Forrest Burnson In the span of two decades, Amazon has gone from a lowly online bookseller to the most formidable and dominant force in retail. While it could take time for these innovations to trickle down to the SMB front, they all present competitive challenges and opportunities on the horizon. And, right as other online retailers began to catch up and started offering free two-day shipping … Amazon took it a step further and began offering one-hour deliveries with Amazon Prime Now.
In the past decade, however, both manufacturing and service firms have become increasingly aware of the importance of supplier performance and its critical impact on their own performance and market competitiveness. The increasing reliance on outside suppliers has transformed both the perception of and the need for understanding and improving supplier performance from just a vitamin to a real painkiller.
A number of factors have converged to create the perfect storm in the supplier performance world: Increased outsourcing and reliance on suppliers for both goods and services Globalization of business and of supply chains Increasing complexity in managing suppliers Increasing supply risks Viewing suppliers not just as a cost, but as a as a strategic input to their bottom line Good supplier performance is a key ingredient in enabling firms to achieve business performance excellence.
But how can firms manage or even influence the performance of outside suppliers? Supplier performance management SPM is being widely adopted as a method to understand and improve the performance of the extended enterprise.
Many companies pursue SPM as the quest for the perfect supplier scorecard.
They believe that if they get the right metrics on the scorecard, then supplier performance will improve. SPM involves more than supplier scorecards, which are only one element in the process.
Successful SPM requires good leadership, organizational alignment, a good business process, effective communications and taking action as part of the process. This article discusses best practices for implementing supplier performance management from creating an effective process to developing meaningful supplier performance metrics to achieving successful results.
They are convinced that supplier performance will improve and the results will speak for themselves. While supplier performance improvement is a distinctly possible outcome, a specific cost reduction based on that improvement can't be guaranteed because different firms implement SPM with varying degrees of proficiency.
However, success will have a much higher probability when senior management understands the business case for SPM and therefore truly gives it support. One of the biggest challenges, however, is that the business case for SPM is not cut and dried.
Executives are focused on bottom-line improvements and continue to expect them as their firms adopt improvements in strategic sourcing methods and supporting technology.
Project management is the practice of initiating, planning, executing, controlling, and closing the work of a team to achieve specific goals and meet specific success criteria at the specified time. A project is a temporary endeavor designed to produce a unique product, service or result with a defined beginning and end (usually time-constrained, and often constrained by funding or staffing. In this HBR webinar, supply chain expert David Simchi-Levi, a professor of engineering systems at MIT, shares a unique new approach to managing supply chain risks. This approach focuses first on how a supply chain disruption will affect operations, enabling a company to optimally focus its limited management resources. The inception of Vaco Supply Chain Solutions dates back to , when one of our existing Vaco Technology clients in Richmond, Virginia asked us to help them find experienced, specialized consultants to assist in their very large and complex merchandising systems implementation effort.
Approach 1 - One approach to calculating SPM ROI is to estimate failure costs - the costs associated with poor supplier quality such as defective materials or late delivery, etc. Then, interpolate how much these costs could be reduced by implementing SPM.
This gives senior management information on what types of savings can be expected and a better idea of cost of SPM versus return on investment. A large manufacturer of environmental care products calculated its total failure costs and then estimated how much a supplier performance management system could potentially reduce costs.
Initially the goal was to allocate budget dollars to meet these baseline estimates. It continues to reap additional savings and benefits as it extends the use of the SPM program. For every dollar spent on critical suppliers, what percentage is lost to poor performance factors, such as poor delivery or poor quality performance?
Or, how many fewer sales dollars would you need to make up for poor supplier performance? While ROI estimates are just that, estimates, they demonstrate the types of cost benefits that SPM can bring in monetary terms.
As an SPM project is implemented and progresses, it is important to track ROI in order to maintain senior management support.
Not all improvements are measurable in dollars. Many, such as improved supplier relationships, are qualitative and equally valuable, and are likely to lead to measurable savings. It is hard to calculate the hard dollar value of a supplier who always helps out during a crisis or time of need, but this is an extremely valuable asset that must be nurtured.
An SPM program helps highlight these qualitative measures.In this HBR webinar, supply chain expert David Simchi-Levi, a professor of engineering systems at MIT, shares a unique new approach to managing supply chain .
VelveTouch provides superior friction solutions for industrial, fleet, and off-highway applications.
The best way to predict the future, is to create it. Ridley transforms the design, construction and operation of the built environment through a digitally lead approach. Teams that put a greater emphasis on qualitative and quantitative supplier data analysis will be able to quickly and succinctly identify weak spots, risks and opportunities in the global supply chain - improving the strategies and plans needed to manage the suppliers, and .
Norfolk’s environment is a unique and precious asset. It allows us to grow a substantial amount of the UK’s food, supports a major tourism industry and has an incredibly diverse range of flora and fauna. The inception of Vaco Supply Chain Solutions dates back to , when one of our existing Vaco Technology clients in Richmond, Virginia asked us to help them find experienced, specialized consultants to assist in their very large and complex merchandising systems implementation effort.