- 08
- AUG
- 2011
Supplier Performance Measurement - reap what you sow
Author: Ian George - Categories: Supplier Relationship Management
Suppliers can have such a huge effect on the performance of the customer business that it is an absolute imperative that they have clear direction as to what is key to that customer.
Those who argue that this improves performance are often right, but the tendency is for improvement levels to diminish and after around 18 months performance returns to its previous levels.
Performance measures can also be used to moderate behaviour. An experiment was conducted among a group of three monkeys. A bunch of bananas was put in their cage and a bell sounded. When the monkeys went to touch the bananas they were sprayed with cold water. They soon learned not to touch the bananas. Then one of the original three was replaced with a new monkey. When the bananas appeared and the bell sounded it naturally went to investigate and grab the bananas. At this point the remaining two jumped on it and pulled it away. The process of replacing the monkeys continued until all three of the original group had gone. Despite this, when the bananas appeared and the bell sounded they left them alone - even though they had never been sprayed. The behaviour had become institutionalised within the group, but had lost its reason and original purpose.
Given a history of conflict, gamesmanship and suspicion going back decades, it is little surprise that suppliers hear what is said and then interpret the meaning in the most catastrophic and negative way possible. 'Streamline' – reduce the size of the supply base; 'Optimise' – reduce prices; 'Innovate' – you're going to share our technology with our competitors. You get the picture, and yes, they really do think like that. After all, we've been training them to do that for years - but do be careful as to who you consider the real monkeys!
What is harder to misinterpret are clear specifications backed up by clear performance measures and clear targets. 'Clear' means making the links between specs, measures and targets explicit. It means letting suppliers know what the formula is and where the raw data comes from. It means explaining how targets have been set and why they are important. It means getting suppliers involved in the process from end to end in a meaningful way.
A good performance measurement system can bring your suppliers close to you, operating in harmony. Ill-conceived or poorly operated measurement systems will surely drive your suppliers away and could well result in unforeseen and potentially terminal outcomes.
Comments
Lisa Ng
Tue 18 Oct 2011 08:42
Good performance measurement is a must for effective control of the suppliers and buyers relationship. It also helps to prevent fraud and underhand dealings. No buyer in teir right mind should think that with the despatch of order their job is completed and proper appraisals of supply quality and timeliness of supply should also be feedback to the Purchase Oder System as such!