How to Achieve and Sustain World-Class Supplier Performance

There is a saying that claims we teach people howand Supply Chain Management Practices!
to treat us both in our personal and well as in ourA true gap analysis will focus on known strengths
professional lives. For that reason, smart professionalsand weaknesses thereby identifying the organizational
know that to achieve and sustain world-class supplierchanges needed to close the gaps. To get the most
performance, we each must take an active role inout of a gap analysis it should be thorough, candid,
asking for what we need and want. In other words,honest, and realistic. Never compare yourself to the
when we get involved in the process by truthfullybig guys like Wal-Mart or Dell's logistic system,
sharing our needs regarding supplier performance, weparticularly if you are a mid-market company. Instead,
open the way towards realizing a more successfulcompare yourself with other companies that are in
business. If on the other hand, you're not gettingyour competitive league. Plain and simple, benchmark
what you want and you do nothing to explain youryour organization with other similar operations and
needs, you are actually teaching the supplier that itlook for areas of complacency, stagnation, and
doesn't matter. Plain and simple, it's up to you to takeopportunities for improvement. And if you really want
responsibility for excellent supplier performance byunbiased assessment, consider outside help.o Step 5.
asking for what you want.Develop a Commodity Team Approach to Supplier
Improve Levels of Supplier Performance!Management!
Based on my many years as a senior supply chainWhen using a commodity team concept, all functional
executive, business owner and consultant, I haveareas responsible for various aspects of supplier
discovered that there are specific ways to improveperformance are brought together under somewhat
levels of supplier performance and one of those isof a matrix work structure. In such teams, the
using an effective supplier rating system. Without abuyers are usually the team leaders. Depending on
good system in place, supplier performance is difficulthow large and complex the supply chain is, quality,
to improve. Founded on that premise, not only have Ilogistics / planning, engineering and other groups are
achieved and sustained a great deal of improvedall brought into the commodity team structure. To
supplier performance, but I feel safe in stating thatwork well, these teams must have staying power. In
using a rating system has proven to enhance levelsshort, this is not a temporary assignment to meet
of supplier performance significantly. In fact, myand work on a short-term set of goals, but instead
experience has led to the creation of a ten-stepcommodity team members share in supplier
process that I use faithfully, and which has beenmanagement goals and plans. In other words, the
instrumental in my consistently reaching upwards ofmembers learn and act together to drive supplier
20% improvement in supplier performance.improvement. An effective commodity team
Achieve Upwards of 20% Improvement!approach must become a way of life and become
In support of your efforts in achieving improvementingrained in daily management so as to drive supplier
in supplier performance, I am about to share thisperformance over the long term. The complexity of
ten-step process, which will help in sustainingmodern supply chains requires more resources than
world-class supplier performance as well as achievingmost purchasing organizations possess, but the gains
upwards of 20% improvement. But before presentingI have personally seen from commodity teams have
the ten-step process, I want to suggest thatbeen enormous.o Step 6. Training, Training and more
improving sustainable supplier performance takesTraining!
more than just having the tools and strategies; itAs a Consultant, I am often asked to evaluate a
takes the application of an established and disciplinedpurchasing organization or total supply chain system.
approach. Anyone can use maximum purchasingWhat I find is that basic training on internal systems,
leverage or even twist the arms of suppliers in anpractices and long-term supplier improvement
effort to gain improved performance, but that isn'tstrategies, as well as the most minimum of industry
the way to go and it's certainly not a means ofstandards, are usually missing. This translates into a
sustaining excellent performance. In short, achievingloss of efficiency. Inefficiencies are tough to quantify,
consistent performance in delivery, price, quality andbut my general experience shows that buyers and
other areas requires diligence and consistency alongsupply chain staff are on average 30-50% less
with a well thought out strategy. The ten-stepefficient than their well-trained counterparts. Buyers
process I have outlined below will work as youneed basic reviews on best practices and
diligently apply the principles.negotiations training and these should be centered on
The Ten Step Process To Sustainable Suppliertheir supply base, not on some "off the shelf" course.
Performance Improvemento Step 1. Involve SeniorRemember, improving supplier performance means
Management in the Process!knowing how to reach out to suppliers, showing
The first and one of the most important steps in theunderstanding about their operations, their systems,
process is to involve Senior Management. What thattheir practices and helping them to reach new levels
entails is aligning supplier performance targets withof achievement. Training must be centered on what
total corporate targets within your business plan. Inyou need from a supplier and how to get it!o Step 7.
short, your goals can be centered on costKnow Your Key Suppliers Well!
containment, new technology development, newWhen I say know your key suppliers well, I don't
markets, cost of quality and productivity, butmean to audit a supplier and file the paperwork once
approach Senior Management first, prepared with anevery year or two. Your commodity teams must
initial plan to obtain their support in going forward. Ifvisit, and they must visit often. The more they know
and when Senior Management is involved, they areabout the supplier and what goes into the supplier's
more likely to assist in resource allocation, therebyprocess, the greater the chances of identifying
assuring that targets are achieved.o Step 2. Developfurther efficiencies in cost, quality, delivery, new
a Daily Measurement System!product development and sustainable supply chain
The most powerful opportunities come about byperformance. I often find buyers conducting what I
communicating the standards expected, as well ashave coined as lobby supplier management. This type
conveying the achievement expected towards thoseof buyer never really leaves his desk except to visit
standards every day. Based on this premise, whenthe lobby when the supplier comes in for a meeting.
suppliers realize that you are tracking them on a dailyThis is the closest the buyer gets towards
basis, they respond with greater urgency. You knowunderstanding his supplier partner! For greater
that old saying: "It's the squeaky wheel that gets theefficiency, buyers should be encouraged to travel and
grease." Well, a sound rating system that isconduct a hands-on supplier management!o Step 8.
monitored both by you and your suppliers canDevelop Best Practices Policies Among Suppliers!
definitely lead to at least a 10% improvement, evenLook for good ideas and spread them among the
if you do nothing else. And that can be achieved inrest of the supply base! I have worked and lived in
one to two years at the most. Improving long-termAsia and managed large supply chain operations and
supplier performance comes about through a clear,what I discovered is that Asian companies simply
easy to understand daily dashboard with just a fewmake it their business to know who has a better
key performance indicators, (KPI's). Instead ofprocess. It is a standard practice among some of the
measuring ten to twenty things a day, pick a fewbest Asian companies around the globe and once
basic areas such as delivery or quality and displaythey glean that information, they use it to learn and
them for all suppliers to see. Keep in mind that it isimprove the rest of the supply base! Obviously, one
the rare supplier who can focus all their energy onmust stay away from proprietary practices, but the
just one or two customers. Suppliers usually haveconcept is well known. I have to remind supply chain
many customers to keep happy so the customerprofessionals that it is not always how well their
who communicates their standards, and tracks theminternal systems perform; the highest priority is how
each day gets the suppliers undivided attention. Withwell the supplier's systems perform!o Step 9. Align
those in place, you're on your way to improvingthe Number of Suppliers You Manage to your
long-term supplier performance.o Step 3. Know WhatResources!
You Want in Supplier Performance & ThenThe one area I invariably find seriously out of
Communicate It!alignment, even in very large multi-national
My recommendation is that suppliers be given ancorporations, is the number of suppliers used to
annual scorecard. This scorecard should cover allmanage resources. You can only effectively manage
critical areas of importance such as responsiveness,a finite number of suppliers with a significant hands-on
service, product management and sales support. Theapproach. To manage suppliers productively, I would
primary key is telling the supplier exactly what makesrecommend the following. Either have enough staff in
you happy and what you want and require inpossession of modern performance measurement
reference to supplier performance. I suggesttools and resources from other areas, or shrink the
developing a set of unique requirements for eachsupply base to a manageable level, making sure it fits
supplier, rather than blanket type scoreboards. It mayyour available capabilities!o Step 10. Consolidate All of
take a little more work, but in the long run, thethe Above Steps into an Executed Roadmap
effectiveness more than doubles that of traditionalDocument!
annual supplier report cards. I also recommend thatA road map of this nature outlines all the steps that
the target for the following year be given along withwill and should take place. This road map must
the trend the supplier has been on for the last twodemonstrate who will do what, when and how, and
or three years. In addition, blend numeric ratings andwith what resources. It should list the responsibilities,
targets with written text describing your issues andinterim goals and targets along with the processes
requirements to the individual supplier. For example,and systems that will be utilized. Most important, it
many companies issue blanket statements orshould develop and describe in detail what the desired
proclamations on targets such as "cost savings ofend state of supplier performance will look like along
5% are required for next year." Most suppliers filewith all the steps and processes it will take to
these away and don't take them very seriously! Theachieve. In short, involve everyone in the
bottom line is to make the scoreboard personal. Indevelopment of this document and then be sure to
my experience suppliers find it harder to disassociatelive by it!
themselves when the targets are personalized! TheStay tuned for more articles on how to implement
scorecard works with the daily dashboard as theyeach of these ten steps as Keith Lawrence covers in
drive home clear standards and accountabilities.o Stepmore detail the process required to reach world-class
4. Develop a Total Gap Analysis of your Purchasingsupplier performance management.