Every once in a while, you realize how fractal a given procurement area — and the approach to solutions that solve challenges that address the topic at hand — can be. Mandelbrot would have had a field day (if he was interested in procurement and supply chain) with supplier performance management or simply: SPM. It’s possible to do basic scorecarding and KPI setting/measurement in what I estimate is well over 100 different applications. Yet not all solutions are created equal. Without question, Biznet, which only focuses on supplier performance management (and related risk areas), clearly appears at the top of the pack in certain markets, primarily oil and gas, in which it has material market share (other top best of breed vendors in SPM include Emptoris, BravoSolution, Hiperos and Ivalua).
At the end of 2010, Spend Matters had the chance to have multiple conversations with the management team at Biznet. We also spent time going through a detailed demonstration of the product. From our learnings, Biznet appears to have some of the top capabilities in the space. Although some users we know of quibble about its ease of use, I found the tool fairly straightforward. I was also relieved by one of the first slides of the briefing deck they shared, noting that their tool “helps measure supplier performance and indicates what problems need to be solved, but it [emphasis added] requires an effective SPM process.” Biznet suggests the following steps as part of the beginning of an SPM approach, at least as a start (in this order): determine business drivers, define KPIs, engage with suppliers, agree on targets and objectives, create dynamic scorecards, create dynamic KPIs, capture performance data, produce meaningful reports, review performance, plan and manage corrective actions, review KPIs and targets. Regular readers of this site will know that these steps map well to what supplier performance management expert and Spend Matters contributor Sherry Gordon suggests as well.
Biznet, which is still a relatively small organization, believes that SPM may be a ripe opportunity to pursue for most large companies because applying tools like it is is only appropriate for a small part of the supply base. For example, in the oil and gas industry, practitioners tend to deploy a Biznet-enabled SPM process based on the criticality of a particular supplier or project to the business (factoring in risk, overall cost, spend, etc.) Suppliers that are servicing or working on rigs might be that much more critical to segment and manage than those providing front-office contingent labor, for example. Specific projects/suppliers may include drilling and completions, operations and maintenance, chemicals, and general contracting services. But in practice, larger supply relationships and those suppliers touching materials management, capital projects, including all activities (upstream, downstream, midstream, indirect, etc.) can all be good candidates, as are the top consultancy/professional services providers in many cases. Biznet believes “where it is cost effective is when a component of service or material is seen as essential to the business.”
From a reporting perspective, Biznet suggests that companies typically follow four SPM scenarios. The first is when they desire to manage the performance of a single supplier for specific services. Here, a global lead or specialist may view a supplier’s performance as “rolled-up to the highest level but also broken down” by “country, region, country, BU, asset field, well, etc.” (the latter examples in the case of oil and gas specifically). The key for this level of granularity in reporting is capturing data at the lowest common level (e.g., per well, in oil and gas). The second reporting scenario for SPM is when companies want to compare performance of different suppliers providing the same service. A third scenario is when companies want to manage the performance of a single supplier across multiple services. And finally, a fourth scenario-driven use case is when organizations want to view suppliers across all of their spend areas to collectively analyze, rank and gauge performance.
Stay tuned for future posts in this series as we drill into how Biznet differentiates its solutions as well as suggested and example KPIs that companies may wish to consider managing and measuring suppliers on.
Download Spend Matters latest Compass research brief in the supplier performance management and scorecarding area: