Who Owns Supplier Performance Management?
Supplier performance management has become an increasingly important topic in many organizations and has received a boost from the recession. It was a source of real advantage to companies that could both oversee performance and manage supply relationships more flexibly.
At IACCM’s final executive roundtable meeting in London, participants discussed the characteristics of successful supplier performance management (SPM) programs – and questioned whether it is a role that Procurement groups are equipped to perfrom.
Today, the SPM role is sometimes within the business and sometimes in Procurement / Sourcing. In a few cases, it is emerging as a separate group. Many businesses have struggled to develop the right level of collaboration to ensure a robust and consistent program. Also, for most, it tends to be a highly selective focus on a few ‘key suppliers’, even though elements of performance management should apply across all relationships.
One participant asked the question: “Who is accountable for overseeing innovation, for doing supplier development?” In his view, Procurement groups rarely have the skills or motivation to undertake these tasks. ”The commercial aspects of contract and relationship management may be better bundled elsewhere.”
A key problem for Procurement comes from its image and its measurements. The participants – who were mostly from a procurement background – feel that the organization remains tarnished by a view that it is about ‘opportunistic’ cost reductions, rather than about the delivery of value over time. “Can you have strong supplier development AND strong negotiation?” asked one.
There was a consensus that there is a growing divide between relationships that focus on cost and those that focus on value – and that it is hard for a single group to manage both. This divide is currently taking many forms. Sometimes it is through segmentation of procurement groups – for example, direct, indirect, IT, outsourcing as separate specialist organizations. In other companies, we see Procurement with very limited influence on post-award activities, such as relationship or contract management. “Procurement is becoming two tribes,” observed one senior director. “In the complex relationships, they may know far less about supply markets and much more about commercial models, the principles of partnering and financial modelling.”