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Who Owns Supplier Performance Management?

December 16, 2009

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.”

  1. Tim, great discussion. Inspired me to ask the same question and try to define what SPM/SRM is in order to better define the right organization model. I’ll share with you what I gather.

  2. Tim,
    Very interesting discussion. I’ve seen procurement departments divided into sourcing and supply management. The supplier managers are responsible for managing the ongoing supplier relationship and performance, while the sourcing people concentrate on the sourcing. The supplier management people do supplier development and are focused on value. Of course supplier management and sourcing are supposed to collaborate. I agree with the observation made by your group about procurement becoming two tribes. Also, sometimes, depending on the type of business and the way a firm is organized, there can be a supplier quality function either in quality or in procurement that is responsible for SPM and supplier development.

  3. Hi. I have fifteen years experience in supply-chain management, involving logistics, transportation, sourcing, procurement and contracts management. I am curious to know what are the drivers for the division within procurement, especially with regards to responsibility for vendor management. In my opinion, vendor management falls under the contract specialist because a relationship is already established between the Company and the vendor during contract development and negotiations.

    • Alex, as my original post indicates, there are certainly a growing number who share your view that supplier relationship management and contract management should be integrated. IACCM is working on that subject and exploring an integrated training program that would reflect such amalgamation of roles. Indeed, if SRM is to be taken seriously by executive management, it probably needs to expand the role to absorb something with specific benefits and deliverables – so contract management could be that solution.

  4. Tim – very astute posting. In such a resource constrained environment ad economy, businesses are focusing on a handful of top ‘volume’ suppliers and using Old School interaction tools and methods. Comprehensive and collaborative supplier master data management and performance management solutions are only just emerging. We find that it all starts with the ability to get a holistic view of supplier contacts, capabilities, credentials and performance. A living profile if you will. This becomes the atomic unit of the collaboration surrounding performance management. I truly believe that this is why business social software is extremely suited to supplier management. Look forward to connecting more in 2010. Cheers…..Nick Parnaby, Founder & CO0 RollStream Inc.

  5. Good article Tim and some good observations. In terms of changing the rules of the SCM game, what industries are likely to lead the way? How do you encourage two tribes to become one? My guess is that it need executive sponsorship at C-level.

    • Mark
      That’s a good question – and I guess that I don’t really see any industry taking a strong lead at present, it is more down to individual companies. However, if I had to choose, I would probably say that the technology sector is somewhat further ahead and that in many cases it is the IT sourcing groups within customer organizations. This is perhaps because of the speed of change within this sector, coupled with the changing demands being placed on the CIO community. We more often see CIOs pushing for SRM than we do CPOs!

      As for ‘two tribes’, again I am not sure. And as long as there is cross-learning, the separation may not be a bad thing.

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  1. Outsourcing Governance and Who Owns Supplier Performance Management? | 360° Vendor Management

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