Discovering Supplier Performance Management

SAP Ariba Supplier Performance Management (SPM) is a process that an organization uses to effectively communicate strategy, define performance objectives as aligned with the enterprise spend strategy, and measure how those objectives are being met.

The primary goals are to improve quality for a reduced cost and, at the same time, mitigate supply risks. It is also important to view SPM as a tool that can be used to improve the company-supplier relationship and create a more collaborative supply chain environment.

One of the key outcomes when companies implement SPM is that they and their suppliers get better at bi-directional communication and implementation of shared objectives. Cheaper prices are not always the only goal in important relationships.

Other than the primary use and goals listed on this slide, SAP Ariba Supplier Performance Management has the potential to be used in a very broad spectrum of possible ways. It could, for example, also be used for benchmarking and skills assessment.

There is no doubt that implementing and maintaining a supplier management program requires resources. What makes it worthwhile?

In the case of suppliers that were originally contracted as one time only suppliers, it may give you an idea as to whether you want to use the supplier again. For strategic suppliers, you want to ensure that the relationship measures up to the expected level of high quality products and/or services as well astheir prices and competitive offerings. If the supplier is not measuring up, is it time to replace this supplier with another one?

Some customers find the need to comply with internal and external governance as an important driver for supplier management whether it is as simple as determining suppliers who meet simple regulations or as complex as using surveys to determine social responsibility and sustainability practices.

Finally, part of a good supplier management program is to have a process for identifying issues and providing timely corrective actions so that poor results turn into good results over time. These need to be tracked as part of the performance review project.

Supplier Performance Management is the process that defines, measures, monitors and analyzes supplier performance to meet your business goals.

• It uses Key Performance Indicators ("KPIs") as elements of scorecards to monitor and manage the supplier’s performance in achieving certain objectives.
• A survey can be used to collect more specific information, usually in the form of questions, which can then be used as part of the input into the scorecard.
• Generally, there is a core set of KPIs, supported by survey questions and report input, that are common across all suppliers, categories, and business units in the organization, such as Account Management, Pricing, and Quality. Other KPIs may be very specific to the category, such as On Time Delivery. There are also trends today to add KPIs for Innovation, Social Responsibility and Voice of the Supplier (feedback from the supplier that will improve their ability to work with you).

The supplier performance management process is illustrated in the slide. Typical activities involve:

• Defining objectives aligned to your Enterprise Spend Management strategy.
• Defining Key Performance Indicators (KPIs).
• Gathering & standardizing data (surveys, scorecards).
• Analyzing performance data.
• Sharing performance data (with divisions and suppliers).
• Collaborating with suppliers to improve performance through corrective action plans.

Supplier Performance Management allows you to use consistent measurements for supplier performance to identify performance problems and determine the total cost of your relationship with a supplier. Your own organization decides what metrics to use to measure and rate your suppliers. You should use consistent performance criteria across suppliers so you are always comparing ‘apples to apples’. Some examples of commonly used supplier performance metrics are listed in the slide above.

More recent work in performance criteria have leaned towards more interactive measures, including the use of innovation and technology to support more cost effective solutions, particularly leading to cost and savings sharing models. Another newer criteria has been the "voice of the supplier". This is a reverse performance evaluation. It measures how you are performing and what you are doing that interferes with your ability to provide the best and most efficient and effective services. These questions for example aim at finding out if you are late in paying bills; if your documentation is unclear, or if there are other issues that create barriers to a productive relationship.

The solution gives you:

• All features in the SAP Ariba Supplier Performance Management solution
• Performance measurement with surveys, scorecards, analytics and reporting
• Project workspaces with conditions to control recurrence of phases and tasks

By managing your supplier performance reviews using an SAP Ariba SPM project, you take advantage of an integrated system that does more than simply generate a scorecard. SPM projects are based on best practice templates, which provide a standard set of documents, tasks, and team members. SPM projects are designed to create an integrated, continuous, and repeatable process, allowing users to pull data from surveys and analytical data as needed and create scorecards, reports, and presentations on a periodic basis. The projects include tasks that prompt the appropriate steps in planning, monitoring and closing the project. This set of tasks may include reviews or approvals of documents and the scorecards and surveys by stakeholders, managers, or other team members. The process may also include tasks for suppliers, such as creating and working on corrective action plans when KPIs are not met.

As the project owner, you may use one of several SPM project templates which are designed by either SAP Ariba or your template administrator, to create your SPM projects. When designing these templates, some important factors are what KPIs to use, how to create them within the system, and how to weight them within the scorecard(s). Other factors include designing a thorough yet efficient workflow that allows users to achieve their SPM goals. Although these templates provide best practice tasks and documents (such as scorecards, KPIs, and surveys), you have the ability to modify them to suit your particular requirements.

Reports that are generated within the SAP Ariba Supplier Performance Management tool can be stored within the project in the Documents section. They provide a holistic view of transactional data and performance data. SAP Ariba provides many prepackaged reports that you can run, providing commonly requested data. You can send any report to both colleagues and/or suppliers for review via a task within the project.

Scorecards reside within the SPM project in the Documents section. Each scorecard is specific to a supplier and contains the KPI’s for the supplier. You would typically have only one Master Scorecard from which the periodic scorecards are created, you can have multiple scorecards for a specific supplier within your project. For example, you could have a scorecard for each performance period (quarters, years) as based on the Master, or you could have one for each division within the supplier organization or even one for each product or service the supplier offers.

Surveys also reside within the SPM project in the Documents section. Surveys are the collection vehicle for stakeholders input where there are a series of questions about a KPI and the summary of those answers then provides a score for the scorecard. The project owner can base surveys on a Master Survey provided in the SPM project, and then refine the questions, weighting, and scoring based on unique needs. Survey questions can be open ended questions, or can be designed to accept only responses from a list of choices within a drop-down menu. They can also be designed to accept only a specific type of response, such as a monetary value, a fraction, a number, text, a yes/no, or a file attachment. The Master Survey is then used to create the periodic survey for each performance period (quarters, years). Once a survey is complete, it typically would then pass a summary of the answers to the scorecard.