Last week I discussed the shortcomings of the methods most organisations utilise when it comes to understanding supplier performance. You can read that article here.
As a follow up, this week, I want to introduce a system of guiding principles that procurement teams can implement to turn these relationships around and open up collaborative conversations with their suppliers.
The thought process behind this system was developed by the folks at Vested and is powered by research from the University of Tennessee. The 3D Performance System™ builds on the concept that a buyer/supplier relationship is multidimensional by nature and that only by addressing and embracing this complexity can procurement teams hope to get the most out their supplier relationships.
The 3D Performance System splits performance management into three distinct categories or dimensions. Details of each are highlighted below.
- Operational Performance. This dimension is concerned with measuring what is important for the business internally. It involves measuring operational excellence against a predefined scope of work. Operational Performance focuses primarily on past performance and uses historical data to understand activities and make changes to improve future outcomes. Measurements tend to be metrics based and are focussed around transactional elements such as contract compliance, SLA’s and fulfilment. Essentially, this what most organisations perceive supplier performance management to entail. But as you’ll see in the following dimensions this is only the tip of the iceberg.
- Relational Performance. The focus of this dimension is to understand what is important to nurture the supplier/buyer relationship. Defining shared values and a vision in order to create a successful partnership creates the foundations for a successful ongoing business relationship. This phase is focused on present performance rather than past performance and takes into account the values and motivations of team members from both organisations and marries them to aspirational business objectives. Measuring relational performance is done by creating a Statement of Intent, which is typically a two page document that outlines the values and desired behaviours that both parties would like to promote as the working culture for their relationship. This document should be revisited frequently and addressed through surveys and interviews to ensure the values outlined in the Statement of Intent are put into practice. Relational performance serves to educate and enforce behavioural norms that create a more positive and constructive environment.
- Transformational Performance. The third dimension focuses on the future of the relationship and the capacity of the two organisations to foster a culture of innovation. This is the truly groundbreaking stage of the supplier/buyer collaborative journey. By understanding each others businesses and future aspirations, buyers and suppliers can collaborate to develop innovative solutions that will benefit both organisations. Acting in this dimension allows firms to understand the capability of a third party to drive transformational change and deliver on the shared aspirational vision of both organisations. This phase encourages businesses go beyond the four walls of traditional commercial relationships and to challenge what could be possible.
A joint and balanced understanding of these three dimensions creates a brand new perspective on partnerships and performance. Focussing on the present and future as well the past, provides far greater insight into the health and overall effectiveness of a commercial relationship than traditional performance management metrics ever could.
Our 3D Performance Management whitepaper contains infinitely more detail on the different dimensions of performance management. Download the report free today and start redefining your corporate relationships.