Supplier Performance Management Eliot Madow CPSM VP Client Services - Hiperos Director - PMAB
Agenda Different Approaches Service Level Agreement (SLA) Approach Balanced Scorecard Approach Best-in-Class Practices Discussion, Questions 2
About Hiperos Leader in 3rd Party Management: Regulatory impact o banking and industry specific, ABAC, Conflict Minerals, FATCA Reputational impact o social accountability Customer revenue impact o supply chain disruptions Holistic view of third party across stakeholders & business processes Industry s first intelligent SaaS solution Largest third party management network Used in 177 countries, 36 languages 3
About PMAB Serving Supply Management Professionals in the Greater Boston Area (Including: Boston and Eastern MA Lower NH Lower ME Upper RI) The Purchasing Management Association of Boston, Inc 200 Baker Ave., Suite 306 Concord, MA 01724 Tel. 978-371-2522, Fax 978-369-9130 www.pmaboston.org Email: admin@pmaboston.org 4
Agenda Different Approaches Service Level Agreement (SLA) Approach Balanced Scorecard Approach Best-in-Class Practices Discussion, Questions 5
Performance Management Approaches SLA Approach Focused on a single supplier, and a single contract (relationship) Evaluation items are specific to contractual obligations (SLAs and/or KPIs) Frequency of evaluation relatively high (quarterly, monthly, weekly, or daily) Many times tied to performance-based compensation model Usually focuses on lagging indicators 6
Performance Management Approaches Balanced Scorecard Approach Borrows from the Kaplan/Norton model of a multi-dimensional framework of both leading and lagging indicators 7
Performance Management Approaches Balanced Scorecard Approach Focused on a group of suppliers (or the entire supply base) Evaluation items are general and typically apply to a broad range of suppliers Evaluation is performed at different levels (contract, supplier, region) Frequency of evaluation relatively low (semi-annual or annual) Many times tied to segmentation model Balance of both leading and lagging indicators 8
Agenda Different Approaches Service Level Agreement (SLA) Approach Balanced Scorecard Approach Best-in-Class Practices Discussion, Questions 9
SLA Approach Example KPIs Vertical Facilities Management Accounting Travel Services Manufacturing IT Services Temp Labor Event Management KPI Critical periodic maintenance completed as scheduled with greater than 98.5% reliability Timeliness and accuracy of periodic financial reports Call response time: 80% of calls answered within 20 seconds Order fulfillment lead time Meet or exceed contractual performance standards for system availability (uptime) 90% of orders for technical and professional staff fulfilled within 5 days Attendee acquisition count compared to target 10
SLA Approach Construction Evaluation at the contract level (connected to a relationship) Rating scales are typically numeric Assessment usually results in a numeric expression of performance (0-100%) Workflow selected to reflect desired management approach (typically involves the third party) 11
Example of scorecard 12
Completed scorecard overall structure 13
SLA Approach Results 5 4 3 2 Customer Supplier 2010 2011 2012 2013 Goals Alignment 4 2 0 Performance Q1 Q2 Q3 Q4 Q1 Q2 Predictive Indicators Remedial Action Indicator 14
Agenda Different Approaches Service Level Agreement (SLA) Approach Balanced Scorecard Approach Best-in-Class Practices Discussion, Questions 15
Balanced Scorecard Approach - Examples Category Indicator Value Supplier invoices at contracted pricing lagging Value Supplier is able to attract and retain high caliber talent and staff to manage Company business, within the agreed upon fees leading Quality Supplier meets contractual obligations on time lagging Quality Risk Risk Supplier has effective escalation processes, resource retention plans, knowledge transfer plans Supplier performed well on their most recent Offshore Facilities Audit Supplier is financially stable across all major financial areas leading lagging leading 16
Balanced Scorecard Approach Construction Evaluation is generic spans different types of thirdparties Evaluate at the supplier and/or contract level Use business rules to enroll suppliers The assessment may or may not involve the third party 17
Example of scorecard 18
Completed scorecard overall structure 19
Balanced Scorecard Results Strategic Operational Commodity Supplier Ranking Segmentation 20
Supplier Index Supplier Score: 4.6 21
Agenda Different Approaches Service Level Agreement (SLA) Approach Balanced Scorecard Approach Best-in-Class Practices Discussion, Questions 22
Best-in-Class Practices Measure outcomes, not activities Avoid perverse outcomes SMART metrics Specific, Measurable, Achievable, Relevant, Time-bound Performance-based compensation Fee at Risk vs. Penalties and Bonuses Increase the size of the pie Include questions for the supplier to evaluate the customer (360 evaluation) 23
Agenda Different Approaches Service Level Agreement (SLA) Approach Balanced Scorecard Approach Best-in-Class Practices Discussion, Questions 24
Discussions, Questions 25
Thank you for attending Contact Information Eliot Madow - VP Client Services (e-mail) madow@hiperos.com (website) www.hiperos.com (phone) 908-981-0068 26