All suppliers are not created equal

There are numerous benefits to maintaining supplier performance best-practices, right through your services supply chain including the  longtail of smaller, agile suppliers: projects start faster, future strategic partners emerge, costs reduce.

 

Ratings and reviews have emerged as an important component of understanding and measuring supplier performance when it comes to any type of service provision or statement of work engagement, and a key element to consider in supplier performance management.

 

But when managing the performance of your service providers, suppliers and consultancies, not all things are equal.

 

The 5-star review concept has become commonplace. Every interaction in our lives has the opportunity to rate and review the experience – transport, food, clothing, entertainment – all look to the 1-5 star-rating system to provide other users with a signal of quality.

 

But when managing supplier performance, you need more detail than an overall 5 stars. In short, its context that really matters.

 

Rather than making procurement decisions on a catch-all 1-5 rating, the modern services procurement category manager should be able to answer two important questions when reviewing and understanding supplier performance:

 

For organisations working with large suppliers or consultancies (think: the big 4), there are often a number of supplier engagements running across multiple business lines and project types. For these multi-category type suppliers, a simple 1-5 rating doesn't provide the context or detail to understand supplier performance in a specific category.

 

For example, Consultancy A is engaged on IT projects, HR projects, Finance projects and Marketing projects. How does that single star rating apply to each category? Are they a 5 star for finance but a 1 star for IT? Where does their service deliver real value?

 

Being able to highlight the supplier's performance against specific categories or project types is a must for a procurement category manager to understand who the best suppliers are for their exact requirements.

 

Depending on the needs of an organisation, or even a specific type of engagement, the traits against which a supplier is judged become important for making better decisions.

 

In other words, an overall generic rating isn't helpful, when an organisation places different values on different traits. For example, being able to rate a supplier on 'eco-friendliness', ‘innovation’, 'creativity', 'subject knowledge', 'communication' all become important in different scenarios.

 

For an organisation, to effectively understand its best suppliers, it should measure and rate its supply chain against the traits or KPIs it cares about. This enables procurement teams to work with suppliers closely aligned to their values and make resourcing decisions based on a more holistic view.

 

"We always work with [supplier] because, we always have done" was a recurring theme in our recent round of market research. This kind of supply chain nepotism can potentially have an impact on qualitative user ratings. For example, a junior procurement category manager may not wish to give a negative review to a supplier regularly praised by their board. 

 

This increases the importance of basing resourcing/procurement decisions on both qualitative ratings as well as quantitative performance data. For example, a supplier with a 5-star rating but performance data that suggests they've never delivered a project on time or on budget should be investigated further.

 

Of course, interpreting, combining and scoring supplier performance quickly becomes impossible for a procurement team without technology. Millions in spend, thousands of milestones and hundreds of reviews, even for a modest number of suppliers – truly understanding supplier performance is beyond the manual capacity of today's lean procurement teams. 

 

Technology is the answer to scaling the detailed and nuanced understanding of supplier performance. Zivio's proprietary SPX technology, for example, combines customisable rating scores with real-time performance data down to an individual milestone level and presents procurement teams with an easy to understand supplier performance score - allowing them to instantly answer the question of "who are my best suppliers for this project's requirements?"