CPSM Blog

Defining and measuring supply management department performance

In this section, the methodology of measuring supply management performance is discussed. The section starts with a discussion of expectations from supply management from top management. Ideally, the top management should have a measurement of supply management expectation consistent with the company's mission. For example. historically Southwest airlines had the mission of "THE low cost airline" and you'd expect that supply management would have a similar aim.However, the website has the following mission :"The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit". So if you lead the Southwest airline supply management you need to have a sense of the history and what is expected going forward. So along with "low cost" you are supposed to deliver "warmth, friendliness, individual pride, and Company Spirit. " You need to therefore make sure that you are able to measure the department's performance from the point of view of passengers, suppliers, individual department members- against the explicit website mission statement and the implied,historical low cost idea.

Once you articulate specific metrics of goals for the department,individuals users you need to measure how well you did. For example, if you want a 90% reliability of supply delivery date according to the delivery date in your  purchase order terms, you must have data that are able to show what the actual reliability number is. It's fine if you are at 85% in the first year and its great if you have 87% in the next year. In other words, the idea is to keep track of how well you are doing as per standard. So long as you are working towards the goal (85% moves to 87% in the second year against the target of 90%). it's fine. If you are short then you need to have a remedial action in place like giving suppliers more lead time that in turn must be supported by early requisition by the users. You don't need to beat every target , but you need to have an explicit plan and progress data as you keep trying to improve the metrics.

Administering the contract /purchase order

The contracting and negotiations component ends with the elements of managing the contract/PO. At this stage the supply manager needs to be involved in tracking and ensuring that the supplier does what is agreed to in the negotiated contract. It is not merely "checking on the supplier" but trying to see that the supplier is on board and is providing goods and services that meet the expectations of internal customers like say production and also external customers like say the Government who might be using the equipment supplied that has a critical component from the supplier under contract. Responsibilities at this stage also include the need to step in if costs of the supplier go out of control and a price adjustment becomes necessary. Also responsibility is pretty overall including the need to meet supplier's payment schedules as agreed in the contract. Finally the contract might need a "closeout" that is concluded or might need to be terminated for cause or convenience.

In other words "contracting and negotiation is a lot more than mere negotiations which is always the hottest seminar topic in supply manager training materials and events.