How Technology Can Simplify Supplier Performance Management

As a procurement professional, how often do you monitor the performance of your suppliers? Who are your best performing suppliers? Do they always deliver on time? Which suppliers haven’t performed well in recent times and need more monitoring and support? Do you have any action plan for these suppliers?

You must have ready answers to all these questions.

If you don’t, there is an immediate need to pay attention to this crucial aspect of procurement operations.

Let’s understand this in some detail.

What is Supplier Performance Management?

Supplier performance management is a structured approach to assessing and evaluating supplier performance against established key performance indicators (KPIs).

The key objective in this process is to engage in regular monitoring and enhance your supplier’s performance by identifying specific areas of improvement.

Unlike supplier relationship management that is more strategic in nature and focuses on building long-term and mutually beneficial relationships with suppliers, supplier performance management is more tactical and focuses on measuring and analyzing supplier performance against defined benchmarks.

It can include monitoring several aspects related to their performance such as delivery timelines, quality of goods and services, reliability, flexibility and compliance with regulations.

Regular evaluation of performance can help procurement check if suppliers are meeting contractual obligations and performance standards. It can also help identify potential risks associated with suppliers early on and enable the team to act proactively and take remedial action.

Additionally, regular performance monitoring can help identify opportunities to optimize processes as well as costs, thereby ensuring efficient utilization of resources.

Supplier performance management isn’t a one-time exercise.

Instead, it is an ongoing process that requires procurement to regularly engage, follow-up and work closely with suppliers to achieve the desired outcomes.

Key Metrics to Assess Supplier Performance

What parameters should a business consider while evaluating supplier performance? What should be the relative priority assigned to these parameters? Let’s look at the key performance metrics.

• Quality metrics: Defect rates, first pass yield, consistent quality, etc.
• Delivery metrics: On-time delivery, order accuracy, lead time, etc.
• Cost metrics: Cost per unit, total cost of ownership, price competitiveness
• Compliance metrics: Adherence to regulatory requirements, ethical sourcing, etc.

How to Conduct Supplier Performance Management

Effective supplier performance management requires procurement to work in close collaboration with suppliers.

Here are five steps in supplier performance management.

1. Establish KPIs:

In this phase, the business sets clear expectations and defines the KPIs for suppliers. It also includes discussing and defining objective and measurable targets with suppliers and aligning them with strategic goals. It’s important to be as specific as possible in setting these targets.

2. Collect and analyze data:

The business collects supplier performance data such as delivery timelines, quality and compliance in routine operations. To capture this data, it can refer to delivery reports, financial reports, customer surveys, etc. Technology solutions simplify data collection with automated tracking systems and supplier scorecards. They also feature analytical tools to decode this data and derive useful insights.

3. Measure performance:

Now is the time to assess if the suppliers are meeting the set expectations. To do this, the business compares the analysis of gathered data to targets defined in the earlier phase to evaluate performance.

4. Offer feedback:

Once the performance evaluation is complete, the business can identify areas where suppliers have met or fallen short of targets. It can offer constructive feedback to suppliers, highlight specific areas of improvement and even make a joint development plan to improve performance.

5. Engage in continuous improvement:

This is an ongoing process that requires businesses to engage in regular monitoring. It can decide an appropriate course of action based on evaluation results. It may also need to adjust or revise KPIs as per market conditions or changes in business strategy.

Leveraging Technology to Simplify Supplier Performance Management

With advanced procurement software, businesses can access a comprehensive set of supplier management tools that simplify performance management.

Supplier scorecards, for example, capture quantitative and qualitative performance data, opinions and feedback about each supplier.

Businesses can also build customized scorecards for a category, region or a group of selected suppliers. These scorecards can run automatically at regular intervals and fetch data from different functions.

Supplier performance scores and KPIs are linked to the supplier master data, providing easy access to all supplier data in one place.

Additionally, with a single database of suppliers across all procurement functions — from source to pay — supplier management software provides real-time visibility of supplier performance.

Learn how GEP’s supplier management software can help your business manage and optimize supplier performance.