Supplier Performance Management

Shridhar Taparia
Sep 14, 2021·5 min

Supplier Performance Management

Globalization has swept businesses off their foundations and introduced more dynamic, complex, and competitive business processes. As a result, businesses need to connect with suppliers to maximize their business performance.

But there needs to be a way in which the suppliers are managed. That’s where supplier performance management comes in.

What exactly is supplier performance management? What are its benefits? How can you improve supplier performance management in your organization? Let’s find out.

What is supplier performance management?

Supplier performance management (SPM) is a business process adapted to measure, analyze and handle the performance of suppliers. It helps cut down costs, alleviates risks, and drives continuous improvement. If you are striving for effective workforce management, it is a must-have process.

The main objective of supplier performance management is to track down the potential issues and their root causes so that they can be eliminated as early as possible.

Now that you know what supplier performance management is, let’s find out why they are essential for a business.

Why is SPM important for an organization?

Wondering why supplier performance management is vital for your business? We got you. Listed below are some of the benefits of SPM in an organization:

  • Protect your brand image

    Various brands have been tarnished due to the actions of their suppliers. Of course, you would not want to be one of those. That’s why you need to have SPM to track down the supplier performance against specific KPIs.

    If you find something wrong, you can take action early and protect your brand image in front of your customers and partners.

  • Avoid supply chain risk and disruptions

    For any organization, it is crucial to be familiar with the third-party vendors who are there in its supply chain. It will help in reducing the chances of risk exposure.

    With SPM, you will get in-depth visibility into the various risk factors that the suppliers can pose. Consequently, businesses can devise preventive measures to reduce or eliminate the risks that are likely to disrupt the supply chain operations in the future.

  • Establish long term relationships with the supplier

    It might not seem so, but the relationships you have with your supplier can directly impact your organization’s performance and profits. When you connect with your suppliers, you make them understand your company’s needs and strategies in a much better way.

    With an effective supplier performance management plan in action, you can enable long-term relationships with the supplier. You can meaningfully collaborate and create synergies to get the maximized performance and profits in the long run.

How to improve your supplier performance management?

Looking for ways to enhance your supplier performance management? If yes, you are in the right place. You can try these strategies to work upon your SPM and improve it for the better:

  • Align your supply chain with business goals

    You can align your supply chain with the business goals easily by integrating sales and operations planning. The end goal is to develop a planning capability that can translate macro business priorities and risks into a couple of tasks that need to be updated to reflect changing market conditions.

    When you effectively integrate business planning, S&OP, and supply-and-demand planning, you can easily boost business agility and create an efficient closed loop.

  • Establishing performance indicators

    No matter how sophisticated a supplier performance management system is, you won’t get the desired results unless you set up the key performance indicators, commonly called KPIs.

    When you are deciding the parameters of the supplier performance management best practices, you must always include the following:

  • Service

  • Financial stability

  • Quality

  • Cost

  • Price

  • Quantity

  • Innovation culture

  • Certifications

  • Payment methods and terms

  • Contract compliance

  • Value additions

    You can always come up with other KPIs depending on your business and industry.

  • Create a supplier scorecard

    In supplier performance management, it is crucial to have a structured approach while gauging the quality of your suppliers. But how do you do it?

    The answer is by creating a supplier scorecard.

    You can create it with your supplier data and the terms you need them to fulfill. You need to ensure that the SPM practices are in alignment with our specific business interests. Adding random metrics could be useless and costlier than not having a scorecard to manage your SPM.

    Once you have decided on the KPIs, you need to determine the merit of each of them – which one is more crucial for your business than the other?

  • Communicate information to suppliers and take actions

    Building scorecards and setting up the KPIs are parts of the process. But not taking action on this evaluation will change the situation or improve the supplier performance. When you have all your metrics in place, you should share the results with each supplier to encourage improvement actions.

    Be it initial service level agreement or contract re-negotiation - the performance management team should stay in constant touch with the suppliers and keep things transparent. This communication between the two parties will lead to a healthier relationship in the long run.

    In addition, it will also provide insights for both groups regarding the segments that need to be worked upon. There is various software available in the market to make a performance manager’s job easy to access, share and analyze insights.

Wrapping up

By now, you would have figured out that supplier performance management is much more than just collecting data on suppliers. It is also about the company strategies and how a company’s supply base is managed.

Effective supplier performance management is easier said than done. It involves various software, processes, people, and systems. Therefore, the people associated with it should know the company’s goals, processes, structure, and supply base.

However, if done with the right approach, it will definitely bring monetary benefits to a company. You can use the tips and strategies mentioned above to handle this task effectively.

Vendor ManagementProcurement Management