SPM / SRM Failures in Supply Chain Management : Are Supply Chain, Procurement, and IT on different Planets from Category Management and Operations? (Part 1)
While many Oil & Gas companies have successfully implemented Supplier Performance (SPM) and Supplier Relationship Management (SRM) Initiatives, many have failed to deliver value that was perceived from embarking on the initiative in the first instance. SPM / SRM Failures in Supply Chain Management are costing the Industry Millions of Dollars
The failure in many cases is not down lack of resources and budget BUT in fact down to a lack of engagement between Procurement / Supply Chain / IT and their colleagues in Operations / Category Management at the early stages of the initiative. Its like the business functions responsible for working together in developing, implementing and ongoing running of the initiative are / were operating on different planets and speaking different languages, or not speaking at all. Sadly as a result the Initiative fails and the investment (Time, Effort, Cost) is lost.
The Major characteristics of SPM / SRM initiatives where the ROI is high and the payback period is relatively short is where all the functions are aligned to a common goal, where they have mapped out all the challenges, and where the green light to go has not been switched on until all stakeholders including suppliers have bought in fully into the Initiative. Thankfully there are quite a few Oil & Gas companies in Upstream, Downstream, and Midstream that act as positive case-studies that one can take lessons and best practices from their experience.
Without proper planning and stakeholder alignment there does seem to be a higher rate of Initiative failure for some of the more complex Upstream Category lines ( Drilling, Completions, Geophysical, and Subsea) as compared to the category lines we see in the areas of indirect procurement within Downstream and Midstream.
In so many of the failed initiatives its often the case that Supply Chain / IT rush off and pilot SPM /SRM initiatives with the less complex category lines. This gives them a great deal of kudos with their upper management. Unfortunately when they get momentum for global rollout they soon find that it does not work or add value for the more complex category lines, or to quote Dave the Drilling Manager in his conversation with supply chain / procurement dept :
“this KPI Scorecard may work ok for Commodity Chemicals Suppliers but it does not work for me to manage my Drilling Fluids suppliers.. …..count me out”
The main reason I find for this failure is that the Initiative is NOT actually “Measuring and Managing what Matters” at the Category Line or Local operations level. This is often down to the simple fact that Procurement / Supply Chain devised a scorecard and associated KPis without first engaging say the Drilling Managers. Or to put it more bluntly they have devised a scorecard with KPIs from a Supply Chain Book that seem to work across the business but now fails to meet the objectives of the Drilling manager in managing complex category lines. As a result we have a scorecard and KPI report that may meet the corporate objectives (having some high level global KPIs for say COST, HSSE, DELIVERY that are globally comparable) BUT this is off little value to the folks managing the day to day operations of say suppliers for Cementing , Drilling Fluids, or Drilling Rig Category lines at the local level.
If you want to cater for both Global and Category Line specific KPIs then the below diagram provides a good illustration of how you can cater for this without the need for complicated scorecards that contain KPis that are of little use to that Category Line. its essentially allowing you to compare apples with apples across category lines (yellow box) but giving you the flexibility to add category specific KPIs as well for the respective product or category line, even locality specific KPIs.
What is important here is that whether you are in procurement and focused on COST KPIs , in Supply Chain and focused on Ontime Delivery, or in Drilling Department and focused on Days per 10k, or NPT the scorecard should be dynamic so that when created on the fly for the specific category line in question it knows what questions to ask the supplier, even at regional or local level (region or local specific KPIs). Yes ask the supplier for the corporate KPI data but Don’t overburden the supplier with questions / data that does not add value to either corporate or category line. Limit the scorecard to collecting KPIs that Matter.
Other failed Initiatives gave the excuse that they suffered from factors such as lack of Top Level Mandate / Support, Competing BI Initiatives, Scorecard Complexity, Scorecard Overload, Data Availability, Workflow Effort, Low Supplier Buy-in, Lack of Automation, Technology / Hosting / Maintenance challenges. While I may agree with these being contributory factors they are easily managed and in my view the mainreason for failure is lack of co-operation between the IT, Procurement, and Supply Chain, with the Category management / Operations functions.
I am not looking apportioning blame to any particular role within the initiative, each has their part to play, and each must understand that there is a huge business impact in not getting this right. Its about working together better during the concept stage, building the business case, and working collaboratively to deliver the end goal of improved Category Management, Relationship Management, improved Performance, and better access to timely information to reduce risks and improve the overall supply chain management process.
In Part 2 we will look in more depth at the negative Supply Chain Business Impacts of failed Initiatives, as well as some reasons / challenges as to why SPM/SRM Initiatives have failed as a result of the lack of alignment between the various business functions / teams and suppliers involved including :
- Hierarchy Complexities (Upstream V Downstream)
- Performance of Suppliers across Asset Types (Wells, Rigs, Refineries)
- Performance Review Process / Frequency
- Data availability / Ease of Collection
- Reporting / Drilldown Capability
- Supplier Collaboration / Engagement
- Contract / Supplier Specific KPIs
- Scope of Initiative / Competing Initiatives.
- Competencies – Lack of Category Line Experience / Knowledge Sharing
- Inflexible KPI Target Selection ( Global / Regional / Local Targets)
- Scorecard Build-out / Data Elements
- Operational Usage / Maintainability
- Technology Selection
- Initiative Compliance / Policing
- Past Reputation / Initiative Success
In the mean time if you have any experiences / suggestions around the article feel free to like, or share this post or better still leave a comment / question / suggestion.
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.
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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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