Do your suppliers measure up?

• Author: Ambrose, Mary Lou
• Position: Includes related article - Treasury Management

Of the many firms that vie for the treasury department's business, how do you know which to choose? And how do you prove they're performing once you've got them? Measure, measure, measure.

What did you do the last time your bank let you down with one of its services? Did you call and complain until the bank righted the problem? Did you scribble note on the bank's report card you keep on file?

Part of leading a treasury department is managing its suppliers -- from banking institutions to software companies to processing services to financial-service firms. Measuring suppliers has evolved from subjective reporting of the latest problems to a formal report-card system to a process that now quantifies the impact of changes and uses statistical methodology. The evolution is a response to today's business environment, in which lean staffs, competitive pressures an more complex situations require you to establish lasting supplier partnerships rather than "name-only" alliances. The concepts of process management, which break traditional functional boundaries, and total quality management are the frameworks for taking an integrated, cross-discipline approach to measurements.

You don't have to be an expert in process management or TQM to benefit from measurement systems. The techniques are useful at any stage simply because they meet your objective of providing data that you can use to make informed decisions.

DIVIDE AND CONQUER

Where do you start to establish performance measurements?

* First, define the process you want to monitor. Identify your key objective and the elements critical to completing it. Prioritize these items by the amoun of "pain" each causes and identify the function or department that performs eac task. Ultimately, you should select a few specific data points that will help you monitor the process.

For example, in the stock-transfer process, one objective is to provide an easy timely and accurate method to transfer title of stock for the shareholder. Several functional areas could be involved: investor relations, public relation and communications, the treasury and the transfer agent. The critical elements include a reliable, single contact point, accuracy, ease of understanding and adherence to legal requirements. What you don't want (the pain) is for a shareholder to be transferred to several people, to be unable to understand the instructions or to have a transfer done incorrectly.

Take these defined critical elements and work with all the functional areas to establish an understanding of each task and how the process will meet your objective. Also, discuss the elements with your external supplier so it understands your specific service requirements. Soliciting your supplier's inpu may also give you additional useful practices, since your supplier can share other companies' experiences.

* Pick the best measurement method for your purposes. Above all, keep it simple. If your measurements are too complex and time-consuming to collect, no one will use them. It's important to measure just what you will use.

For example, say your accounts payable process, which includes funding check payments, dictates you must receive your second presentment notification for controlled disbursement by 10:30 a.m. You could measure either the number of times you receive the second presentment after 10:30 or the time of the second presentment. The first choice measures the error rate, which tells the bank tha there's a problem with its process that's having an adverse impact on your operations.

The second choice requires you to collect more data but gives you more information to use. For instance, if 95 percent of the time you receive the second presentment by 10:15 a.m., is this an opportunity for you to accelerate your process? If so, what's the benefit? If you'd never benefit from earlier notification, don't waste the effort collecting presentment times.

Choose measurements that will truly indicate how your supplier's performance helps you meet your objective. Say you have a control objective of separate confirmation of foreign-exchange trades. You define meeting this objective as the receipt of a confirmation of the trade by...