In Episode #1 of Series #2 of his podcast, James Meads the host of The Procuretech Podcast invited Lars Kuch Pedersen, the CEO at LeanLinking to discuss the importance of KPIs in SRM. We hope you enjoy listening to it.
After business school, Lars started working as a procurement analyst in an organization, which was a plumbing and heating distribution business at that time. Going into many different positions in procurement, Lars ended up as the Head of Procurement for Wolseley Central Europe.
In that role, He faced a big challenge around the supplier review meetings especially when they had these typically quarterly review meetings with big suppliers, they had to go into a meeting room with the sales director, the key account director, or other important people on the supplier's side. Shaking hands and sitting around the table, then asking each other this golden question, which is “how is our cooperation going?”.
The problem was that he had no feedback, no facts, no data on supplier performance, and how the relationship with the supplier was. He could have data on spend and OTIF performance if he did an effort to collect them. But he was in a large international organization with thousands of stakeholders that were working with this supplier to some degree and had no input on how they saw this supplier, how satisfied, or dissatisfied they were with the cooperation.
Lars says, I think it depends on both. I would say as a supplier manager, you would need to have access to both types of data. You would need to have availability to hard data from the core systems of the organization, like spend data in the ERP, or other systems. You would need to have access to the delivery performance data like OTIF from the logistics systems or ERPs. You would need to have quality information on a number of incidents from the core systems if they are registered. And if they are not registered, you need to find a way to actually build a structure around registering issues on supplier deliveries.
But you would also need more, you could call it subjective feedback from the stakeholders within the business that actually works with suppliers, because there are just elements of cooperation with a supplier that you can't measure in hard facts that you have in an ERP or other systems today.
Lars says, we supported LeanLinking with both the management of suppliers in direct and indirect spend. But the type of data that you manage on is different in the two categories because typically on direct spend suppliers you would have more performance data than you would have on indirect suppliers from the core system.
So, an example is, on direct expense suppliers, you would have OTIF measurements in some organizations, and in some other organizations, you would also have some kind of quality measures on suppliers like the past per million defect KPI for instance.
On the indirect side, you typically would not have much data to work with basically. And that's where the more subjective feedback becomes much more relevant. And what you can do on our solution is, for instance, reach out to a large stakeholder network of users of certain suppliers and then ask them to give their ratings on suppliers on different criteria of your choice to get this feedback not only from the key stakeholder within the business, which is maybe at a CXO level, but also to get feedback from the actual users of a supplier. Because it's actually on the user level that you get feedback that can actually be valuable in a quarterly review.
We do this in different ways. I have already talked about getting feedback from the users in a structured way. This information just gives you concrete insights that can be used to actually take out costs in the cooperation. We also have the possibility on LeanLinking to track what we call “nonconformance reports” or you can think of it as a ticketing system. So, whenever there is an issue on a delivery from a supply can be registered, and LeanLinking shares it with the supplier.
Then you track how many of these issues you have on time or over time. This is basically just registering costs that are added in the supply chain that basically should be taken out, and you can't take it out before you actually start registering and you start identifying that you actually have some processes with certain suppliers that don’t work. Just by registering and highlighting these for the relevant people, for instance, the supplier managers in the organization, you have concrete advice right there to take actions, to actually take cost out of the supply chain.
Moreover, often when we talk about direct spend, this is often happening in the goods received area where people stay received trucks from suppliers, and they identify issues in the deliveries. If they can register these cases in an easy way, then procurement can have easy access to this information, you have value right there, because then procurement can take those information and insight into a supply course of the review meeting.
ERPs are simply not built for supplier management. They are not built for sharing information with suppliers and being transparent with suppliers. They are built to manage everything that happens within the company. And that's one advantage we have with LeanLinking, we are built to actually make collaboration and a transparent cooperation with the suppliers. So you can share data, issues, ratings with suppliers over the platform, and truly engage suppliers in a collaborative and transparent way.
And regarding the rebates, the coupons, etcetera, it's not a focus area for these companies, at least to my knowledge. They don't have actual solutions in SAP. Maybe they have something they brand, but they don't have solutions where you basically enable not just to capture data from your core systems like the ERPs or other solutions, but also to capture information from your stakeholders within the business so that you get this 360 picture on.
Not only what does your hard data say, but what do your stakeholders actually say about your suppliers and how they perform? And they don't enable this scorecarding and sharing them with the suppliers over the platform, so you can actually work with shared agendas on the same platform around improving the collaboration together.
Tech companies like Google, and also in pharma companies, for instance, the cost on supplies is quite small compared to the turnover in those kinds of companies, the focus is not so much on cost savings, I would say, in procurement, it's more on value creation and innovation. And the focus here is often on how can you work better together with suppliers to actually create new innovations or more value for your end customers?
That is what we see out there. And it's really interesting. I saw at a conference a few years ago a few VPs of procurement from Google who said that in their central procurement team, the term "cost saving" was not allowed, which was quite interesting given the fact that it was a procurement function.
Special thanks to James Meads from Procurement Software Podcast.