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ERP Growing Pains: Supplier Performance Management

Image of Kelly Barner
Kelly Barner

Last month, I wrote an article about how ERP systems often struggle to meet the requirements of today’s strategic sourcing projects. ERPs simply weren’t built to accommodate today’s user experience expectations, address a broad enough range of spend categories, or facilitate project level flexibility and creativity.

But strategic sourcing is just one procurement process, one of multiple touch points with the supply base. Beyond supplier selection and the contract process, procurement is responsible for managing each supplier’s ongoing performance. Creating a centralized record of that performance must be based on input from multiple sources, transaction types, and perspectives. Much like sourcing, supplier performance management is a complex effort, one that ERP systems do not handle naturally because so much of the information comes from beyond the system itself.

Taking an expansive approach to supplier performance management requires procurement to capture multiple types of data and consolidate it to motivate business decisions.

Managing a Broader Definition of Performance

One of the things that makes supplier performance management so challenging is finding a standard way to represent performance. ERP/MRP systems incorporate what they characterize as performance data, but that usually just includes delivery timing and product or service quality. Anyone that has relied upon a supplier knows that real performance consists of much more.

Service levels are an example of performance that extends beyond product quality and on-time delivery. It is absolutely critical to the company, but it is often a qualitative assessment based on firsthand experience with the supplier. The same is true of value; measuring value requires subjective evaluation that is no less important in an overall assessment of performance than an ERP’s quantitative measures.

Representing All Perspectives on Performance

Even if an ERP system could capture the broader definition of supplier performance described above, it would still only have insight from individuals that interact with the ERP. There are many functions in a company that have valuable insight into supplier performance, some of which never/rarely use the ERP. This includes warehouse teams, support technicians, and even customers. They may interact with the supplier’s product or personnel on a regular basis, but an ERP won’t capture their feedback. 

When a solution is designed to facilitate the capture and use of supplier performance from the perspective of the entire enterprise, insight can be gathered from many individuals and teams in the places they are already doing their work. It also allows for qualitative information collection – internal comments identifying opportunities for performance improvement – that defy an ERP system’s rigid structure. Better still, combining private company perspectives with supplier feedback from the rest of the industry provides a valuable, balanced perspective.

Partner with Suppliers

We’ve discussed capturing and combining different types of supplier performance data from multiple perspectives to increase visibility into supplier performance – both good and bad. But suppliers can’t act on any of that if they don’t know how their customers view them. Once again, this is beyond the scope of most ERP systems. They track limited performance data but don’t allow suppliers to monitor it directly.

There is a clear advantage to allowing supplier visibility into ‘blind’ performance feedback and even letting them request public feedback when they believe their performance justifies industry-wide attention. Keeping them informed and making performance feedback part of their growth process incentivizes better performance where it matters most.

Consolidating all of the Above

The most difficult achievement with regard to supplier performance is recognizing that a snapshot in time is not sufficient to measure actual performance. It is far more indicative to monitor documentation, reviews, and audits over time. Some will be qualitative, and some will be quantitative, but they have to be combined and monitored together. This makes it possible to identify holistic trends in supplier performance, the very trends that will help procurement decide which suppliers to slate for corrective action or replacement and which should be positioned for a greater share of the company’s spend.

On the most basic level, supplier performance can be represented as a combination of product quality and on time delivery. And while ERP systems may be able to check that particular box, it does not meaningfully capture actual supplier performance in the real world. For that, companies need a platform that can centralize operational status, supplier-specific risks, actual indications of performance from project history, insurance and safety requirements, and feedback or ratings from other companies that have also reviewed that supplier’s performance.

While some of the information required to paint a holistic picture of supplier performance can come from a company’s ERP system, that information is just one component of a much bigger, and far more complex system of evidence.

If your organization is limited by your ERP systems supplier sourcing capability, please contact us for more information. 

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