A 4-step action plan to improve supplier performance management

Supply chain problems can hamper the procedures in every sector of a business. Most supply issues if properly traced, almost, always point to poor supplier performance.

Knowing how to manage your suppliers’ performance perfectly isn’t as easy as it seems. It takes a lot of insight and experienced guidance.

This article will help increase your knowledge of suppliers’ performance and how to manage it.

What is supplier performance management?

Supplier performance management [1] [AT2] is a crucial business practice that is used to evaluate and analyze the performance of a supplier. The main purpose of managing the suppliers’ performance is to cut costs, promote continuous improvement and prevent possible risks.

Supplier performance management helps to identify opportunities for scale and growth to the company in the near future.

How to improve supplier performance

As a business venture, poor supplier performance brings about a great loss in the level of production or distribution. Having suppliers with bad metrics can greatly affect your business. To improve your business, one thing you must focus on is your suppliers’ performance. So, how do you improve your suppliers’ performance? These few steps will show you the steps you have to take to improve your  performance without having to fire the supplier.

●      Step # 1 – Ensure smooth conversation with your suppliers

Most managers prefer to just give out instructions to the suppliers without getting to listen to them or having a conversation with them. However, this cannot be compared to communicating business goals to ensure you are on the same page with a supplier. It is easier when a supplier understands and aligns with your vision. Talk to your suppliers, listen to the issues they face when supplying and if possible, offer to help solve those issues. Remember that it does not only help the supplier but also your business.

●      Step #2 – Establish a service-level agreement

Establishing a service-level agreement between you and your suppliers is very important. This agreement helps your suppliers remain committed to your business. As a result of this commitment, your business will blossom.

●      Step #3 – Establish supply routines

To make supply easier for your suppliers, you must have supply routines and be predictable. Making unnecessary and unexpected orders can put the suppliers in a state of confusion, and this can result in delayed supplies. Once you have a supply routine, your suppliers understand when and how to supply your products or services.

●      Step #4 – Measure your supplier performance

A crucial step in improving your suppliers’ performance is to measure their performance. Measuring the suppliers’ performance using simple and agreed metrics helps you know where your suppliers need improvement.

How do you measure supplier performance?

Numerous companies put in the work of managing their suppliers’ performance, but get it all wrong because they measure the suppliers’ performance wrongly. One crucial thing to note is that a suppliers’ performance needs to be measured accurately to ensure the transparency of the supplier. These are a few crucial steps to establish when evaluating the transparency of a supplier;

●      Step #1 – Set clear performance goals

To measure and manage the performance of your suppliers, one important thing to do is to set clear goals for them. These goals must relate to the organization’s goals. Setting clear goals enables business owners to be able to assess the suppliers’ performance. It also helps the suppliers work smartly to prevent disappointments. These goals are meant to be smart, realistic, time-based, and must be focused on the KPIs of supply management – Time, price, cost, quality, etc.

●      Step #2 – Classify suppliers

Classifying suppliers into similar groups is a significant aspect of evaluating their performance. Create a list of suppliers offering related services and put them in a group. Doing this for all your business suppliers makes it easier for you to evaluate them.

●      Step #3 – Select a clear performance evaluation method

One significant way to evaluate your suppliers’ performance is to have a clear method of evaluating them. Having a clear method prevents confusion in the evaluation process. A company can choose to evaluate a potential suppliers’ performance by sending out questionnaires, site visits, or getting a testimonial about the supplier from a third party. This helps the company collect all necessary data about the potential suppliers’ performance.

●      Step #4 – Get feedback from the suppliers

This evaluation approach helps the supplier identify the areas he is to work on. It also enhances smooth communication, and this helps the supplier give feedback on the aspects he thinks the business should work on.

Why supplier performance management is essential for your business growth

Most business organizations rely on the services of a supplier to enable business growth. Timely delivery, cost reduction, and product quality are some of the ways a supplier can affect an organization. Having reliable supplier performance management helps the organization establish an effective mechanism that improves the quality of the product or service offered.

Supplier performance management also helps the suppliers to understand the basic needs of the consumers and how to meet their expectations. This strengthens the future success of the company and gives them an edge over competitors.

Companies with strong and stable supplier performance management tend to have a quality resource management system. Stable management of the supplier performance can lead to healthy management of the resources supplied.

Supplier performance management helps in collecting accurate data concerning the suppliers. It brings together components like risk management, cost reduction, and metrics management to help. These components help to actively manage important supplier relationships.

As a business organization, avoiding any issues that bring about loss is crucial. That is why supplier performance management is an essential tool in business. You require a supplier performance manager who can help you increase your supply chain’s effectiveness and also review your suppliers’ performance. At Thurman Co, we provide supplier management resources that can help you strengthen your supply chain. Need a supplier performance manager for your business? Contact us on Thurman Co for more information.

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