If your company has already found a supplier, and you guys have already signed a contract, would you say that the work is done?
Yes? No?
For those who might be nodding their agreement, we have some important news to share: To really benefit from your suppliers, you need to invest some effort in keeping up good relationships. Why? Well, because that’s how any relationship works and furthermost because that’s how you make sure that your suppliers are giving your business the best of the best.
Sounds profitable, right?
And there’s a concept that can help you with that: Supplier Performance Management (SPM)
But as usual, let’s begin with the basics
What’s Supplier Performance Management?
Put it simply, SPM is the practice that every single business should follow if their goal is to monitor, assess, and ultimately manage the performance of their suppliers. It’s the most effective method to discover if your supplier network is actually working as it should.
Supplier performance management is often overlooked by managers, however having a proactive strategy in place is fundamental for building a resilient supply chain.
SPM Vs SRM
Supplier relationship management (SRM) might look similar to SPM, but there’s a key difference to bear in mind. SRM focuses solely on developing and mantaining positive relationships with suppliers, compared to SPM, you could say that supplier relationship management is more strategic, as it works to come up with mechanisms that keep your supplier relationships going strong.
SPM, on the other hand is oriented to build tangible practices designed to constantly monitor the levels of supplier performance directly linked to the company’s operations.
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The Steps of Supplier Performance Management
Establishing KPIs
How can you be sure that what are you receiving from the suppliers side is meeting your expectations? Well, there’s a simple way and it begins by setting clear metrics or KPIs so suppliers can be assesed against specific indicators. Here, you’ll want to measure perfomance targets and how do these are aligned with general business goals.
Monitoring
Yes, you got the metrics, but now you need to see if your current supplier performance meets the business's key indicators. You’ll assess quality levels, delivery time, costs, and compliance. Instead of doing this evaluation occasionally, make it a regular habit. This way, you can know if something needs to be improved along the way.
Improvement
Now that we have mentioned improvement, it’s good to remember that the final goal of SPM is to actually take action based on the assessment findings. You can start by offering feedback to the suppliers and working with them to find areas for enhancement.
Reasons Why SPM Matters
Quality assurance
This is probably one of the hugest benefits of supplier performance management. Ensuring your suppliers deliver high-quality products or services is key to any business. If their performance slips, it can affect your end product, damaging your brand’s reputation.
Cost efficiency
And with a poor reputation, comes losses in sales. Managing supplier performance helps you identify inefficiencies and potential cost savings.
Risk management
Inefficiencies can quickly become a problem. SPM allows you to spot potential risks early. Whether it’s a delay in delivery or quality issues, you can address these problems before they become something serious
Better relationships
A focus on performance management fosters open communication and collaboration. Building positive relationships with your suppliers can lead to better service, which can translate into having a strong supply chain.
Prevents supply chain disruptions
SPM is so important for supply chain management, that it really needs to be discussed more frequently. One of the biggest risks you face with your suppliers is the potential for disruptions in the goods and services they provide. When your business doesn’t have the necessary resources, how could it keep working?
Challenges of Supplier Performance Management
Resistance to change
This happens more often than not and it’s somewhat normal, after all not everyone is comfortable trying new things. Suppliers, for instance, may be hesitant to adopt new processes or metrics. Approach these conversations with an open mindset and don’t forget to highlight the benefits for both parties.
Too much data
With so many metrics and data points to track, the process of monitoring everything can become a bit too much sometimes. To overcome this focus on the most critical metrics that align with your business’s goals.
Frameworks for SPM
Operational performance
As the name suggests, this approach is useful to understand how your supplier's current performance affects your business operations. Questions that are often asked in this framework include: Is the supplier meeting agreed expectations? Are standards being respected?
Relational performance
Yes, supplier performance management is not focused on relationships, but that doesn’t mean however the nature of your relationship with suppliers is not linked to the factors that drive supplier performance. Maintaining a strong and collaborative supplier relationship is a must for any business.
Transformational performance
This framework starts from the belief that things can always be improved, so it aims to work with suppliers to find new ways to keep their partnership functioning at the best possible level.
Why choose a Supplier Performance Management Software?
SPM is an ongoing process, one that relies heavily on accurate data so why not use an automated solution to make things simpler?
If you have doubts, let’s review some of the benefits.
- Technology solutions are key to making supplier performance monitoring easier and more effective.
- They can automate the gathering and analysis of performance data, ensuring that tracking key performance indicators (KPIs) is accurate and consistent.
- It’s useful to conduct regular performance reviews by consolidating data in real-time, offering actionable insights into supplier metrics.
- Technology also enhances communication and feedback, enabling prompt and clear interactions with your suppliers.
- It supports collaboration by providing platforms for shared documents and tracking progress on improvement plans.
Key Takeaways
- Define Success Clearly: Set specific expectations with your suppliers regarding quality, delivery, and service to ensure everyone is aligned.
- Choose the Right Metrics: Focus on key performance indicators that matter to your business, such as quality rates, on-time delivery, and cost efficiency.
- Conduct Regular Reviews: Schedule periodic performance evaluations to provide feedback,address concerns, and celebrate successes.
- Foster Open Communication: Encourage a two-way feedback loop to build strong relationships and address issues collaboratively.
- Embrace Continuous Improvement: Cultivate a culture that promotes ongoing enhancement of processes for both your business and your suppliers.
- Utilize Technology: Leverage tools like Supplier Relationship Management (SRM) software and performance dashboards to streamline tracking and reporting.
- Be Prepared for Challenges: Anticipate potential resistance to change and data overload, and approach these obstacles with empathy and focus.
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