Supplier Performance Management (SPM) Systems – Implementing Best Practices and Processes to avoid Brick Walls (Part 1 of 3)
I thought I would take the opportunity to share my 17 years of experience, best practices and lessons learned in designing, developing, implementing, and rollout of SPM systems and processes. In this first part of a three part article we look at OutPerform-SRM – Best Practices for Supplier Performance (SPM) Systems (Part 1)
Although currently I am primarily engaged with designing and Implementing SPM / SRM systems and process for the major Oil & Gas Operators and their Suppliers, the key “Take Aways” are relevant to all Industries. So even if you are not involved in the Oil & Gas Industry I feel that this series of articles will be a very worthwhile read.
In Part 1 will concentrate at high level on some of the “Brick Walls” and “Rabbit Holes” that poorly planned SPM initiatives run into from a system design and process perspective and share “Best Practices” on how to avoid these. I will cover the first 8 and the follow up post will cover more.
1. Global V Category Line Specific KPI’s / Metrics / Domain Expertise
Its important you do not fall into the trap of thinking that a global set of metrics will drive success. Standardizing on just a Global set of KPI’s will provide only limited opportunities for managing performance improvement and you wont get the full buy in from the Category Line managers that need Job or Service specific Metrics to manage supplier performance. Yes do have a top down Global perspective but the category line specific scorecards also need their content driven from the bottom up. So in summary get the category line metrics devised in addition to the Global Ones, Don’t let the time taken to reach agreement on Global KPis for SPM add years of complexity and cost to your SPM initiative.
Your Category Line Managers or external Subject Matter Experts with Domain Expertise in that Category are best placed to advise you on appropriate KPIs and associated Targets.
2. Global v Regional & Category Line KPI Targets
Many of the rushed and poorly planned SPM initiatives are often IT or vendor led, ie led by the system or solution provider that is inflexible of taking into account the needs of Category Line Managers at Regional level for differences in KPi targets by Category Lines, and or Regional Targets. Two examples here are that I would expand on include:
a) Inventory Availability Rate for category line Drill Bits in Nigeria will have a lower target level of acceptability, say 75% or above (Green Performance Zone) than say the same Inventory Availability Rate in Gulf of Mexico where the expectations for this KPi would be in the 95% level of Inventory Availability.
b) Drilling performance KPIs for say Days Per 10k, MTBF, and Downhole Losseswould have different acceptable rates depending on geography, terrain, onshore v offshore etc. So its important that we can also have target setting for differences in these KPis acceptable targets at the regional, district, or field level as performance levels will differ.
In summary if you include targets in global contracts you wont be able to enforce them at regional or category line level. The Local Category line Manager / Team is best placed to help you in setting targets avoid this setback.
3. Supplier Engagement / Scorecard Data Availability
If you think you can simply rollout an SPM / SRM system without involving your suppliers upfront you will hit one or both of these issues.
a) Metrics that Matter
Simply rolling out a one sided scorecard that only looks at KPI Metrics that focus on the suppliers performance on quantitative measures will work in the short term but without 360degree metrics the supplier will see it for what it is an SSS ( Shitty Stick Scorecard). You need to work with the supplier to include other Metrics that also help foster improvements in Supplier Relations such as tracking Days Sales Outstanding (DSO) Value, Over due Invoices (Value and Number) and also Innovation and Behavioral Metrics that help drive and reward Innovation.
b) Scorecard Data Availability:
During the planning stage of your Initiative you should always share draft versions of the relevant proposed scorecard with your suppliers early on to ensure that they can provide the data that you require at the right level. The last thing you want is to have metrics where the data can be supplied by one Supplier but Not another. Or data that can be supplied by one supplier in only 3 out of their 6 regions but not all six as some of their regional systems don’t have that data. So have a think about data availability from your suppliers before you include that question on your scorecard.
4. Scorecard Questions / Data Validation
It is also important that you can validate the data you collect so don’t fall into the trap of asking for, or accepting calculated values, ie where the supplier puts in a percentage value for say On Time Delivery example 98%. You need to track the components (Number of Orders Delivered On Time / Number of Orders Delivered ), and let the system work out the Percentage itself otherwise you will struggle to validate the data, and what cant be validated leads to the inability to question or action the values.
5. Rolled up Values – Data Drilldown Unavailable to Determine Root Cause.
Often suppliers offer to give you rolled up numbers for say corporate wide Total Recordable Incident Rate (TRIR) or TRIR at a particular region. That will not suffice. While you should accept their Corporate or Regional TRIR value, you still need the Value for TRIR at the Local or Category Line level. One way to do this is to gather Number of Recordable Incidents and Man Hours Worked at the local well site, rig or base level for your operations and compare it to Corporate or Regional Values, That will give you the deviance from their corporate TRIR and all allow you to foster discussions around improvement.
So make sure that your Scorecard questions are relevant to the asset level that the work relates to. You need to be able to view the data and manage supplier performance at the lowest level possible, the asset (Well, Rig, Plant etc)
6. Data Integration / Hierarchy and Asset Datasource Integration
Last year I had the opportunity to work with one of our Operator clients in integrating a range of existing data sources to populate any Master Data associated with the SPM SYSTEM such as Hierarchy, Wells Listing, Well Header data. This now means that as the Operators Master Data files change, the SPM system is always upto date (in sync). If an asset (Well, Rig, Refinery, Vessel, Aircraft, etc ) or even the Business Unit or operations Hierarchy change the system is automatically updated. Even system assess rights by integrating with Employee Listings and Single Sign on. Its also possible to pre-populate scorecard data from existing data sources. I am talking here about integration with systems like WellView, OpenWells, SAP, DnB, RigView etc, where much of the data being double keyed already exists.
Where possible integrate, especially if the volumes of data or their change frequency are high otherwise manually updating these can mean a full time job for a few extra people and adds cost, complexity and risks of re-keying errors.
7. Scorecard Overload / Supplier Data Integration
One of the biggest challenges is often the time and effort that the Supplier spend filling out scorecards. Often the supplier has such data already in a structured data format in various systems or databases they operate. The brick wall effect comes into play where there are a lot of scorecards to be completed. Imagine a supplier that works providing a service on hundreds of Onshore wells where the average job lasts a few days. If this data is available in Well View or Openwells you should have the feature that facilitates easily importing such data into your SPM system, or better still a direct link / live feed. I’ve seen the huge advantages and cost savings that brings in reducing supplier scorecard overload.
8. Hierarchy Variations & Flexibility
Often the complexity of different hierarchies is underestimated and its only during rollout that you realize that the current hierarchy will not work for different areas of the business. Your system needs to be flexible enough to accommodate multiple Hierarchies. Examples of Hierarchy include Organizational BU Hierarchy , ie BU, Region, Asset, or BU region, City, or for Wells hierarchy BU, Regions, Districts, Oil Fields, Well.
Example you cant gather Aviation data on a Wells Hierarchy
That said they should all rollup the tree to the Global Level. Think of the Global top level common hierarchies as the Trunk , and Hierarchies as branches of a tree, and the assets (wells, rigs, pumping stations, helicopters ) as the leaves.
Another important consideration: While some hierarchies span only 3 levels deep others can span 7 or 10 levels. So be aware of that.
I hope that the above list (although not exhaustive) will help you in having success with your SPM initiative. I would also welcome any feedback and constructive discussion you have on this post.
Look out for my Part 2 post in the weeks ahead where we will be looking at more “Brick Walls” and “Best Practices” including:
- SPM Data Visibility – Collaboration with your supplier
- Dashboard and Report Sharing
- Reporting Criteria – Asset Meta Data
- Saved Reports / Cloning Reports
- Automation / Scheduled Reports
- The Importance of Setting and Monitoring, and Managing Current versus Historic Targets and Bands
- Setting Targets and Bands at Regional Level & Benchmark Data
- KPIs not always best managed in isolation of each other.
Part 2 is now available:
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View a list of all our SRM / SPM / P2P Best Practice Articles on the OutPerform Best Practices Blog
About : Daryl Fullerton
Daryl is a Supplier Performance and Relationship Management Specialist at Outperform SRM. He provides guidance and consultancy on the design, development and Implementation of various Supplier Performance & Relationship Management Systems for Global Oil & Gas Operators and Service Companies across Upstream, Midstream and Downstream Sectors.
Specialism’s include Supplier Performance & Relationship Management, Supplier Risk Management, Supplier Enablement, Operational Risk Management, Contract Compliance Management, Scorecards, KPI’s, P2P Process Automation, PIDX Standards, and Management Information & Reporting Systems.
A keen promoter and believer of the importance and focus on his ‘partnering to solve approach‘ in improving Operator / Supplier Relations in 2015 Daryl was awarded the honor of “Supply Chain Pros to Know” in recognition of the leading supply chain professionals and experts worldwide.
About : OutPerform SRM
OutPerform SRM is a management consulting firm that helps leading Oil & Gas businesses establish value added solutions for effective Supplier Relationship Management (SRM). We help our clients reduce inefficiencies, reduce costs, and make lasting improvements within their Supplier Relationship Management (SRM), Supplier Performance Management (SPM), and many more important business critical Supply Chain Initiatives . Through our hands on experience with Major Oil and Gas Operators over the last 17 years we’ve now built a firm uniquely equipped to this task across all Major Category Lines.
Our Experts have Experience of working with a wide range of internal and external stakeholders with the ability to build relationship and influence outcomes. Our Experience of supplier performance management includes detailed knowledge of processes and frameworks including commercial performance management of contracts and knowledge of supplier risk management techniques.
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