Supplier Performance: Spot Weaknesses and Curb Risk
Effective supplier performance management throughout the contract period enables you to give your suppliers clear feedback so they know what’s expected of them, how their performance is measured, and what they need to do to move to the next level. So how often should you meet with suppliers? What are the best Key Performance Indicators (KPIs) to use? What questions should you ask in a performance management review?
Here are some best practices to help you build longer-lasting, more profitable partnerships with your suppliers.
Meet with Suppliers Regularly
Once you’ve worked with a supplier long enough and have enough data, you’ll want to meet with them regularly to ensure everything is running smoothly. During these check-ins, you can address account health, performance reviews, potential issues, and anything else that is relevant to the relationship. Decide the timing that best fits your business, and be sure always to have a predetermined agenda.
Key Performance Indicators
Frequent Check-ins also help ensure your suppliers meet Key Performance Indicators (KPIs) as outlined in their contracts and Statements of Work (SOW).
Depending on your type of business, there are many different KPIs. Examples include:
- Costs: labor and materials
- Operational: Productivity, average cycle time, quality, and safety
- Environmental: Carbon emissions, water usage, and waste generation
- Social: Community involvement and social responsibility
- Technology: Uptime, downtime, and on-time delivery
- Support: Response times, global support availability, and average time-to-resolve
Factors to Consider When Choosing KPIs
When selecting which KPIs to monitor, consider the following:
- KPIs should be easy to collect and analyze.
- They should be relevant to your business and directly impact your bottom line.
- KPIs should not be too broad or too specific.
- KPIs must be measurable.
- Choose KPIs that align with your overall strategic objectives.
Questions to Ask in a Performance Review
Once you’ve determined the KPIs you’ll use to track and measure your supplier’s performance, you can prepare for a performance review as the focus of one of your regular meetings. Whatever your performance review process looks like, you must develop a consistent and repeatable approach. Doing so will ensure that all of your vendors are graded consistently against each other and through time.
To ensure you’re getting the most out of the engagement, try asking the supplier to self-rate in different areas with questions like,
- How is your account management?
- How is your product or service?
- How is your technology?
- How do you think you’re performing?
- What ideas do you have to make this relationship more prosperous?
And just as importantly, ask the reverse, “Are we being a good customer to you?”
Accountability for All
Ultimately, supplier performance management is not only about holding your suppliers accountable but holding your organization responsible as well.
“One of the things I’m very passionate about is accountability for all. I don’t beat up suppliers,” says Danielle Salyers, 2nd Vice President of Strategic Sourcing at Allied Solutions. “That’s just not a methodology for success. I hold my suppliers accountable, no exception, but I also hold my business just as accountable.”
When suppliers see that, they’ll want to work with you because they know you’re an excellent partner.
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