> Completeness and quickness of the on-board and training program
These metrics and others should be based on the key objectives the procurement function has alongwith the overall company strategy
Measurable KPI’s: the objective for every Procurement specialist.
Nevertheless there are areas where it is very difficult to implement.
Looking particularly into Marketing Services we do often face difficulties to set-up measurable KPI’s in SLA’s for Design Agencies, PR & PA agencies.
This situation can constructively be managed when it’s concerning goods but when we are talking about Marketing Services things are getting more difficult and are often depending of subjective aspects and perception.
I’m a Vendor Management professional based in the UK. Primarily focused at this time on the management of Telecoms Outsourcing Agreements. Originally the role of a vendor manager was seen as a means to identify and subsequently enforce contractual obligations, but in my case this has developed into and industry expert. Involved in everything from transactional business as usual management and tracking, all the way to overarching cross function and cross tower strategies and operating models.
This is the key element to the role I have “subject matter Expert”. Telecoms was and is still seen as something of a black art with Telecoms vendors seen as predatory and opportunitistic. Creating relationships based on mistrust. Poor focus on delivery and commercial management from the vendors adds to this impression that the customer is being ripped off.
In fact what I found was that the behaviours on both sides of the agreement meant it was doomed to fail from the outset. A poorly defined beginning will result in a poor agreement and subsequently a poor deliver and experience for the customer. Lots of focus on cutting the right deal and nothing on how we actually make those requirements materialise in real life. Or measurement of success against original expectations.
What also came to light over time was that procurement, although very adept at cost negotiation, are not necessarily as competent at any form of relationship or performance management. Their targets are in direct opposition to operational and delivery focused staff for creating win win situations from long term strategic relationships.
Once that cost target has been achieved its time to move onto the next challenge, leaving someone else to deal with the contract that’s left behind. This also means they have less concern over the fit for purpose nature of the contract that’s negotiated, this is the most critical and some would say obvious reason why operational teams rarely end up with what they want or need.
Ultimately I am still trying to define what a company expects from Vendor Management. It differs from company to company depending on what they deem of importance and how the company is structured. It’s seen to cover a multitude of sins, from strategic sourcing, contract negotiations, supplier performance management, ect…….
Some key themes are evolving.
1. Innovation – create, proliferate and market innovations, to be able to spot what is innovative and how that could bring additional value to our organisation. Key problem is the ability to take a product from your vendor base, productise and commercialise this out to your customers with the minimum amount of effort and cost, while maximising margin and revenue.
2. Intangible relationship management – Creating genuine relationships built on trust and respect, intangible benefits that cannot be measured as such but their “value” is worth its weight in gold. The good cop to procurements bad cop.
3. Marking Procurement – Procurement goals tend to be one dimensional, focusing primarily on the cost avoidance and cost reductions achieved. Even when these are at the risk of operational efficiency or long term growth. You cannot apply the same procurement strategies to paper clips as you can to global outsourced agreements.
4. Business Acumen – To be less focused on the obvious benefits, bring subject matter expertise into a proposal. Scoring matrixes on RFP’s are all well and good but they cannot replace entrepreneurialism, gut feelings and experience.
5. Engagement – Communication is critical to the success of any relationship. Vendor management is seen as a conduit for creating this communication strategy, operational supplier management should focus on the day to day service reviews, metrics ad measurements. With Vendor Management focusing on the high level strategic direct of the relationships.
6. Governance – This is fundamentally embroiled into engagement, and is specific to vendors, industries, and organisations. How do you build an engagement model that means we all know what each other is doing, we can have confidence that it’s the right thing, we have just enough control over the relationship to feel in control, but enough poetic licence to ensure we allow new ideas to filter through.