Dec
28
Share KPI’s with your suppliers to get even more benefits.
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We all know the importance of KPI’s within business. Most organizations will slavishly work on pulling data together, manipulating it and then put the icing on the cake by decorating the resultant charts to make them uber presentable (if not always easily understandable). The results then usually get passed around the business execs so they can review business performance.
Plan Do Check Act should be part of any Supply Chain KPI
However, while we know the importance of KPI’s we may not always understand the value they bring to us and how we can use them to drive both improvement and performance within our wider supply chain, especially if we share them with our suppliers. As we all know better visibility requires data whether that’s focusing on service, product or operational excellence and with KPI’s businesses often find that hard.
For many organizations existing key performance indicators have been in place for a while often gathering dust delivering only moderate value. Most companies usually benefit from a warts and all review of their Supply Chain KPI’s, both in the targets they are driving and how they are shared both inside and outside the business.
When it comes to managing and leading the production of key performance indicators it’s interesting to see who has a hand in driving them.Adaptive Insights recently posted an article that stated that organizations CFO’s are increasingly leading the charge in driving organizations metrics and measures. Whoever does it KPI’s should be part of a continuous improvement cycle (Plan, do check act) designed to both highlight performance and to shine a light on failures in
Whoever does it KPI’s should be part of a continuous improvement cycle (Plan, do check act) designed to both highlight performance and to shine a light on failures in process (or business design). fundamental purpose is that they should drive improvement.
There is, of course, a multitude of KPI’s that can be used the Supply Chain Council has hundreds that you can use) and googling KPI’s there’s some further great reference material out there such as Stephanie Davies post here on linked in.
“Supply chain is a team game and if some of the team are kept in the dark by not sharing goals then your performance won’t be 100%”
However when you’re looking to share information with other participants outside your organization you may need to tread carefully on a number of fronts.
Within the Supply Chain there are often various levels of external interface (suppliers, logistics/distribution etc). One of my biggest grumbles when I work with clients is just how few of them share performance data with these stakeholders. The result is many of thier suppliers simply don’t know how they are being perceived by the buying organization meaning that the purchasing team are leaving value on the table. If we consider that KPI’s should be driving performance and improvement, then a lack of visibility into how you perceive them to be performing is short-sighted at best. For example, ask yourself these questions
• Does your supplier know your requirements for ontime delivery are and how it’s performing against them? Do you know the key contributor to any failure and what they/you are doing about it?
• Does your supplier know their DPM? (how many of it’s delivered parts get rejected back due to issues) What’s the key route cause for defects?
Ok so these are simple examples but Supply chain is a team game and if some of the team are kept in the dark by not sharing goals then your performance won’t be 100%
Top 5 Issues with Supply Chain KPI’s
Before we discuss how KPI’s can be used with external stakeholders let’s first look at potential pitfalls with KPI selection.
Here’s my list of the top 6 issues regarding KPI’s which I find when consulting with clients.
• KPI’s are irrelevant and don’t drive change
• KPI’s are hidden and seen only by execs
• KPI’s are founded on poor data and don’t present reality
• KPI’s are out of date
• KPI’s are not shared routinely (i.e. every month without fail)
• KPI’s are not shared with the supply chain
When it comes to discussing performance with suppliers, management often cite valid reasons to avoid it, these typically include:
1/ Concerns about sharing inaccurate data
2/ Data gets shared at the wrong level and not acted upon (lack of appropriate business review)
3/ Concerns about impacting supplier relationship
However many of thes fears can be overcome….some questions to ask:
• What are your business objectives and which is the appropriate information to share with your suppliers.
• How often will you share this data.
• How will you obtain the data
• How will these KPI’s drive performance improvement?
Of course even if you do share KPI data there is no guarantee that it will be acted upon. Sharing KPI data outside of an appropriate forum which enables change is a fruitless task. KPI sharing should be carried out as part of a routine performance review with the supplier where actions that drive performance are agreed.
One of the key things to remember is to not overburden yourself, most organizations would like to have a plethora of measures but realistically can only focus (and improve) on a small area at a time. Think about how you can pare down to what is absolutely necessary? Are your goals short term/Long term – how will your suppliers help/work with you? It’s all about striking the right balance. Remember that if you focus on one area too much you could be doing so at the expense of something else.
“Lots of organizations struggle with this as many find themselves on a data cleanse journey and historical data compared with current data is not always comparing apples with apples.”
Historical information is critical to effectivity. KPI’s are a journey, they tell you where you’ve been and where you are now together with your destination (the target). As such historical information is critical if you are to effectively measure the effectiveness of the KPI. How much history do you have?
Lots of organizations struggle with this as many find themselves on data cleanse journey and historical data compared with current data is not always comparing apples with apples. This is especially true when you start and share performance data with suppliers, you might be surprised to find things may not be as they first appear.
Of course, key performance indicators are only part of the supplier development bandwagon. There can be various ‘hidden’ factors such as how your supplier views you in terms of prioritization, communication etc that can all affect performance. These often fall outside the usual KPI review process.
KPI’s and relationships
Understandably you don’t want to adversely impact the relationship you have with your supplier, which can sometimes happen if you blindly trust the data and then attempt to beat the supplier with it. Transparency if handled the right way is often a good thing and acts as an enabler to improvement activity. Far too many companies fail to have the right levels of visibility putting their suppliers into some form of “black hole”. Often the KPI’s can put forward some difficult conundrums for example they may highlight that a supplier may not prioritize you as you want and may not have your best interests at heart. Various questions can come out of this that can be difficult to answer.
Finally KPI’s in your supply chain are only as good as the team that selected them and that is providing the data for them. Supply chain Management should ensure that KPI’s are necessary, accurate and have purpose, they should instigate appropriate business review processes with suppliers on which results can be interrogated and improvement to processes/workflow instigated as a result.
Supply Chain KPI’s are a powerful tool but they are just that a tool and like any tool they have to be used in the right way with the right expertise to derive the highest benefit.
Dec
7
Indirect spend procurement strategy
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In most organizations, one of the common tasks of the procurement team is to establish methods of controlling indirect spend.
So, first things first, what is this Indirect spend I hear you ask.
If direct spend is the procurement of products and/or services that are built into the finished product (i.e. a wheel on a car) then indirect spend is everything else. Examples of indirect spend include stationery, IT systems, services like office cleaning, recruitment.
When it comes to managing spend – direct spend often, rightly, gets significant focus. I’ve lost count of the companies that I’ve worked with where the priority is focused on reducing the costs of direct expenditure (helping to build competitiveness and profitability of product) and reducing lead time while often indirect spend appears to be some form of poor relation. As procurement specialists, we know that for every $100 you give us to manage we’ll save you x% – indirect spend is no different.
While many procurement specialists might say that spend is spend whatever the category, in reality, indirect procurement is a different beast. It contains issues, which simply don’t exist in its direct counterpart. Given this, the approach to managing this type of spend needs to be both smartly tuned and appropriate.
In large companies, indirect spend is usually monitored and managed by its own team, including dedicated commodity managers and buyers. I’ve found in my experience that SME’s, however, often have different processes and types of controls with often a greater focus on direct spend. Manning levels are also different and often they are not geared up to take the opportunities that are reachable.
Whatever the size of the business you shouldn’t loose sight of the fact that there is often considerable value to be had in optimizing your indirect spend. But if you’re looking to get to grips with Indirect spend what actions should you take? For those businesses that might be constrained by resource (SME’s for example) then usually, I’ll suggest 4 action points
1/ Standardize how you buy (your procurement process)
2/ Monitor spend data, understand what you buy & why
3/ Categorize your spend to help you look for, and find, value
4/ Optimise your suppliers
While these might seem obvious, the first action is often the hardest. There are usually various places in a company where spend can be “leaked” (points of purchase) and embedding a standard process which works whilst not restricting working practices can be a fine balance.
Clearly, utilizing standardized contracting processes also helps. Using repeatable artifacts like statements of work, contracts etc can rapidly speed up “onboarding” new suppliers/arrangements and make the process as pain-free as possible. Setting out, in advance, what you’re trying to achieve and making the process as smooth as possible really pays dividends.
Above we identified the 4 critical features of managing indirect spend but if you have more time (and resources) then I’d also suggest the following:
5/ Look to implement appropriate “enabling” contracts that automatically encourage compliance whilst making the buying process ‘easy’ for the end user.
6/ Look at the total procurement process and don’t forget payment – this can help deliver substantial back office savings.
7/ Measure compliance / Monitor maverick spend and use it as a learning tool, not just a stick to beat users with
8/ Remember that indirect suppliers are not excused from performance management
9/ Don’t be surprised by change, learn from it and adapt processes to suit.
How does your business manage indirect spend? Any tips/lessons learned? Let us know in the comments section below.