It’s in the Metrics; Optimising Supplier Performance
These days, there is management in every aspect of business. One lesser known areas is supplier management. As business treads towards the path of globalisation, the choice of suppliers becomes abundant. However, not many businesses are concerned with the actual performance of their suppliers.
In order to improve on customer satisfaction and loyalty, ignoring supplier performance is detrimental to a business. Most customers are happy to pay little extra for quality and so there should be a practice in the organisation for supplier performance review.
Where does an organisation start in developing a supplier management programme? There are 4 main steps to look at:
1. Conduct a rigorous analysis of corporate spend within your organisation
This is a fact which is often overlooked. Enterprise spend is critical to establishing a supplier management programme and other improvements within the supply chain.
2. Conduct audits of those suppliers considered most critical/strategic to the business
This is where you start to segment your supply base. Supplier assessment will soon reveal whether the supplier is up to speed and auditing tools will help determine that.
3. Establish key metrics for measuring supplier performance.
There are a dozen different combination of commonly measured metrics. However, the most common to start with are:
on-time delivery
quality
service
price competitiveness
Ensure that the metrics which you choose to measure should be aligned with your overall strategy. An example is; if you are in the business of buying plastic drums, then on-time delivery is a critical factor. However, if you are in the business of Internet Marketing, on-time delivery may not be major issue compared to reliability of your supplier to provide uninterrupted Internet connectivity.
4. Apply the supplier performance measurement program to the most critical/strategic suppliers.
The results will give you some perspective and allow you to work closely with your critical suppliers to build strong relationships and iron out issues more openly with data to back up your case.
Supply management executives can breathe easy…just a little knowing that maximising the value with their suppliers means that they can remain competitive in this environment.
From the perspective of the top level executives, a successful supplier management program means:
- That they now have data with which they can collaborate with their suppliers to improve processes and reduce wastage
- That the executives can now improve workflows and develop corrective measures by involving internal stakeholders in the organisation as well as the suppliers
- They are now able to work more closely with top suppliers who have all the ticks in the right places
Finally, some key decisions to get the whole process rolling are to make some very important decisions about designing a supplier performance management programme. They include:
- Which suppliers will be measured?
- Which performance metrics will be measured?
- How supplier performance data will be used
- How supplier performance data will be shared with suppliers
Once you get the hang of this, Optimising supplier performance will mean that the lines of communications with you and your supplier are always open and with a healthy working relationship, you can both work towards a common goal – retaining customer loyalty.
