Collaborative partnerships work best when technology tools measure and monitor the partnership's performance, allowing for sustained resilience and alignment. - BY Gerald Donald

Supplier collaboration is not the same as supplier relationship management. Both are critical to developing and maintaining a high-performing supply chain, but there is a difference. Supplier collaboration is ultimately about maintaining alignment with the corporate buyer’s business strategy and the resilience of the partnerships.

Collaborative partnerships can be between suppliers in the internal and external supply chains and between suppliers and buyers. Still, suppliers' ability to support the buyer’s strategic goals defines quality supplier collaborations. The challenges of ensuring multiple tiers of collaborative supplier partnerships include remaining productive, resilient, innovative, and aligned with the buyer’s mission and goals. Metrics and KPIs are critical to keeping business leaders informed so they make good decisions about supplier performance, opportunities, and risks.

The Next Stage: From Contract Performance to Strategic Goals

Most companies have multiple collaborations in their supply chains. To measure and monitor supplier collaborations, each one must first be identified. The UT Haslam College of Business Global Supply Chain Institute (GSCI) developed a series of white papers on supply chain management, one of which is on best practices in end-to-end supply chain collaboration.

Most corporations have a web of supply chain collaborations. They include collaborations between the internal supply chain processes like procurement, logistics, and manufacturing, each with a set of suppliers to monitor. There are collaborations between the supply chain function and other business functions and between suppliers and other enterprises in the supply chain. An organization identifies each area with a supply chain and then identifies collaborative partners. For example, in sourcing and procurement, Tier 1 and Tier 2 suppliers and minority suppliers are considered to identify collaborative partners.

Developing supplier collaborations is a strategic strategy. It goes beyond transactional basics like adherence to contract requirements regarding product quality, on-time deliveries, and costs. These metrics do not inform leaders about the success of collaborative efforts with and between suppliers, like whether the collaboration produces new competitive opportunities. The metrics and KPIs measuring collaborative partnerships consider the ability to problem-solve, innovation emerging from the collaboration, and supply chain optimization.

So, the first point to remember when developing metrics and KPIs for supplier collaborations is that measuring supplier relationships is not the same as measuring supplier collaborations. The first is transactional, and the second is strategic. Different goals and metrics need to be agreed upon heading into the collaboration, with clear targets understood by all stakeholders.

GEP provides sustainable supply chain and procurement solutions, stating that the “ultimate goal of supplier collaboration is to optimize the entire supply chain rather than each entity focusing solely on its interests.” Once key collaborative suppliers are identified, joint business plans with common goals are developed. The goals may include goals for supplier relationship management, like cost and delivery efficiency, but for supplier collaboration assessment, goals may embrace things like innovation, flexibility, and ESG.

Developing the Metrics and KPIs to Uncover Value

Metrics and KPIs aim to monitor if the supplier is aligned and coordinated with the buyer’s goals and strategies, systems, processes, and systems. McKinsey & Co. identified five dimensions of supplier-buyer perceptions: strategic alignment, communication and trust, cross-functional engagement, value creation and sharing, and organizational governance. They also identified eight steps for pursuing the most value from supplier collaborations. As mentioned, identifying the suppliers offering joint opportunities to create value comes first. Then, the joint objectives will be defined, and a business case will be developed. A methodical and structured approach to defining the scope and targets for joint projects, and a methodology for measuring value creation, is also needed. Collaborators must then define precise value-sharing mechanisms, align incentives for a cross-functional team, and invest the appropriate resources and infrastructure to get the collaboration started. From there, partners need an ongoing governance model for performance and implementation tracking and embedding supplier collaboration into core operational processes. Ideally, teams also work to foster a culture that supports the partnerships and invests in world-class organizational capabilities to ensure the collaborations are sustainable.

Examples of KPIs and monitoring metrics for supplier collaborations include measuring data accuracy, information sharing, goal compatibility, and quality of communication. Supplier innovation can be measured by tracking improved services or products, cost savings from innovation implementation, competitive pricing, meeting or improving quality standards, and contributions to environmental and social goals, to name a few. Measuring the risks of supplier collaborations is another set of metrics. Does the partnership create new risks impacting financial stability, geopolitical stability, regulatory compliance, or environmental or social responsibility? Risk assessments can address factors like financial health and the time a supplier takes to respond to and recover from a disruption.

Measuring supplier collaborations means measuring supplier outcomes and the health of the collaborative relationship. It is important to invest in collaborative platforms and the tools for data collection and data analyses. Implementing KPIs requires digital platforms that gather real-time data, including advanced technologies like IoT and AI for enhanced transparency, and effective communication platforms. Benchmarking against industry standards is essential, as are metrics to identify areas for improvement in a culture of continuous improvement.

Culture of Supplier Collaboration

One aspect that should not be overlooked is that suppliers must be willing to share data and information. There should be a collaborative process for order processing, workflow tracking, predictive alerts, and sharing customizable KPIs. Another requirement is that data flows are not siloed in systems and functions in the buyer’s organization.

Information sharing is a crucial aspect of successful supplier collaborations. Using metrics and KPIs to manage and monitor supplier collaborations through a strategic lens requires consolidating data to give a view of the end-to-end supply chain. Siloed data analytics significantly increase the risk of missed opportunities, inefficiencies, and poor decision-making. By making sharing and transparency a priority, each member of the partnership can help support ongoing resiliency and alignment in collaborative processes, leading to better results for everyone involved.