Supplier Performance Management: Why Should You Care?
Why should corporations turn their focus to their suppliers? In short, effective supplier performance management will reduce various risks and save money.
The hot topics in procurement have been around suppliers and supplier enablement, supplier information management, supplier performance management and supplier risk analysis and measurement. I thought I would throw my hat into the ring and give my own perspective on the topic after spending over 10 years in the industry and working to support hundreds of customers with this perennial issue.
A question that gets asked frequently is why should corporations turn their focus on their suppliers? It is a fair point – why should you care? In short, the reason you should care is that effective supplier performance management will reduce risk and save you money.
Let’s take a look at some of those risks:
The logistics-related risks include issues such as late delivery or incorrect quantities and/or poor quality. At first glance, these may not seem to be very serious risks, but if you are building a skyscraper, then any delays or substandard products could have serious cost and liability implications.
Supply chain risk
What about supply chain risk and the risks connected to a strategic supplier becoming insolvent? Source diversification is all about spreading risk and represents a key consideration for many category managers.
Corporate Social Responsibility (CSR) risk
Corporations want to be good global citizens and steer clear of suppliers who are engaging in inappropriate practices such as workforce exploitation.
What is the value of supplier performance management?
Again, why should you care about measuring and managing supplier performance? I will use a couple of examples to showcase both the risks and the rewards.
Ensuring high-quality goods
In 1989, Flight 394 went down off the coast of Denmark. There were no survivors. This tragedy could have been avoided as it was later discovered that counterfeit parts were to blame.
Now, this airline tragedy is an extreme example of the possible consequences of poor quality, but, even if you are not in the airline industry, quality matters: poor quality products lead to an increase in product returns and customer dissatisfaction. To avoid these consequences, it is important to ensure that your suppliers are using quality processes – for example, ISO 9001. (I recently had a chat with the Head of Procurement at Sato where we discussed supplier performance management, among other things. You can watch the webinar here >>)
In a nutshell
So what is the value of measuring and managing supplier performance? Taken to the extreme, you can avoid catastrophic events such as an airplane going down. And, at the very least, you can avoid paying more for substandard quality. In addition, you can maintain good corporate citizenship by ensuring your suppliers comply with your CSR policies.
3 steps to robust supplier information
I think you are getting a sense of why supplier performance management is important. I did promise to discuss the ‘how’ as well. Let me walk you through the process.
Step 1: Collect comprehensive and accurate supplier information
The best time to make a supplier jump through a few hoops is when they want to win your business. So, make sure they provide you with all the information right from the start. It will play a critical role in both risk mitigation and supplier selection.
Step 2: Use the supplier information
It’s not enough to have information. You’ve got to use it when running RFQs. This might seem self-evident, but if the information is not held in a system (such as OpusCapita’s Supplier Information Management solution) which is connected to your RFQ creation and awarding process, it won’t be easy in practice at all.
Step 3: Rate your suppliers
To help you choose the right supplier the next time around, you should actively encourage people in your organization to qualitatively rate your suppliers on soft topics like ‘how easy they are to work with’ or ‘collaboration’ in addition to the hard facts. It is an area of supplier performance management that should not be overlooked.
I would like to leave you with a few pieces of advice.
1) Don’t underestimate the amount of information you will need to manage.
When you look at all the data, you will quickly realize that you a) want a system to do it in and b) you need supplier self-service options enabling them to maintain the data.
2) Don’t underestimate the complexity of supplier information.
Once a supplier is onboarded, you will need to work with their catalog, pricing, and contracts – a lot of moving and connected parts.
3) View your suppliers as partners.
After years of observing customers and supplier relationships, this much is clear: the most effective companies are those that work closely with their suppliers, who see them as partners and collaborate with them.
I hope I was able to add some value to your thinking on supplier performance management. I’m happy to keep the conversation going if you have an opinion or comment to share. Find me on LinkedIn anytime.
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