Supplier Performance Management

Supplier performance management incorporates business processes around methods and systems to collect and provide information that measures, rates, or ranks suppliers on a continuous basis. Many companies use the term “scorecard” to describe the actual report that conveys performance information on suppliers.

The HICX Supplier Performance Management solution allows you to:

  • Get the full picture from all internal sources of supplier information
  • Track progress toward business goals – using external and internal data
  • Collaborate easily around a shared picture – bring business users, suppliers, and corporate management together on common ground
  • Have peace of mind – the automated, dynamic, and flexible scoring process runs 24/7
  • Stay relevant with flexible models that work across organizational units, regions, and business units – with the ability to analyze up, down, and across
  • Maintain your sanity with dashboards that hone in on red areas, avoiding information overload
  • Increase your relevance – develop supplier and business unit performance

Companies are increasingly aware of the importance of scorecards and their impact on their own performance, risk exposure, and market competiveness. Many companies are now on a quest for the “perfect supplier scorecard.” Whether measuring supplier performance, or identifying areas of supplier risk, success still eludes organizations relying on antiquated systems, processes, and information fed into their scorecard. HICX understands where companies are coming from and delivers a clear path to scorecard success.

Complex Organizational Needs

Supplier relationships are complex, with multiple suppliers, stakeholders, and commodities with varying degrees of criticality. Requirements and oversight differ based on corporate policy, location, and commodity with organizations finding it difficult to implement scorecards. Complexities increase when modeling performance, where many-to-many dependencies and exceptions are difficult to model.

Your organization must concern itself with:

  • Harmonizing global, regional, local, and business unit performance needs
  • Overcoming metrics that do not support or align with organizational business goals
  • Enabling proper oversight and segregation of duties

Performance management cannot be executed in a silo – unless there is only a single stakeholder, which is most likely not the case. The best scorecards factor in senior management goals and objectives as well as working with suppliers on the frontlines. HICX scorecards are not limited by the technology surrounding them and offer the ability to quickly incorporate all stakeholders’ needs, without waiting for a consensus on those needs.

Today’s performance scorecards have moved beyond tracking a mix of discrete data elements and capitalize on both quantitative and qualitative information, with inputs from internal and external systems and individuals. They offer workflow and routing to information gathering from the right sources. Such an approach shifts the burden from procurement to stakeholders to ensure proper segregation of duties, while escalating issues as they arise.

Lack of Customization

Metrics often originate from other companies, or are pushed as a “one size fits all,” such as Dun & Bradstreet’s “SER Score”. Consequently, many organizations wind up utilizing scorecard metrics that users do not understand and cannot apply – leading to ineffective programs and internal cynicism.

Benchmarking against other organizations is often worthwhile, but what works for one company doesn’t always work for another. Certain metrics may apply to all suppliers, but few suppliers are created the same and cannot be measured equally.

You should be concerned with:

  • Meaningful metrics
  • Automated routing and workflow capabilities

It is essential to define discrete mechanisms that represent specific levels of performance, as well as the attributes that are contained in thresholds for meeting, or exceeding, goals. Depending on stakeholders, business units, geographies, categories, volumes, and criticality levels of suppliers, flexibility and intelligent handling around routing, approvals, escalation, and mitigation procedures are needed to categorize and score suppliers accurately yet differently.

Bad Data

Performance scorecarding suffers from “garbage in, garbage out,” and organizations must have the correct information to avoid manual data cleansing and/or manipulation.

You should be concerned with:

  • Data accuracy within the metrics
  • Manual effort needed to clean data used in metrics
  • Scorecards reflecting current needs of the organization
  • Ability to mesh multiple sources of information for scoring

Supplier performance in large global organizations is rarely defined in one dimension. Supplier risk comes from many different directions, not just financial, whether due to natural disasters, geopolitical events, manufacturing issues, social responsibility failures, regulatory noncompliance, or other causes. Performance is often a factor in measuring risk, and can be defined by a multitude of dimensions such as logistical mishaps, invoicing errors, poor quality, or breach of SLAs. It is imperative to have a holistic view of supplier performance.

With the right solution, companies should expect to easily gather data from the proper person or system to drive scorecarding. HCIX systems feature flexible workflows, surveying capabilities, and system integration capabilities that sustain the creation and use of productive and actionable scorecards.

Lack of Control

Scorecards are meaningless unless they are published regularly, and on time. Quarterly business reviews rely on scorecards as a foundation, but are delayed when performance scorecards are not initiated in time or users do not follow through.

You should be concerned with:

  • Consistent timelines
  • Solid follow-through
  • Standardized models
  • Centralization of process even with decentralized stewardship

Successful scorecarding solutions drive actions, and scorecards without follow-through are a drain on resources. Automating publishing of scorecards, tracking user compliance, and reporting on bottlenecks are all imperative. Suppliers with low performance score reviews need to suffer the consequences, submit plans for improvement, or otherwise change their behavior. If not, measuring their performance is fruitless. If follow-up steps are necessary, controls are required to initiate and oversee the action – providing oversight into the progress.

Poor Visibility

We have all heard of employee 360-degree performance reviews, where input is provided by all stakeholders, even the person for whom the assessment is being performed. In the same way, companies need visibility into progress measured against time and expected results, performance measured against a multitude of quantitative and qualitative inputs, and risk measured with performance and a host of other attributes. The volume of data gathered, coupled with the directions of the input, is valuable only if stakeholders can derive meaningful actionable information.

You should be concerned with:

  • Visibility into scorecarding progress
  • Visibility into supplier performance
  • Ability to drill down into metrics to expose root causes

Good scorecards are deployed broadly, with appropriately segmented visibility to all parties, including suppliers and other external resources. This process ensures rapid dissemination of data as well as prompt validation and correction of data mistakes. Most importantly, good scorecards serve as the undisputed reference point for discussions. Regardless of the scorecard, the concerned parties must be involved in the data gathering, and should have full visibility into the factors and scoring process. This will insure participants quickly move beyond “debating the data” to acting where it is needed most.

Lack of Supplier Involvement

Most performance scorecards incorporate some externally purchased information. Unless the supplier is a publicly traded organization, several key risk indicators can be assumed, such as revenue, employee count, and payment history. These assumptions can make a considerable difference in the swing of a score, especially when working with the many small businesses that usually make up 20% to 45% of a company’s supply base. For suppliers in low cost countries (LCCs), assumptions are based on even less information.

You should be concerned with:

  • Suppliers’ involvement in providing data critical to their performance scorecard
  • Suppliers unable to comment on factors that affect their score
  • Supplier access to scorecard results to improve performance

It is imperative for successful performance scorecards to involve suppliers for key metrics – and, without the proper system in place to contact the supplier and provide input capabilities, this task requires significant manual effort. A few years ago, one of the major providers of risk scores placed American Express as its highest risk company in the United States. The logic: American Express paid suppliers late. By all accounts, American Express is not worthy of a risk rating near that level, especially once you understand how they manage money, and why they would delay a payment versus any pending penalty.

The lesson? In order to fully understand supplier risk and/or their performance, buying organizations need the input from suppliers explaining when and why specific metrics fall out of the norm. HICX systems, with exception handling and intelligent surveying of suppliers, streamline this effort.

Without understanding how they are measured and how to improve, suppliers cannot change behavior to meet customer expectations. The metrics that suppliers are scored on, and the results and/or implications of each, need to be shared with the supplier. Web-based solutions like the one from HICX fully address this need.

Solution

The HICX Supplier Performance Management solution enables you to:

  • Leverage all internal sources of supplier information
  • Build scorecards around your business goals, which may include a variety of data sources such as supplier provided-information, internally provided information, third-party information, and financial calculations
  • Establish an automated, dynamic, and flexible scoring process to evaluate suppliers
  • Segregate performance/compliance roles based on approvals
  • Drill into performance/compliance scorecards based on organizational unit, region, business unit, or other – with the ability to slice and dice and/or “roll up” while maintaining integrity
  • Quickly assess scorecards through Key Performance Indicators
  • Identify good or bad performance, for awarding or redirecting business
  • Uncover hidden cost drivers, risk, performance opportunities, and additional business values that your supplier can offer
  • Share information with internal stakeholders to stay in front of risk
  • Exchange information and collaborate with your suppliers so that you can drive a mitigation plan and/or efficiently manage supplier development

Featured Case Study

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A large Asian hi-tech manufacturer, with an average of 10 direct supply chain disruptions per year, struggled with gaining visibility into supply chain risk. With HICX Solutions they were able automate the scorecarding of critical suppliers and ensure risk mitigation plans were enacted upon early detection of potential risk. By gaining visibility into their critical risk areas, they were able to reduce supply disruptions by an estimated 60%, saving over $600,000 in supply chain disruption costs and potential revenue loss.
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