Written by: Mike Edmunds
Posted on: 02/11/23
Why Measure Supplier Performance? Success Demands It
The performance of your suppliers reflects directly onto you and your business.
There are some things we measure all the time, even if we are not consciously aware of it. Performance is one of them: we measure it in ourselves, gauging if we have done a good job that day and if we can be proud of ourselves for the effort we have put in, and we do it to those around us. This kind of measuring is not strictly quantifiable, however. Our intuition can tell us if we are doing a good job no matter which industry or job role we inhabit, but there is no automatically updated graph inside our heads giving us percentages of tasks fulfilled, levels of productivity, and targets yet to meet. How useful that would be!
Instead, we have to manually appraise ourselves. We check in and see how we’re doing; have we drank too much coffee, and now the afternoon’s productivity is in jeopardy? Have we filled our calendar realistically so that our tasks don’t overwhelm us, but we can still perform?
These kinds of actions show good self-management. They indicate you understand your optimal working conditions, and how to implement them for yourself so that you get the best out of your working day.
Supplier performance management should be no different.
Why Measure Supplier Performance?
Just as you and your team are the building blocks of your business, your suppliers are the building blocks of your service. They provide the tools you need in order to offer unparalleled services to your customers, and measuring their performance in set metrics only helps you and your team perform, too. Benefits of managing supplier performance include:
- Identification of and protection from risks such as poor-quality service and supply chain disruptions.
- Protecting and improving your brand’s reputation in an era of increased ethical scrutiny.
- Avoiding unnecessary costs and achieving savings for your business.
- Being able to rank and segment suppliers by a particular metric to identify if resources need to be diverted to improve scores.
What are the Issues?
This can be easier said than done. It can feel like a constant effort to measure continuously and manage supplier performances – particularly if your supplier numbers go into triple figures. It’s worth the effort, however:
“The pressure to improve supplier performance measurement is growing as companies increasingly recognise that poor supplier performance can significantly impact their business outcomes. Organisations that use a proactive approach to managing their supply chain can realise substantial benefits in areas like quality, cost and speed to market.” – Supplier Performance Measurement: Best Practices for Improved Outcomes (lpcentre.com)
Issues faced when embarking on the task of supplier performance management are not inconsiderable. If supplier information is out of date, then getting an accurate appraisal of performance is impossible. Similarly, if the process of updating supplier information is sluggish and fragmented – for example, if it involves chasing paper around your business through several departments or reaching out to the supplier directly – then it becomes a greater time cost. If you request updated information, but the response returns missing vital accreditations which you as a business are bound by policy to report on and publish, you have a much bigger problem trying to find this information out.
The issues don’t stop once you have the correct information.
Metrics and KPIs
“Once you have a clear idea of what improvements are required, you should identify measurement indicators by which you can measure and judge supplier improvement. The metrics you choose should appropriately and accurately reflect the needs of your business.” – Top Tips to Improve Poor Supplier Performance in Procurement (oxfordcollegeofprocurementandsupply.com)
The metrics you choose to monitor, as stated above, should reflect the needs of your business – these ‘needs’ are often complex, spanning multiple factors. Cost savings are common, particularly in this time of recession. Ethical and environmental factors are also often key, with carbon emission reduction a focus in order to meet 2030 targets.
The Importance of Measuring Supplier Performance:
Your suppliers’ performances in these areas directly affect your business’s performance in these areas. The benefits discussed earlier, such as risk-mitigation, protecting brand reputation, and cost savings are not benefits but necessities in reality.
Reward dynamic, robust suppliers able to meet the demands of your business, while suppliers who consistently cannot hit the mark need to be nurtured or cut loose. This is the nature of the times we are living in. It is up to your team to decide on the right call to make regarding whether it’s prudent to call time on a particular supplier, but that decision should always be based on data and facts.
This is where the importance of properly measuring supplier performance comes into play.
Properly measured, with clear metrics defined, your management process should produce a wealth of data for you to sift through and make founded, secure decisions. More weight given to different metrics will offer different results, and there is a wealth of software solutions out there to help with the data collection and analysis, should that be your choice. There are benefits to such software, including data accuracy and efficiency, which make them a strong contender when looking to improve your management processes.
While it has benefits, measuring supplier performance isn’t really an option. It’s an absolute necessity if you want to see your hard work pay off in any kind of meaningful way. It carries with it significant issues if done improperly or half-heartedly – but you’ll see the true benefits if you give it your full focus. Software, as most digital solutions do, offers a more streamlined vision of performance management with increased visibility and oversight. But as long as you are strategizing your efforts, you will reap more reward than teams who allow this crucial aspect of supply base management to pass them by.