Supplier Performance Management I: An Introduction

Last weekend we discussed supply chain risk and how important it is in today’s efficiency based supply chains where a single disruption can cost a corporation six, seven, or even eight figures and when more than 80% of supply managers reported in a recent Aberdeen study on Supply Risk Management that their companies experienced supply disruptions within the last 24 months. We discussed the need for resilience, flexible processes, and risk management.

One of the major strategies we cited for risk management was the adoption of risk mitigating sourcing strategies aligned with your supply base management strategies. We formally defined supply base management as the process of determining not only what the right number of suppliers are but who the right suppliers are, and indicated that it doesn’t stop there. Good supply base management includes continual proactive supplier development where you work with your suppliers to drive continual performance improvements.

This brings us to this weekend’s topic: supplier performance management. Best-in-class organizations have best-in-class supply bases that continually exhibit best-in-class performance across the supply chain. Since performance improvement is a continual process, and not a one-time deal that happens by chance, it needs to be managed and best-in-class sourcing organizations manage their performance and that of their suppliers.

Supplier Performance Management (SPM) is a business practice that is used to measure, analyze, and manage the performance of an organization’s performance in an effort to cut costs, alleviate risks, and drive continuous improvement. The ultimate intent is to identify potential issues and their root causes so that they can be resolved to everyone’s benefit as early as possible.

Considering that Aberdeen found that companies with formal performance measurement programs were able to improve supplier performance by 27% and that enterprises that shared performance data with suppliers generated 61% greater improvements in supplier performance than enterprises that withheld this data, the benefits of supplier performance management compared to the costs of trying to recover from a preventable disruption are phenomenal.

For more information on supplier performance management, see the Supplier Performance Management: Measure, Analyze and Manage Suppliers in a Supply Organization wiki-paper over on the e-Sourcing Wiki.

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