OutPerform SRM – SPM KPI Targets – Apples with Apples

/OutPerform SRM – SPM KPI Targets – Apples with Apples
OutPerform SRM – SPM KPI Targets – Apples with Apples2017-10-05T08:15:05+00:00
OutPerform SRM - Considerations when setting KPI Targets for Supplier Performance Management SPM

OutPerform SRM – Considerations when setting KPI Targets for Supplier Performance Management SPM

KPIs for Supplier Performance Management – Considerations for Comparing Like with Like (apples with apples ) when setting KPI Targets & Bands.

When comparing Suppliers either over a time period, across regions, against other competing suppliers, or a mix of these you need to compare apples with apples. It is important that you realize that when setting your KPI metric Targets and associated Performance Bands that you are not always comparing like with like situations. A lot of SPM Initiatives fail to take this into account and Suppliers are often unfairly compared. The result being that quite often the wrong supplier is either chosen or terminated for the Job or Service.

Let me give you two great examples and while it relates to the Oil & Gas Industry it should be easily understood and of relevance to all .

Example 1

Within Directional Drilling the result for the KPI for Days Per 10,000 Feet will differ among Suppliers based on the region, terrain, and technology (drill bits, drilling rig) used. So as KPI results will differ significantly for these you need to ensure that when you are establishing your KPI targets that you have different targets for not alone the region, district or even field, but you may want to look at setting different targets when comparing performance against the use of more expensive or advanced drilling equipment. If you can classify Jobs by both region and also the technology then you can compare performance like with like a lot better than simply having a global target for that KPI. Another example is the use of different Targets for say jobs for Surface Hole V Intermediate V Production.

So whether you are comparing multiple suppliers, or a single supplier across regions, bear the above in mind.

Example 2

Other more simply examples include KPIs for Shipping and Logistics. Take the On-Time Delivery KPI for example as not every region will have the same infrastructure (roads motorways). Also regional weather variations can exist across the regions so different targets should be implemented that are regional specific. Likewise the bands you use for Green, Amber, Red should also reflect this.  On-Time Delivery for say the Houston, Texas area, would have a higher expected rate than ontime delivery in North Slope of Alaska.

Seasonality impacts on KPI Targets

Taking this one a little further there is quite often a need for Targets and Bands that increase / decrease by Quarter, as each quarter has different seasonal climate severity. In Summer you should be aiming for a relatively High On-Time Delivery result, where as in Winter you can expect the reverse.

Lets say some of your operations are based in Alaska with 3 existing Shipping / Transportation Suppliers, lets call them Suppliers A,B,C. As we know Alaska has seasonal impacts such as longer or shorter days and severe weather seasonality changes then its also important to take these into consideration when comparing yearly average supplier performance . Example Supplier A, B, C started transporting drill pipe / OCTG for you in say January 2015 (during the bad weather season with short days) and Supplier D (a new supplier) starts in April 2015 (better weather / longer days). So as supplier D missed the harsh weather then the adjusted 9/12 mths 2015 average wont be enough to balance out the difference in performance derived from better conditions that supplier D encountered and supplier D results will be more still way more favorable.

So when you compare monthly average for On-Time Delivery for Suppliers A to D over the 2015 year supplier D comes out in front (all Supplier D KPIs are in the green zone) while supplier A and B’s KPI results are in the amber zone, and supplier C in red zone (due in fact to a particularly harsh weather for Jan Feb and March). So the addition of the new supplier D looks like a great decision ? You can now ditch supplier C ? Yes if you just base it on data with your mis-aligned targets / bands. 9 mths in better conditions gives Supplier D an unfair advantage. This can and does happen especially during periods of rushed supplier consolidation. You need to be aware that SPM Targets and Bands just like Finance Dept Targets can be seasonal so you need to be able to have seasonal bands and targets to Normalize the results.

So in the interested of fairness, making sure that your SPM system can cater for the both regional targets at Region, District, Field, Well or even asset level, and also cater for the automated adjusting of seasonal KPIs targets is fundamental to its your success in comparing like with like.

No one wants to award or retract a contract to a supplier based on misinformation. Make sure your KPI targets bands are relevant to variables that impact on achieving that Target.

I welcome any feedback on the article, or any experiences good or bad, that you may have had in setting KPI targets.

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

Kind regards

Daryl


 

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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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