The document discusses supplier performance management in two parts. It outlines the need for a performance management program rather than just a scorecard to continually drive, measure, and improve supplier performance. The second part describes setting key performance indicators (KPIs) and targets, developing performance plans, monitoring and evaluating performance, and rewarding and coaching behavior to achieve targets and optimize performance. The goal is to create a common language and drive accountability for results.

1. Supplier Performance
Management, Part II
How are you managing suppliers today?
The forces of globalization are fundamentally changing the way that companies operate and compete, offering both
business opportunities and challenges. The quest for lower-cost sources of supply and the promise of new markets are
driving organizations of all sizes—from large, Fortune 50 enterprises to small Midwest manufacturers—to venture into
the global economy. At the same time, increased competition from emerging markets, a sagging U.S. dollar and
tightening supply markets are quickly erasing the lines between local and global supply chains.
Even as companies seek to sell, compete and secure supply in far-reaching corners of the world, they also must contend
with challenges inherent to the global supply chain. Longer lead times mean that supply chain executives are
recalculating the balancing point between “too Lean” and “too much inventory.” Supply uncertainty is forcing a greater
emphasis on supply chain risk management as a discipline. And the need to negotiate and govern business contracts
across multiple jurisdictions is adding new complexity to the supply management process and prompting procurement
executives to reexamine the skills necessary for managing a global supply base.
In the last issue of Supplier Performance Management, Part I, we outlined the need to view your supplier management
as a program not just a scorecard. By developing a performance management process, you continually drive, measure
and improve your supplier performance.
The second step in the program is to set measures and targets that will tell you whether you are creating value and
achieving the strategy:
Key Performance Indicators (KPIs)
KPIs are quantifiable performance measures developed to monitor the
Strategy progress towards the achievement of strategy and the creation of value
Common Language
KPIs are the primary
means for
Set Measures communicating
How Some Companies Do It Today
and targets business results • Manual effort
• Home built portals connected to databases
Targets
Reward/ Plan and • Hangs off of their corporate websites
Coach Execute Targets are set for
KPIs to ensure focus • Scores of employees to do the heavy lifting: planes,
Google search, phone, fax, email, reminders
on continuous as well
as breakthrough • Research new suppliers, attend trade shows etc.
Monitor & improvement
Manage • Manual data cleansing
• Corrective action projects, internal scorecards,
Excel Spreadsheets
• Cross referencing and validating financials, tax ids,
certifications

2. Four Inputs into the Target-Setting Process
External
External
Targets Internal
Benchmarking/
Benchmarking/ Benchmarking/
Competitor
Competitor Best Practices
Information
Information
Historical
Strategic
Performance
Objectives
Trend Analysis
On a going basis, the metrics begin to have power when:
• It is based on analysis, hard data, reality
• When everyone in the organization understands how key metrics link to overall procure-
ment and corporate objectives
• When the targets set are credible (no point insisting on 99% on-time delivery when bulk of
the reason for late delays are due to recognition problems in your receiving docks – some-
times refining the definition of on-time delivery where the goal is within the control of the
supplier makes more sense)
• To this point, target setting for suppliers have to be incremental – reviewed on a consistent
basis
Performance Management is a business process and needs an owner
• Oversee, maintain and improve PM processes
• Support users and resolve issues
Each scorecard has an owner
• Responsibility, authority and accountability for results
• Achieving/ influencing results is within their span of control
Most successful programs also have a strong executive champion
• Active top-down support is critical to establishing new programs and driving needed
changes
Top Procurement Initiatives for the next 3 years*
• Improve supplier development and collaboration
• Transition to a centralized or center-led procurement organization
• Upskill and improve talent of purchasing team
• Improve supply risk management capabilities
• Locate, secure, and manage low-cost country suppliers
• Improve and standardize supply management technology infrastructure
*Economist CEO Study featured in Global Supply Management: Strategies for Success in the New World Economy

3. The third step in the program is to develop performance plans that will enable the
organization to reach the KPI targets:
Performance Plans
• Plans established specifically to dictate how quickly KPI targets are achieved. These plans can drive the budgeting
process
Prioritization of Resources
• Performance plans help prioritize existing and future initiatives such as implementation of technology, optimization
of resources, and alignment of business processes
The fourth step in the program is to continuously monitor and evaluate performance
results:
Performance Monitoring and Evaluation
• The consistent and continuous reporting and feedback of performance results against targets. This monitors the
effectiveness of performance plans and the ultimate creation of value
Management Discipline
• Performance Monitoring and Evaluation institutionalizes the performance management program as the primary
means of dialogue for discussing business results -the common language - and creates management focus on
important strategic and operational issues
The fifth step in the program is to encourage the desired behavior to achieve performance
results:
Reward and Coach
• Behavior that is aligned with the achievement of performance targets is rewarded. Actions that are not aligned with
the optimization of performance results are realigned
Responsibility and Accountability
• The Reward and Coach process is one of the key enablers that drive responsibility and accountability in the
organization -thus promoting a performance-centered culture
Scorecards reinforce accountability of owner to achieve targeted results
Internal managers, teams and
business units accountable for Scorecard data from survey
or
delivering results analytical data
• Incentive comp plans, recognition
programs
• Performance reviews,
coaching/ performance plans
Suppliers accountable for
achieving results
• New business award
• Preferred terms and negotiation
process