Tag Archives: value management

Rethinking Supplier Performance Metrics: value-based intangibles matter

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Working with procurement teams over the years, I am still amazed at the lack of focus in the area of supplier performance metrics. Many of the mid-cap and small businesses fail to manage suppliers at all and have limited key performance indicators (KPIs). When pushed to discuss supplier metrics, the response is normally “we measure cost, delivery and quality.” Further investigation almost always reveals vague, inconsistent and inaccurate measurement processes.

When developing KPIs, you must assure the metrics are consistent, meaningful and focused on performance improvement. Cost, quality and on-time in-full delivery performance are critical and must be specific and accurately measured, but these metrics are equally important and often over looked:

  1. Speed of response
  2. Disaster recovery plans and risk management processes
  3. Innovation delivery and capture
  4. Supply chain mapping and integration
  5. Business plan alignment
  6. Continuous process, cost and business improvement

Key Performance Indicators are:

  • Quantifiable/measureable and actionable
  • Measurements critical to the success of the organization
  • Tied to business goals and targets
  • Applied consistently throughout the company

Key Performance Indicators are not:

  • Metrics that are vague or unclear
  • “Nice-to-knows” or metrics that are not actionable
  • Reports (e.g., top search engines, top keywords)
  • Exhaustive set of metrics
  • Refutable

Driving metrics that enhance performance is the responsibility and accountability of the sourcing and procurement professional. As we have evolved our profession, it’s now necessary to evolve our metrics to enhance relationships, improve supplier and add value metrics to our businesses.

Are you measuring value delivery?

10 Megatrends for Supply Chain Management—where will you be in 2020?

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Developing Strategies for Success

2015 is becoming the year of the merger, which means industry consolidation, megamergers and industry consolidation across most supply chains. This trend is driving many companies to develop exclusive, integrated, competing supply chains. Companies that have advanced this practice are Apple, Samsung and Toyota with end to end integration serving the final customer. The key drivers of this type of supply chain are cost transparency, value creation, integrated business systems and innovation. Is your company on top of the trends that shape your supply chains?

To gain control of supply chains, you need to have a good understanding of the trends that will shape supply chains in the coming years. The 10 megatrends I’m seeing are:

  1. Supplier relationship management is becoming a core competency
  2. Value creation is more desired than price management in the future
  3. Innovation transfer is required for the success of the entire supply chain
  4. There is a movement toward portable manufacturing
  5. Contingent work forces are becoming more prevalent in business
  6. Internal and external collaboration is a business requirement
  7. Business strategy alignment will be required between all links in the supply chain
  8. Distribution, logistics and asset management will be a bigger priority
  9. Life cycles are becoming shorter
  10. Supply chain and manufacturing agility will be required to dominate competition

The supply chain management function has been evolving to keep pace with the changing trends. I’ve seen many companies struggle to keep up—those who make the investment to develop skills and improve processes succeed. The diagram below shows some of the key trends that have impacted and evolved supply chain management.

Evolution of SCM

As I see it, it is essential to move from a customer/supplier relationship to an integrated supply chain focus. While some companies have made the leap and lead their industries, others are still back in the price management focus.

Can you make the leap?

Why doesn’t management understand?

Suppliers are not a source of incremental profit

If a strategic category-sourcing manager has done her job, she has a full cost analysis, understanding of the supply base and global market place for the category. Every one understands that companies need healthy supply chains where their suppliers are reinvesting, innovating and buying automation to reduce cost. Yet, in some companies, the drive from top management is cost reduction. The lesson that suppliers must be profitable rather than leveraged to the edge was learned by the automotive industry when most of the domestic supply base was either bankrupt or close to it.

When buyers turn their focus to value extraction and not just cost reduction, the results are outstanding. I am writing a book entitled “The Best Customers Get the Best Ideas”. The preliminary research shows that companies with truly integrated supply chains have a high degree of supplier-led innovation, lowest cost of production and lean, flexible responsive suppliers. Two examples that come to mind are Apple and Toyota, but there are many more.

If you are a purchasing and supply chain executive whose focus is cost reduction, you will find that you have a short life in the job. It is difficult to extract 10% a year from the supply base, especially when you run out of ideas or have a unstable supply chain with constant change and high switching cost.

Supplier relationship management is a skill that all commodity managers, procurement and supply chain executives need to assure longevity in the job and a stable productive supply chain.
Think about the value-add that your strategic suppliers can bring to the table. They can bring R&D, new processes, new products, exclusivity, speed to market and supply chain integration.

Time to make the change to value management rather than cost reduction. Remember:

the best customers get the best ideas!