In the past decade, manufacturing and service firms, to name two examples, have become increasingly aware of the importance of supplier performance and its impact on their own performance and market competitiveness. A number of factors have converged to create the perfect storm in these sectors:
• Increased outsourcing and reliance on suppliers for both goods and services
• Globalization of business and supply chains
• Increasing complexity in managing suppliers
• Increasing supply risks
• The view of suppliers not just as a cost, but as a strategic input to the bottom line
Many companies pursue Supplier Performance Management (SPM) as the quest for the “perfect supplier scorecard.” However, a supplier scorecard is only one element of the SPM process. Michael Koploy recently wrote an article on Software Advice that discusses four best practices for sourcing experts, purchasers and other supply chain leaders to guide effective SPM initiatives:
- Build scorecards around business goals. Before developing supplier scorecards, company executives need to understand the business case. For example, explain how better supplier performance can support overall business goals by uncovering hidden cost drivers and risks, finding business and performance improvement opportunities, reducing risks and supplier costs and discovering additional value from suppliers.
- Establish a process to evaluate performance. Managers should establish how and when suppliers are recognized for good performance, how new business will be awarded to existing suppliers and when to disengage with an underperforming supplier.
- Communicate information to suppliers and take action. With the right metrics in place and performance evaluations established, managers then must actually share scorecard results with each supplier and take appropriate improvements actions.
- Share information internally. To mitigate risk, key personnel must share supplier scorecard information with stakeholders throughout the organization — especially those whose work is impacted by supplier performance. For example, supplier performance data can provide risk assessment managers with early warning signs — and thus time to take action if needed.
Overall, good supplier performance is a key ingredient in a firm’s drive to achieve business performance excellence. To learn more about SPM, download Iasta’s Supplier Performance Management Wiki Paper: Performance Management to Performance Improvement.