Great Suppliers Make Great Supply Chains - Paul Martyn - Forbes - 14 Feb 2017

As an analyst who covers supply chain management (SCM) and procurement practice across industry, I tend to keep my keyboard focused on the disruptive themes that continue to re-define it. That said, if you’re expecting me go on about the unprecedented growth of the SCM solution markets, the accelerated pace of innovation, tech adoption, social change, etc., don’t hold your breath. I can’t, as the data argue otherwise. Too many of us conflate diversification with acceleration –and there’s a difference. The most notable, defining advances of the last decade (Amazon, Twitter, Google, etc.) share something in common: they do not require consumer investment. If you take those monsters out of the equation and focus on corporate solution environments, the progress, while steady, has not been remarkable. Let’s just say there remains plenty of room for improvement, especially in supply chain and procurement practice areas.

I fell onto this tangent unexpectedly. It happened while interviewing Mr. Dan Georgescu, Ford Motor Company, adjunct Professor of Operations and Supply Chain Management, a highly regarded expert in the field of automotive industry supplier development. “For supply chains to be successful, performance measurement must become a continuous improvement process integrated throughout,” he said. “For a number of reasons, including the fact that our industry is increasingly less vertically integrated, supplier development is absolutely core to OEM performance.” As I listened intently to Mr. Georgescu’s comments, I found myself thinking about the sorry state of SPM practice in other industries.When considering how many different workflows have rolled-up under the SCM and procurement umbrella, I kept wondering what happened to SPM. Why is it still buried somewhere in the supplier qualification process of strategic sourcing? Think about it. Companies have addressed how they buy, how they pay and how they comply; organizations look to squeeze cost and/or apply automation at every turn, but when pushed to discuss how they manage their supply networks, the bottom falls out. Current practice is dominated by a combination of freeware, spreadsheets, Survey Monkey and traditional scorecards, or nothing at all. And having seen the general-purpose SPM solutions offered by the ERP vendors, it’s not hard to understand why SPM hasn’t gone mainstream. Simply put, the available solutions lack relevance and because the user experience is cumbersome, procurement professionals haven’t adopted them. For the startups poised to fill the gap, it would seem they have good reason to feel optimistic. Kent Barnett, CEO of and SPM upstart named ClientLoyalty, describes his company’s approach to SPM as “a data driven solution for optimizing supplier performance.” Like Mr. Georgescu, Mr. Barnett is passionate when discussing the solution gap and the value associated with bridging it, as was Steven Jeffery in a separate interview. Mr. Jeffery is the co-author of the book The Art of Creating a Quality RFP. Simply put, it’s apparent the industry’s thought leaders want to talk about this. All three gentlemen agreed that unification of purpose and a focus on supply network accountability is the goal. They also agreed that managing performance is bigger than collecting quality and delivery metrics. And finally, they could not have been clearer about the untapped value of supplier collaboration. Whether you measure it in terms of quality improvements, reduced risk, or breakthrough innovations, the idea that few organizations have a credible, continuous improvement process for managing their supply relationships is a conspicuous miss. Said Mr. Barnett: “We establish live connections to the KPIs that define supplier performance, including relevant subjective measures. We also scan relevant news feeds and social media capturing and merging ‘sentiment data,’ as these data are often credited with spotting trends earlier than others. We live in a big data world paired with game changing predictive analytical capability. Why not apply such capability to SPM? Said Mr. Jeffery, “We know that mission critical, Tier 1 supply relationships exist at the departmental and/or Line of Business level –that there is a high probability that some of our most critical suppliers wouldn’t even turn-up in an enterprise-level spend analysis. Bottom line, we strive for a balanced, collaborative relationship with our Tier 1s. We rely on each other. You could say that our performance management philosophy is built around that reality.” Six Sigma is a set of management techniques intended to improve business processes by greatly reducing the probability that an error or defect will occur. In the automotive industry, Failure Mode and Effects Analysis (FMEA) is a derived process –a mainstay capability embedded and studied throughout a product’s lifecycle. The industry recognizes FMEA outputs as critical indicators of performance, so it works tirelessly with its suppliers to make continuous improvements. It actually scores its suppliers based on their willingness to participate in such collaborations, because it’s recognized as mission critical. So, does the automotive example provide a teaching moment for other industries? The analysts agree that as much as 15% in additional contract value can be achieved via effective SPM practice. But when you factor-in SPM’s role in reducing risk, cost, improving quality, participation, innovation transfer, market intelligence, sourcing effectiveness, etc., the upside is unbridled. Is there another procurement process that can be logically extended to deliver such benefits? What we know is that effective supplier performance management is a data driven process; that optimizing the right supply mix and collaborating with suppliers to achieve ongoing improvements is not something that happens in an onboarding process; it doesn’t happen when a quality problem is highlighted three months after the fact or in the midst of a delivery issue. We intuitively know that SPM should not be an episodic, retrospective process. And when we account for the advantages that other continuous improvement processes keep delivering (e.g. Lean, JIT), the irony is, the ripple effects of a supplier problem in such highly tuned, top performing environments, are often felt more severely. Put another way, can top performing SCM and Procurement departments afford to operate without modern SPM capability? Most companies strive to live by Peter Drucker’s infamous words, “you can’t manage what you can’t measure.” And despite all the lip service paid to the idea that buyers and sellers must learn to collaborate, how many application contexts provide a better home for driving that effort and measuring the resulting impacts than SPM? It’s simple. Great suppliers make great supply chains. While huge strides have been made in sourcing and contract compliance, and where systems for monitoring quality and delivery metrics continue to improve, these and other data need a common, modern, integrated platform. Without one, practitioners will only scratch the surface of what’s possible.