Best Practices for Supplier Performance Management (SPM) Systems (Part 3)

/Best Practices for Supplier Performance Management (SPM) Systems (Part 3)
Best Practices for Supplier Performance Management (SPM) Systems (Part 3)2017-10-05T08:17:15+00:00
OutPerform-SRM - Best Practices for Supplier Performance (SPM) Systems (Part 1)

OutPerform-SRM – Best Practices for Supplier Performance (SPM) Systems (Part 1)

Supplier Performance Management (SPM) Systems – Implementing Best Practices and Processes to avoid Brick Walls (Part 3 of 3)

In Part 1 and Part 2 we looked at a range of Best Practices, Lessons Learned, we explored some potential Rabbit Holes and Brick Walls. If you have not yet seen part 1 or 2 it is available via a link at the bottom of this article.

In this article (part 3) we will continue this theme by discussing many more of the important lessons you can learn in implementing a Supplier Performance Management System and associated business processes. Getting it right is key to your success.

17. Performance Comparison – Supplier A V B – Masking Suppliers

While the core functionality of any SPM system is the ability to compare one supplier against another or against multiple suppliers. Many systems offer the ability to let suppliers see how they are performing against their competitors. There are two ways in which you can do this. The first is the unmasked approach where you let suppliers seem the names of competing suppliers. The school of thought is that it drives competition. The second way is to mask the competing suppliers so that you call them Supplier B, and Supplier C.

One note of caution, when masking the competing suppliers be sure that you have a large enough supplier pool so that there is little chance of the first supplier working out the identities of the other masked suppliers. An example i use here is lets say that there are 7 suppliers providing a service globally to your company so in effect we have Supplier A through G. That’s fine Globally but when a supplier drills down to a particular region where they know their only competitor in that region its easy for them to determine that Supplier D is XYZ Co.  Then drilldown to another region where supplier Masking is available and you can tell that Supplier E is “XYZ Co Ltd” and so on. Soon they have the complete picture of who all of Supplier B through G are. Likewise same advice goes for using and comparing suppliers against the Average, if there are only 2 suppliers competing the average can be back calculated to work out Supplier B’s performance.

Don’t get me wrong, masking has its advantages in driving competitive performance levels up, so to does just showing the average performance of Masked Suppliers, ie Supplier A versus the average of other Peer Suppliers . Either way when masking make sure you are aware that with a little detective work your supplier may be able to unmask their competitors.

18. Applying Scorecard Section Weightings

Certain sections of your scorecard will weight higher than others. For example Lets say that your scorecard has 5 sections.

  • Health and Safety Environmental (HSSE)
  • Quality and Conformance
  • Delivery
  • Cost and Financial
  • Behavior, Innovation, and Collaboration

 

One would assume that these may be equally weighted. But in the majority of cases companies apply higher and lower weightings to certain sections

Example , you may decide to weight HSE as 40% of total scorecard. That leaves 60% between the remaining 4 sections which you could weight as 15% each.

The Result is as follows:

Health and Safety Environmental (HSSE)                     40%

Quality, Reliability, and Conformance                             15%

Delivery                                                                                   15%

Cost and Financial                                                                15%

Behavior, Innovation, and Collaboration                        15%

Total Weightings                                                                  100%

Then within each scorecard / report we have what are referred to as KPI weightings. These are weightings we attach to individual KPis within that section, so lets say you have 3 KPIs in the HSE section which has a section rating of 40% you could rate these as follows

Total Recordable Incident Rate               20%

Lost Workday Case Rate                            10%

First Aid Case Rate                                      10%

The Total of course should add up to      40%

One challenge you will encounter is getting agreement from your Category Line Managers on the section weightings across all category lines. This is a challenge and any agreement often results in sacrifice by some category line managers who would say that those generally accepted section weightings dont work for their category line as they need to apply a higher weighting to the Cost section. A good example here is the area of indirect procurement for Laptops. As there is very little HSE Focus on the sourcing of these type of commodity goods and the focus is on reliability and price then the category line managers view on the fact that HSE weighting should be low say 10% and the Cost and Reliability should rate 30% each is well founded.

The most important aspect of weighting from an SPM system perspective is the ability to be able to set different section weighting levels to different category lines, or even different regions, locations. The same goes for KPIs within each section.

The second challenge in using the weighted approach is to devise and determine KPis that give a result in percentage terms. Often people get this wrong.

Example here is if one of your KPIs is say “% of Late Deliveries” then a lower figure here multiplied by the KPi weighting of say 10% for that KPI will result in a low figure. Which in turn will result in a low score. Even though a low percentage of Late deliveries is a good result it impacts the overall scorecard score for that supplier in an adverse way.

The correct way is to ask. “% of on-Time Deliveries” Its the reversed – positive of what you needed to track but will remove the need and complexity for heavy equations to reverse this for the relevant scorecard KPI, ie 100- Value for Late deliveries). Best to keep it simple and focus on improving the Positives. As a side note its usually the SSM”s that use negatively phrased KPis. Me I like to work with suppliers to raise the bar and focus on increasing the value of a positively phrased KPI.

In summary your system should be flexible enough to “Weight What Matters” to the Category Line Manager, or the Region, both in terms of the Section, and also the KPIs.  This does not take away from the fact that you can always have a global scorecard that is weighted differently but it does give the category line managers the ability to run reports with weightings that matter for them.

 

19. Overall Supplier Scores & Grades

Maybe it’s from the report cards we received every semester at school, but the A through F scale should carries a lot of significance to us all. That’s probably why many people like to use that scale for grading their suppliers.

Its very difficult to apply a score to a supplier without first having the weightings in place. if done correctly the weighted scorecard will deliver a score from 1 to 100% and your system can easily convert that score to a grade.

A – 85 to 100%

B – 75% to 85%

C – 50% to 75%

D – 25% to 50%

F – 0% to 25%

Either grading by a score from 100, or by using an associated Grade may be preferable for different companies but you should have the mechanism to change the correlation between grades and scores in case your bands for grades change.

 

20. Geographical Performance Management Made Easy

In order to easily represent the performance of Suppliers Geographically its important that your interface, whether by reports, graphs or maps be easily understood by the user.

With developments in technology its now possible to show performance levels for suppliers live on geographical maps. Whenever the data updates, the performance also updates real-time on the maps. We have rolled that feature out recently for two of our global clients that wanted an easy way to see how their global suppliers are doing by category line across the countries and regions they operate.

The challenge is not the visual representation of the performance data but ensuring that the Map interface has full data drilldown functionality back to the scorecard level. There is little point in viewing rolled up data and not being able to drilldown to root cause at the lowest level.

You should also be able to zoom in on a particular Region, Country, District, or city, even by asset. A good example here is that a Drilling manager from Canada would be more interested in geographical performance of the hundreds of wells in that country where as a Refinery Manager for North America would be more interested in seeing the performance of the supplier across the Refineries on the Map for his region.

With the level of mapping technology available today, zoom into within 100 feet is possible, that way one could even see performance across well Pads.

 

21. Workflow / Scorecard Approvals

Workflow is a key part of any SPM System and its important that you have the flexibility to configure workflow approvals in different ways. For example you could have one person approving a full scorecard or you could have various people approving different sections of the scorecard. A good example here is where the Category Line manager approves the Operational data, ie Quality Delivery, Innovation, and then the Local HSE department approves the HSE data.

On the other hand its also important that the there is also flexibility for the Supplier to decide who is best placed to enter the data for the various elements. This could be one or more people for a single scorecard, each of which contributing their portion until the supplier scorecard is submitted.

This is where web based systems have another advantage over excel in that Excel suffers from loads of different scorecards floating around waiting on people to take their turn to enter data.

22. Managing Scorecard Compliance

Its very important that you can report on the status of scorecards, ie started, in progress, submitted, approved and all the various audit trail on who done what when. This is particularly important if you are to to ensure that all scorecards have been submitted by the supplier and that a scorecard representing a poor job or month has not been omitted.

There are many different types of scorecards, but usually can be classified into the following buckets

  • Time Driven Scorecards
  • Job driven Scorecards
  • Ad Hoc Scorecards and Surveys

While the policing of the time driven scorecards can be easily managed through automated follow-ups when a scorecard has not been entered at end of month, quarter or year the policing of the Job Driven Scorecards is a little more complex. Yet this can still be semi-automated.

A good example here is when a drilling job has been completed there should be a scorecard for that job. So in order to accomplish this we integrate data source that contains the jobs done with the scorecards compliance. That way when a Job has been completed by a supplier for a particular category line and Well (Asset) we can track, report, and follow-up on an automated basis to ensure the supplier completes the scorecard. Such integration differs between data sources but most often the Job is tied to an asset, whether Well, Pad, Oilfield etc.

 

23. Searching for Anomalies

There are any easy ways to look for data that is off the average performance so to speak. Some of these anomalies could be genuine poor performance but most often a result of incorrect data being fed into the system. Its vital that your system can automatically scan and look for these anomalies and send you back a report on any data that looks off.

Its equally important that the automation of such scans and associated reports end up in the right hands to take the appropriate action to amend the data. An example here is that if say the data that looks off is in respect to Directional Drilling for Gulf of Mexico (GOM), that that report ends up in the inbox of the Directional Drilling Category line manager for GOM to take appropriate action.

 

24. Flagging Data for Follow-up

Often when we come across data that is either exceptionally good or extremely poor we need to be able to flag that data. Your system should have the capability to allow you flag such performance data for follow up with the supplier. It should also give you the capability to create an action item in your action logs.

Its not alone the poor data that we may want to flag, we may also want to green flag data and KPIs where the performance is great.

We commonly use 4 colors of flags to tag data in the system.

  • Red Flags for Performance Data that is Poor
  • Amber Flags for data needing further investigation
  • Green Flags for data that highlights exceptional performance

In doing this we can easily tag data for further analysis or sharing. Yes, flags should be able to be shared across users.

 

25. Turning Data Into Actions

Using colour bands (Red, Amber, Green) is a great way of highlighting where KPIs are off desired targets for a particular supplier. Your Action item tracking should allow you to track all pending actions associated with the good and bad data and assign follow-up actions to not alone the supplier in question but quite often to your own colleagues as well.

 

26. Action Tracking / Management

Our Action log should classify actions by responsible party, due date, status, and potential business impact (either positive or negative). The action item tracking should clearly be able to automate reports and have the associated workflow to ensure that the right people are kept up to date on an action items current and desired status.

 

27. Performance Review Automation

As you have all the data in your SPM system needed to conduct the performance review meeting you could start extracting information that you want to focus on and copy and paste that into PowerPoint. That process can take time and needs repeating for each meeting. We recently add functionality that automates this process through automated PowerPoint generation each month of the data reports, charts etc, actions, lessons learned etc. Once developed and saved the template for the Performance review meeting can be changed if necessary for subsequent meetings should extra data be needed. This can then be scheduled to generate the deck on the third Friday of the month. The key here is to not alone to automate the creation of the meeting slide deck but to also ensure that this deck is shared with the supplier well in advance of the meeting. Your system should look after both.

Now lets look at the actual Performance Review Meeting.

 

28. Performance Review Meetings and Meeting Preparation

Its not essential to have a review meeting every month, and quite often this is done quarterly, in some cases yearly. The frequency will be determined by the strategic importance of the relationship and service being managed.

Given all the best practices for SPM you have learned from this article in addition to Part 1 and part 2 you should be in a good standing for any upcoming Performance Review Meetings with your Suppliers

While I have had the pleasure of being invited to many Supplier Performance Review Meetings no two are the same. However that said in my mind there are six key elements to successful in preparation for Supplier Review Meetings

Importance of a the Agenda

As a supplier performance review meeting is not the typical meeting. It is a formal review of prior performance and improvement opportunities. As such, planning is essential. Service level performance metrics must be collected, distributed, and reviewed in advance of the meeting by all participants. If you followed my best practices you and your suppliers should have equal visibility into the past performance data, and be able to discuss trends in a proactive manner at the meeting. the meeting should be 30% focused on past and 70% focused on how to improve going forward. As everyone has live access to the data day in day out the meeting should not get bogged down on looking at the data.

In fact, participants should be prepared to address all items that could result from review of performance metrics – this is a very data intensive process at times. As such, it is important to establish a firm agenda that allows different participants to join for their key sections.

Representation at Meeting

Broad participation should be encouraged as the purpose of quarterly reviews is clearly to celebrate successes, resolve performance issues, and challenge current practices. Senior executives, day-to-day supplier managers, and support teams (e.g., training, quality, and operations management teams) should view quarterly reviews as opportunities to review the suppliers operations performance. Given the wide participation, establishing roles are key to good meeting management.

Category Line Managers or Supplier Managers should lead the discussion regarding individual functions’ performance in an interactive manner with the vendor, but where appropriate more senior personnel should be invited to chime in to place emphasis. The difference is that the presence of executives is part of ensuring suppliers understand the importance of performance. The supplier should have similar representation.

Service Level Review, Root Cause Analysis (RCA) and Improvement Plan(s)

The key aspect of quarterly reviews is discussion regarding expected versus actual performance. If any performance levels are not achieved, a root cause analysis should be completed by both parties – even if the root cause is your own company’s doing! It is important to identify root causes using standard processes, but it is even more important to monitor progress against improvement plans. Time and time again, we see RCAs sitting on shelves collecting dust while performance issues remain unchanged. The quarterly review should look back at each of the RCAs to check progress.

KPI Performance Reports

A key aspect of supplier management is providing performance feedback. The resulting KPIs should be openly shared and used to create discussion. The key is to ensure the performance report is very focused, short, and usable while facilitating the discussion without adversarial undertones (or overtones!).

Guidance for the Future

One great feature of quarterly reviews is the opportunities for each company to provide the other guidance for the next three to six months. This may include transaction volumes, organizational changes, system changes, or corporate initiatives that could impact the other company (e.g., SOX audits, green initiatives, etc.). Effective supplier management executives use this opportunity to align strategic relationships and to seek opportunities to help each other.

Offline Communication Channel

Large audiences can sometimes interfere with certain communication. For example, maintaining a careful eye on your suppliers’ financial health and discussing upcoming organizational changes in both your and their organization are sensitive topics. Effective supplier management executives ensure that sensitive communications have an appropriate channel. We suggest that executives have preparatory meetings before quarterly reviews to cover sensitive topics.

Finally, it is very important to differentiate quarterly reviews different than monthly reviews. Monthly reviews are venues for day-to-day action with hands-on team members. A successful quarterly review meeting elevates the discussion and holds parties accountable for performance. We encourage supplier managers to not substitute monthly close discussions for quarterly reviews: a year should consist of twelve monthly close meetings, three quarterly review meetings, and an annual contractual review

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 article / post.

Look out for my next post in this series over the weeks ahead where we will be looking at:

Also keep any eye out for the other adhoc articles I post on SRM, SPM, e-Procurement, and Data Management. See List below.

Kind regards

Daryl


 

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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.

Connect with / follow Daryl on Linkedin

 


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.

You can also follow OutPerform SRM on Linkedin

 


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