Making the leap to incentivised supply chain performance in defence

Defence organisations struggling with supply chain performance should look to outcome based, incentivised strategies, say PA Consulting
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By PA Consulting

14 Sep 2021

At some point, defence organisations will experience poor or unwanted performance from a supplier, such as unexpected costs, poor quality, or late deliveries. It’s the inevitable result of complex, global supply networks pushed to be increasingly efficient. A recent example of this is the Dreadnought submarine build programme that has suffered late deliveries in 2020 extending its deadline by another year. Traditionally, organisations respond to such issues with lower performance ratings or by levying damages, but a more effective way to prevent them is through outcome based incentivisation strategies.

While contract measures for addressing poor performance are essential, a positive incentivisation approach will generate greater success for all. The Chartered Institute of Procurement & Supply says it leads to lower cost, early delivery, inventory reduction, increased sales, improved labour utilisation, and better technical solutions.

But how do you incentivise the supply chain?

In our experience, it’s about developing your approach to incentivisation, focusing KPIs on outcomes, and taking a measured approach to implementation.

Make the pipeline of work visible

By encouraging supply chains to improve performance with the promise of more business, everyone wins. Rewarding desired performance and behaviours inspires your supply chain to adopt and promote the characteristics and values that are important to you. It will also align their interests and goals with your own and encourage behaviours that develop cohesive teams.

Common methods of implementing this are future business awards, contract extensions, and promotion to preferred supplier listing status. This will elevate those suppliers who are performing best into a preferential position for future work across your organisation.

Focus your KPIs on outcomes

Tracking and rewarding performance can also demonstrate the value you place on outcomes. It can release contracting parties from typically constraining conventional KPIs that focus on cost, time, and delivery, letting them explore and achieve more meaningful targets, such as lower carbon footprints or better collaboration with your organisation. Ultimately, this can allow you to step back from micro-managing supply chains.

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