Supplier performance management

1. Supplier performance management
Good supplier performance is paramount to the effectiveness of your organisation.
However, good performance does not always happen automatically. It has to be managed
and the first step in supplier performance management is to measure what it is.
Measurement of performance should be on-going using performance criteria that are
specified in your contract and based on your business requirements definition.
Typical factors that are measured include the following.
o Price - are you getting the best price?
o Quality - are you satisfied with the quality of your supplies?
o Innovation - do your suppliers regularly inform you of new products and services that
might help improve your business?
o Delivery - are your suppliers punctual? Do the supplies arrive in good condition?
o Account management - do your suppliers respond quickly to any orders or queries that
you place with them?
o SLAs - are your suppliers living up to their end of the agreement?
What you need to do is to quantify each of these. You can do this by, for example,
relating a supplier's performance on each factor on a scale of 1 (poor performance)
through to 10 (excellent performance). You may want to weight each factor to take into
account their relative importance to you. If you then add up each weighted score you will
arrive at an overall performance score for the supplier.
If you measure suppliers regularly in this way you can track performance and spot
adverse trends early enough to do something about it before it becomes a problem.
The way to do it is to plot successive total performance scores over time (weekly or
monthly) on a graph using the horizontal axis for time and the vertical axis for the
performance score.
You can then draw a horizontal line across the graph at the performance level that
signifies unacceptable performance. If successive scores show a downward trend, you
can extrapolate that trend to forecast when the actual score will hit the unacceptable
performance level. This gives you time to discuss with your supplier the underlying
causes of the trend and correct them before they become a real problem.
This creates a "win-win" for you and your supplier - you get the performance you need
and your supplier doesn't incur any costs or penalties for poor performance.
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