Supplier Performance Management Software: Enhancing Procurement Efficiency
A healthy supply chain is the bedrock of any business that plans to be successful long-term. Yet building that kind of supply chain—and keeping it healthy—can be challenging. The unfortunate reality is that most teams don’t have the visibility they need to programmatically build and manage the kinds of supplier relationships that will keep their businesses supplied and sustainable. In this blog, we’ll explore how supplier performance management (SPM) software can solve this data problem and what you should look for in an ideal solution.
What is supplier performance management?
Supplier performance management is the practice of building mutually beneficial long-term vendor relationships. It revolves around maintaining a reliable flow of goods and services, controlling prices, maintaining quality, and positioning the organization as a preferred buyer with critical vendors. SPM software are platforms that simplify these tasks by centralizing all supplier and performance management data.
The benefits of using performance management software
Because supply chains have become so large and interconnected, important pricing and performance details are prone to falling through the cracks. But by automating the tedious parts of data management, SPM software can solve this issue. Below, we’ve explored some of the specific positive outcomes that supplier performance management (SPM) software can produce for teams.
Spot best and worst suppliers faster
If it takes you more than a few minutes to rank each category’s most important suppliers, your data is not accessible enough. Unfortunately, most organizations devote several days each quarter to getting this information as they request and compile reports from several ERPs, suites, and P-card systems.
Conversely, SPM software automates that entire process. It creates a single source of truth for supplier data so teams can focus on reporting and acting on the insights instead of looking for them.
Align team on business goals
Disconnected purchasing tools often silo business units and create overlapping, redundant supply chains. In these environments, even well-intentioned decisions can work against business goals. For example, we’ve worked with companies that unknowingly had five or more contracts with a single supplier.
A centralized SPM system prevents these issues by making the entire supply chain easy to see. This visibility allows business units to collaborate, leverage combined purchasing volume, and prevent competing decisions.
Quality performance (product & services)
Many companies have a swarm of supplier performance issues that they know about but can’t locate and pin down. Over time, these issues can erode efficiency and profitability if they go unnoticed. But centralizing supplier data is like turning on the lights in a dark room. Areas of negative and positive performance become easy to see. Even more importantly, they become easy to communicate to stakeholders, buyers, and the suppliers themselves.
Make sourcing & procurement decisions more data-driven
More often than anyone wants to admit, sourcing decisions are educated guesses. Data is so fragmented that piecing it together for even one complex vendor is often prohibitively time consuming. Supply chain and procurement experts usually make the right choices, but reliable intelligence nearly eliminates the possibility of missteps.
Supplier accountability
If you can’t monitor supplier performance, you might be surprised by what goes unnoticed. Even the most honest vendors can overlook compliance issues, and some suppliers like to start gamesmanship when they know they can get away with it. With SPM software, you can set up dashboards to track issues like purchase price variance (PPV) and other quality shortcomings. From there, you can easily communicate with stakeholders, set KPIs for improvement, and hold vendors accountable to the facts.
Increase buyer-supplier collaboration
Supplier relationship management (SRM) was once a win-lose game, but economic uncertainty has forced organizations and vendors to work as allies instead of opponents. Supply chain visibility takes this collaboration to another level by allowing buyers to communicate their needs and address supplier performance issues earlier. As a result, organizations and suppliers can set joint goals and suppliers can become forward thinking about ways to give their customers competitive advantages.
Supplier-led (enabled) innovation (ISM)
Increased collaboration can also drive innovation from the supplier side. Now more than ever, suppliers have reasons to constantly improve their service offerings. The flow of information that comes from SPM software makes it easy for suppliers to understand customer needs and areas for innovation. As an added benefit, transparent KPI tracking can be a nice motivator for suppliers who might be too happy to maintain the status quo.
Easy follow-up on SLAs
Service level agreements are a crucial part of any vendor agreement, but they mean very little without active monitoring. Supplier performance management software can automate SLA monitoring and reporting across the business.
Enhanced supply chain visibility
Overall, SPM software simply makes the supply chain easy to monitor and manage. Your supply chain is critical to keeping your business operating on any given day, so if you can’t see where it’s in danger of breaking, there’s no way to prevent interruptions. When supplier performance management software solves the data issues that limit supply chain visibility, most issues like single-sourced spend, vendor financial risk, supplier fragmentation, and tail spend, become simple fixes.
How to choose the right supplier performance management software
The procurement tech ecosystem is massive. While many solutions claim to meet all of your needs, we believe a best of breed approach lets you optimize your workflow instead of pivoting to someone else’s. With that in mind, we’ve assembled a list of criteria that will help you identify the perfect solution for your organization’s supplier management needs.
Reporting and analytics
Importance: High
Every business has reporting needs, and every business can benefit from making the process faster—from assembling reports to accessing them. We recommend choosing a solution that has not only flexible reporting but self-serve capabilities too. It can cut ad hoc reporting requests by 90%.
Diversity, equity, and inclusion (DEI) considerations
Importance: Medium High
Every year, DEI and ESG take a more important role in supplier relationship management. This is especially true for publicly traded companies where non-financial performance can affect stock prices and regulatory compliance. When evaluating options, consider how the solution helps you:
- Track overall performance in depth
- Find new suppliers that fit your goals
- Drill down into each supplier’s DEI and ESG scorecards
Of course, ESG and DEI are advanced concerns. Less mature organizations may not be ready to place a premium on developing these programs. For organizations in this position, we still recommend planning for the future. If you aren’t ready to invest in DEI and ESG solutions right now, consider a solution that has quality capabilities available as add-ons.
Governance and compliance
Importance: High
Supply chain governance is one of the qualities that makes a procurement organization best in class. To reach it, there are two facets of compliance that supplier performance management software must help you manage:
- Maverick spend
- Agreement term compliance
First, you need a way to monitor out-of-contract spending at the category level. Maverick spend undermines the supply chain by bloating costs, fragmenting the supplier base, and introducing new risks. At the same time, you need visibility into supplier performance KPIs so you can hold vendors to contracted standards for quality, on-time delivery, and inventory fulfilment. Visibility into both sides of compliance is foundational to a strategic supply chain.
Global and remote work support
Importance: Situational
Remote work support is a given for most technology today, but it’s important depends on your team’s makeup and workstyle. However, a cloud-based SPM solution comes with one clear advantage for global teams: your data is always with you.
As Yannick Caharel, CPO of Christian Dior Couture explained on a recent podcast, “I’m not anymore doing 60 pages of presentation. The moment I go to New York, Shanghai, or Dubai, I just log in to the Performance Management module, so we have a proper business review based on true projects, true realization whether it’s identified, completed, ongoing, or so on.”
Scalability
Importance: High
The purpose of digital transformation is to expand Procurement’s capabilities and, ultimately, its influence. Ideally, this should also lead to organizational growth as you optimize the supply chain and cost base.
Therefore, a worthwhile investment in supplier performance management software will be flexible enough to serve your needs now and the needs you develop in the future. Signs that a solution will remain scalable as the business changes and grows include:
- Wide-ranging configuration options
- A healthy integration library
- Responsiveness from the software provider
- A customer base that’s diverse across industries and company sizes
Continuous performance management
Importance: High
Keeping details, opportunities, and problems from going unnoticed is the entire point of a centralized method for managing supplier performance. Yet many organizations are stuck working with historical data because their systems refresh it too slowly.
You can monitor supplier performance more regularly in two ways: integrations and more frequent refreshes. Integrations with your tactical purchasing tools will create a continuous flow of purchasing data. But you can elevate your performance management capabilities even further by completely refreshing your spend data monthly or quarterly. When evaluating software options, this is a crucial point to clarify with providers.
Goal setting and tracking
Importance: High
Coordination and transparency are hallmarks of a mature procurement organization. Automated goal tracking is a great way to secure both without much effort. First, clear goals keep everyone working toward the same objective. They can also motivate teams, especially when they’re visually represented in a central location. In the same way, being able to show executives and stakeholders exactly where performance is relative to organizational goals at any given moment increases trust. Most importantly, it can also eliminate the need for the ad hoc reporting requests that eat away at a team’s bandwidth.
Integration with other systems
Importance: High
Because the procurement software ecosystem is so large, there are now dedicated platforms for anything a team could need. These best of breeds let organizations build their own tech stacks instead of relying on jack of all trades software that fit most of their needs. However, you need to plan out your integrations by choosing systems with healthy options.
Explore SpendHQ’s full list of integrations and partnerships.
Multi-language support
Importance: Situational
In today’s interconnected sourcing landscape, cross-cultural communication is unavoidable. For that reason, we recommend investing in a tool that offers at least some multi-language support. Not only will it enable your team now, but it can avoid any roadblocks in the future as the business grows and finds itself involved in mergers and acquisitions. However, we’ve listed this as situational because the level of multi-language support you’ll need will depend on your organization. Just make sure to ask your supplier for a list of supported languages before signing a contract.
Making the right choice for supplier performance management
Supplier relationships are complex. Even in a smaller company, a single Procurement team may deal with 1,000+ suppliers in a year; large, global companies dwarf that number. In short, there’s no way to manage even a small supply chain without dedicated technology.
SpendHQ fills the gap for 500+ leading companies around the world by becoming their single source of truth for supplier spend and everything Procurement is doing to manage it. Our customers have called it “the backbone” of their operations, explaining that it has put their entire teams into “execution mode” and made communication with their most important stakeholders easier than ever.
Learn more about how we’re revolutionizing spend and supply chain management in this webinar from Floor & Decor’s CPO G’Sean Williams. Or see SpendHQ in action for yourself by scheduling a demo with one of our procurement veterans.