Supplier Management: Make It Strategic

PurchTips edition #229


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Is Your Supplier Management Strategic Or Not?

If you are considering implementing a supplier management process at your organization, you may wonder where to start and what metrics to choose. It's critical to begin strategically because early decisions are the foundation for all future supplier management work.

While emulating another organization's existing supplier scorecard may seem like wonderful shortcut, a more strategic starting point for developing supplier management metrics is learning the top-level strategy of your organization and basing all metrics on that strategy.

Supplier Insurance

Your metrics "should relate to what your company is doing, not what some other company is doing," according to Sherry Gordon, the President of the Value Chain Group, a consulting firm that specializes in supplier management process design and development, and contributor to the Spend Matters blog. "While I think it is really helpful for companies to find out what other companies are measuring on their supplier scorecards... it's only useful up to a point because another company's metrics may not be relevant to you or even readily available in your company."

For example, if your organization's strategic priority is to increase customer satisfaction to support sales growth, it may not be smart to copy the scorecard of an organization that is more focused on cost reduction and stemming losses due to declining revenue. With two different strategic priorities, those organizations' supplier scorecards and metrics should look different.

Though there are many supplier management metrics that your organization can use, you need a method to home in on the metrics your organization should use. Gordon suggests three criteria for deciding on metrics.

"The first one is, is it relevant to your company? The second is... is it measurable?" she says. "And the third thing is, is it actionable?"

Gordon stresses quality of supplier management metrics over quantity. "It's better to have fewer measures that you can really do a good job on and that really mean something to your company rather than trying to fill up a scorecard" with metrics that do not meet the criteria.

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