Supplier management today is widely recognized as a strategic enabler. In today's world of complex business environment and global supply chains, effective management of suppliers not only gives a competitive advantage but also has a direct impact on the organization's bottom line. Such criticality of supplier management makes it important for organizations to constantly evaluate supplier performance, assess risk and find opportunities for improvement in the value chain.
The price-based evaluation of suppliers has long become outdated. Today, organizations need a 360-degree evaluation of suppliers on multiple parameters. Supplier evaluation isn't just limited to procurement but also involves evaluation from multiple internal functions. Such requirements have led organizations to formulate complex key performance indicators (KPI) and supplier performance scorecards necessitating inputs on multiple parameters from different internal stakeholders. Up till recently the supplier performance management (SPM) was manual or based on rudimentary information technology tools which at best could be described as ad hoc, cumbersome and time consuming. These evaluation processes were also plagued by lack of visibility, absence of collaborative platform and process inefficiency.
Thankfully, information technology is rapidly changing the way organizations are evaluating supplier performances. The best-of-breed SPM solutions available today are widely recognized by organizations as important enablers to manage, monitor and find opportunities for collaboration with suppliers. The usually cumbersome, time consuming and opaque processes are now getting a facelift with efficient and simple SPM solutions. However, with the SPM market being largely fragmented and with the availability of a number of solutions to choose from, organizations still require careful deliberation to shortlist a solution which can address their specific requirement in line with the overall objective of supplier management. Here are a few rules which the organization needs to keep in mind while shortlisting an SPM solution.
1. Ease of Use- Simplicity pays! You want a solution which can address SPM while simplifying the process for application users. An elaborate and complex solution may only add to complexity besides adding to the solution's total cost. A simple, easy-to-use solution would minimize training requirement while enabling easy adaptability by application users. User-friendly dashboards, easy data entry/search mechanisms and user-friendly interfaces to define KPIs and scorecards are absolute must-haves for deriving maximum value from an SPM solution. In addition, an efficient SPM tool should also have a simple workflow to create surveys and collate relevant information after the survey. Before finalizing an SPM tool, it is advisable that the organization ask the SPM vendor for hands-on experience with the tool for a limited time. This will allow application users to reasonably assess the tool's adaptability within the organization.
2. Flexibility- Every organization has specific SPM-related requirements and focus areas which are in line with its unique strategic objectives. Therefore, any SPM tool needs the flexibility and configurability to effectively address organization-specific requirements. It is important that before shortlisting an SPM tool, an organization have a clear assessment of its requirement. The organization should not only define clear-cut, quantifiable performance metrics in terms of KPIs and scorecards but the processes to collate required information. The shortlisting of the SPM tool should be based on its ability to be mapped as per laid-down processes and its ability to define KPIs. Also, the ability to configure user-specific dashboards and access control would be an added benefit. The high flexibility of the tool would also allow any changes in defining KPIs and any other modification deemed necessary in future. Remember the golden rule that a tool will only be relevant if it can define performance parameters and processes specific to your requirement. SPM tools based on stand-alone metrics or metrics borrowed from other companies are bound to fail as they would not be aligned to procurement goals of the organization.
3. Focus on Fundamentals- The market is flooded with products whose developers talk about endless features and capabilities. However, such a tool may not be the best for an organization. It may be more relevant that the tool addresses the fundamental business problem in a simplified and transparent way while maintaining absolute visibility to all stakeholders. An SPM tool essentially should help you manage, monitor and find opportunities for further improvement in the supply chain. These fundamentals should play a major role during shortlisting of the solution. Any extra features, though welcome, should not be at the cost of added complexity or not serving the above-mentioned fundamentals.
4. Integration- It is important for an SPM tool to have seamless integration with other information tools such as supplier information management and ERP systems. The obvious benefit of such integration is automated collection and updating of supplier data. Integration also enables access to a single interface to provide comprehensive and up-to-date information of suppliers. In other words, it would be prudent to say that amalgamation of all information tools result in a manifold increase in their efficiency. Though most SPM vendors provide integration with ERP systems, integration with other information tools is generally limited to information solutions offered by the same vendor. An organization in the process of shortlisting an SPM tool should think of a long-term strategy which may include implementation of other information tools. In such scenarios, it would be wise to evaluate a vendor not only on the basis of capabilities of its SPM tool but on the capabilities of other information tools of the vendor.
5. SaaS vs. BTF solution Whether to opt for an SaaS-based (software as a service) or a BTF (behind the firewall) tool is an important consideration before implementing any information tool. Clearly the market for SaaS-based information tools is growing as it enables organizations to save on tool-specific hardware installation, is easy to implement and has a less expensive up-front cost. Because of its more affordable cost and minimum requirement of IT support, SaaS-based applications enable relatively smaller companies to use advanced applications historically only accessible to larger and cash-rich organizations. The SaaS model also lowers switching cost for the users while enhancing accessibility to all stakeholders. Besides this, SaaS vendors typically deliver two to four major upgrades per year that the user gets automatically. Unlike SaaS, the BTF solution has a higher total cost of ownership but may provide better customization and fool-proof security of data. Companies looking for information tools should carefully analyze both approaches to finalize the one best suited for them.
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