US Postal Service
SRM drives supplier performance at the US Postal Service
In 2018, the USPS supply management organisation updated its SRM governance model. Its experience shows even in a mature approach can be improved.
Delivering more than 400 million pieces and approximately 47 percent of the world’s mail each day, the United States Postal Service’s (USPS or Postal Service) Supply Management (SM) organisation uses a well-established supplier relationship management (SRM) programme to drive timely performance from its key suppliers while also focusing on supplier innovation. While mature in its deployment, the USPS continually seeks to enhance its SRM governance and innovation metrics.
Through a developed model, each year USPS Purchase Teams review a series of supplier attributes and determine key suppliers for each of its organisational Portfolios and Category Management Centers (CMCs). Suppliers are placed and grouped within definitional areas of “supporting”, “leading”, “critical”, and “strategic”, and SM assigns a Relationship Manager (RM) to each supplier. The RM is established from within the management chain and teams with an operational internal business partner in managing the relationship.
RMs include senior USPS management, and this level of involvement in SRM is an example of how seriously the USPS takes its relationship with suppliers. RM’s include the Postal Service’s chief financial officer (CFO) and the vice president of supply management, as well as other executives and managers through the SM organisation.
RMs also include senior managers within business units; however, the SM team ensures governance and use of supply chain scorecards for measurement of supplier performance. Scorecards have both uniform and customised metrics based on the specific commodity. At all times, the established metrics allows business units to utilize measures of performance, which help them achieve their business objectives.
New benchmarking for business challenges
In 2018, the USPS SM organisation updated its SRM governance model to incorporate best practices and ensure it maximised innovation and efficiency from suppliers. It moved from using a nine-quadrant approach to a four quadrant system.
“We believe strongly in the use of SRM, and we benchmark our programme against other companies, using Gartner, and work with the Center for Advanced Procurement Strategies (CAPS), which is a partner organisation to the Institute for Supply Management (ISM). We discuss SRM processes with suppliers within our own supply base, all in an effort to adopt approaches which get the best results,” says Mark Guilfoil, vice president of supply management at the USPS.
The Service uses more than 15,000 suppliers annually, although only around 10% of those are contracted for repetitive business each year. The annual review process establishes approximately 75 suppliers as key suppliers, who are invited to, in addition to prior SM Supplier Award winners, participate in the Postal Supplier Council.
Relationship managers on the same level
The procurement team asks a series of questions to determine whether a supplier might sit in one of the quadrants (Supporting, Leading, Critical, or Strategic). Questions include the level of business spend with the supplier, as well as the supplier’s market position and power. Other factors are also considered such as substitutability, intellectual property ownership, and demonstrated innovation in the commodity. “If the supplier is placed into one of the quadrants based on our analysis to these questions, then they are qualified for consideration of key supplier designation. We assign a RM based on their quadrant from both SM and from our internal business partner (IBP) to establish scorecard metrics and establish a performance review schedule,” Guilfoil says. “While some suppliers are assessed quarterly, most are measured every six months.”
Since the relationship is managed by a senior manager within SM and the Postal Service’s business unit, the suppliers are expected to match and put forward a manager of commensurate position from its side to interface with USPS.
“If we are holding a performance review with a key supplier within ourautomation and material handling commodity area, for example, then we would designated a senior engineering manager from within the Postal Service engineering team to join the SM lead, and the supplier would assign their head of engineering, so that the parties are on a similar level,” Guilfoil says. “We want to make sure that we are having the right conversations at the right level to improve collaboration with our suppliers and drive results,” he added.
New measures for innovation
Once designated, each key supplier has its performance measured using a scorecard. Four uniform metrics — timeliness of performance, quality, cost reduction, and innovation — are standardised across the business. However, RMs are also free to select other metrics from a master set and use them according to the business need and supply category.
“Unlike some firms that have a scorecard that might have a fixed number of perhaps 10 to 15 different metrics, we always require the four standard metrics but then we leave it to the relationship manager to establish other metrics that they feel are critical for success or something that they have observed the supplier could improve on,” Guilfoil says. “This is a unique aspect of our SRM processes here at the Postal Service, and we believe it balances both uniformity across commodities as well as allowing customization to measure specific business
performance requirements for our IBPs.”
The USPS added innovation as a standard measure on the scorecard within the last few years. The purpose was to more specifically target innovation and collaborate with its supply base to deliver value. SM also uses targeted innovation, where the Postal Service suggests topics on which it would like proposals. Such topics have included robotics, autonomous vehicles, emerging delivery technologies, and robotic process automation (RPI). RPI is a process where software assists performance of routine computer-based administrative tasks. The innovation metric also enables suppliers to come forward with their own ideas for innovation within areas the Postal Service may not have considered.
Flexibility in measurement
“Specific measures which vary between supplier and category could include a measure of corporate social responsibility in subcontracting, which are required pursuant to their purchasing guidelines”, Guilfoil says.
“We negotiate goals with suppliers on their use of small, minority and women-owned businesses. Accordingly, if we believe the supplier may be able to increase these type of firms’ participation in the contract, we would set a goal to improve, and we would add that metric into the scorecard,” Guilfoil says. “One of the hallmarks of our programme is that we don’t just have a static scorecard. Metrics can be added for a performance period while maintaining the four core elements. There is an element of it which is the same, but then there’s also a tailoring effect,” he added.
For example, if the RM wants to measure quality, they can draw from roughly 12 different quality metrics established for different categories, such as software code or engineering manufacturing.
Open to innovation
The USPS provides suppliers the opportunity to offer feedback through its Postal Supplier Council (PSC) as noted above. Comprised of nearly 120 suppliers, the PSC holds two meetings each year and creates a Board of Advisors, which provides feedback on SM programs and policy guidelines as well as acting as a supplier communications conduit. The Postal Service also surveys the whole PSC membership for feedback on targeted topics and can offer feedback of its own volition through established standing committees.
“The PSC is an important supplier communications tool. We get feedback if we have some contracting process or clause that suppliers feel is too onerous. They provide that feedback to the members of the Policy Standing Committee and that group meets generally every month,” Guilfoil says.
The Postal Service also hosts an annual conference attended by all PSC members which includes breakout sessions on topics such as innovation. Future approaches may include the building of an online supplier portal to gather supplier innovative ideas.
Even in an organisation with a mature approach to SRM, governance can be improved. Refinements at the Postal Service show how SRM is ensuring suppliers both measure up and have a communications channel to support the Postal Service in the business challenges that lie ahead.
Supplier management also uses targeted innovation, where the Postal Service suggests topics on which it would like proposals. Such topics have included robotics, autonomous vehicles, emerging delivery technologies, and robotic process automation.
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