Return on Supplier Performance

CONTRIBUTION BY Jeffrey Berk – COO of Client Loyalty

Recently I attended a series of events.  Some were client-focused and some were supplier-focused.  At the end of the day, the desired outcome is the same:  there must be a return on supplier performance in order to have a healthy client/supplier relationship that grows over time.

According to an an EY research report, effective supplier / client management can reduce waste and save 5% to 15% of contract spend over time.  Put another way, if a single category manager oversees a $1,000,000 portfolio and uses better, smarter performance management, it can drop $100,000 to the bottom line.  That is significant value-add.  The supplier benefits as well because a healthy relationship results in renewals and new opportunities within their clients.

Performance management

Performance management is not new. In fact, supplier performance management is similar to employee performance management.  There is 360 -feedback, performance to goals, and informal sentiment that makes up the overall rating.  This is true in supplier performance management.  Ask feedback from both the client and supplier teams for a 360 view on the relationship, track key metrics against goal monthly or quarterly and scan news and social media for the informal supplier sentiment.  Put these together and you have your loyalty score, which basically tells both parties if a client is likely to switch suppliers anytime soon.  Recent research from Gallup suggests that 71% of organizations are ready and willing to switch suppliers so the timing couldn’t be better to make suppliers great again by emphasizing better, smarter supplier performance management.

As a case in point, take a technology company that was launching new software and worked with their strategic supplier, a marketing agency.  In the initial phases 360 feedback leveraging Net Promoter System (NPS) pulse-like data showed the technology dissatisfied with the project management of the marketing agency.  The marketing agency also felt the technology firm could improve in its process management.  Both parties immediately got together and began making changes. For example, the marketing agency prepared weekly project status reports to keep the technology company aware of all the activities it was doing.  Within 90 days the relationship was highly positive and the performance in terms of key performance metrics was also positive.  In one metric around awareness the actual performance was more than 200% of the goal (a good return on supplier performance).  Both parties attribute this to the monthly 360-feedback and the monthly performance to goal reporting.  Everyone had a voice, there was transparency and collaboration and hence trust and focus on the task at hand.

Relationship management

Relationship management should be better and smarter than we observe it today.  Today it appears mired in manual tasks, disparate systems and duplicate work.  Further, CRM processes and technologies can be overbearing at times and put the client/buyer in an uncomfortable position.  Through smarter and better management there is a healthier relationship built on collaboration and transparency.  A 10% performance improvement is not hard to achieve if there is routine data to inform relationship managers about people’s experience within the relationship, the actual performance to goal, and the informal supplier sentiment from news and social networks.

[blockquote style=”2″]Technology can remove manual tasks that take place in disparate survey tools or spreadsheets too, leaving room for driving more continuous improvement and positive change. Future forward organizations are already ahead of the masses on this front by building processes and using tools to increase their return on supplier performance.  Hopefully, everyone else won’t catch up as a result of escalations and switching costs because that would be a painful way to do it.  In the end, the old adage ‘you only manage what you measure’ still holds true.  Smarter measurement with simpler and practitioner-based tools to collect and analyze this data can move organizations into realizing an optimal return on supplier performance.[/blockquote]