Are suppliers not doing what you expect them to do or is poor supplier performance driving you crazy? Then you are not alone.
The key to managing supplier performance is the quality of the relationship. Often referred to as understanding the significance of the value stream, this requires both sides to be actively involved in keeping the relationship current and communication lines open. A supplier relationship should not be one of power and control, but one of mutual respect. Fortunately most suppliers genuinely want to do a good job, so getting to know your suppliers and involving them in regards to the best way to behave towards your business is easier than we often expect.
A relationship breakdown will, however, most certainly result where there is a lack of clarity and alignment of your respective expectations for performance. Operationally this means don’t underestimate the value of documenting your respective expectations and dedicating regular review opportunities, as without this, at the very least there will inevitably be an increase in the risk of failure and it will certainly reduce the chances of innovation, or the benefits of a proactive and mutually beneficial supplier to customer relationship.
Trends and developments in purchasing and supply management suggest that implementing a supplier performance management and rating program is the most effective way to manage supplier performance, however many procurement managers say they have thought about it but have had difficulty getting started or getting the necessary organisational support.
Our tips when considering effective supplier performance management are:
- Integrate supplier performance expectations with contract management and operational business processes.
- Document business processes and define the supplier performance expectations.
- Identify and proactively address risks before they become problems by ensuring risks are captured and managed in a consistent way.
- Pull together all supplier related data that aims to stop duplicated effort. This helps identify hidden risks and cost saving opportunity. Remember cost is not always financial.
- Ensure contracts accurately capture performance expectations, control risks, and suppliers receive clear and continuous feedback regarding their goals and obligations. Where necessary consolidate and coordinate your organisation’s approach to supplier purchases to increase your negotiating leverage and reduce supply risks or under-performance.
- Consider procurement category managers within your organisation who oversee a range of suppliers within a specific genre. This way there is depth of knowledge within your business and a single point of contact for suppliers and organisational stakeholders alike.
- Gain visibility over the supplier performance lifecycle and track risks from identification, to contract clauses, to SLAs, to KPIs, to action plans ensuring performance issues or risks are being actively addressed and problems are being shut down in a timely manner.
- Engage business and supplier stakeholders in maintaining a mutually beneficial relationship that includes the focus on supplier performance monitoring and ensures suppliers are getting timely and constructive feedback regularly.
- Maintain staff training to identify common supplier performance mistakes.
- Use reports to push information back to stakeholders for informed decision making capability.
Supplier performance management requires time and effort and is certainly not a one-way street. Maintaining regular communication that includes a willingness to be open to input from our supplier’s perspective (as well as our organisation’s stakeholder), that is realistic, flexible and that doesn’t sweat the small stuff, is what counts. Identify what is essential to the relationship and always provide positive feedback when it’s due; even suppliers like to know when they are doing a great job