Supplier performance management best practices
Fundamentally, supplier performance evaluation is a process that requires companies to follow a well chalked out plan incorporating all the key essential elements like evaluation parameters, supplier classification, data collection, evaluation method and feedback system and finally, an actionable improvement plan.
Why is supplier performance evaluation important for businesses today?
Today, global products and international businesses panning multiple suppliers and myriad business rules face the need to follow supplier performance management best practices thoroughly. With companies going global and dabbling in a plethora of products across different sectors, it becomes more important to have a solid supplier performance evaluation framework in place.
Moreover, it comes in handy for a variety of scenarios like the following:
• If your company is planning to go for a repeat purchase
• If your company is having multiple suppliers for the same category of products and wants to choose the best one for an upcoming big-ticket order
• If your company is wants to set up a supplier performance evaluation framework by weeding out poor-performing suppliers and adding more effective ones
• If your company is initiating a regular cost benefit analysis
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Here are six supplier performance management best practices:
Establishing performance indicators: Irrespective of how sophisticated a supplier performance evaluation framework is, the strategy will not bear results if the important step of establishing key performance indicators is neglected. When it comes to parameters of the supplier performance management best practices, the following are the mandatory parameters: price, cost, quantity, quality, service, delivery, payment methods and terms, certifications, value additions, innovation culture, financial stability, and contract compliance.
Classifying suppliers: Once you have zeroed in on the crucial parameters of supplier performance management best practices, you should organize your suppliers into different categories for better assessment. Either you could club suppliers based on their geographies, or you could group them based on the product types.
Centralizing and integrating data: The next step of supplier performance management best practices is to have a centralized system where all the information pertaining to suppliers is embedded. Since supplier information is present in multiple business systems like procurement, finance, logistics, supply chain, etc.
Developing a robust evaluation approach: After the relevant information is collected, it becomes important to establish a suitable evaluation approach. The first step is to select the period for supplier performance evaluation framework, which could either be monthly, quarterly, or yearly. Additionally, companies incorporate multiple methods of evaluation including supplier scorecards, contract management, and six sigma.
Collaborating with suppliers for review/feedback: The review meetings can be conducted monthly, quarterly, half yearly or yearly. There are quite a few organizations who pledge a portion of their savings generated from such improvements back to the specific suppliers. This strategy acts as a win-win solution for both the parties.
Creating an actionable plan: Post the discussion, organizations can send across performance report cards to suppliers – highlighting specific action points to plug any gaps in the supplier performance management best practices. The aim should be to foster communication, devise feasible action items, and track measurable improvements. It is also important to track the action items on a regular basis and revise goals for an effective supplier performance evaluation framework.
Supplier relationship management for a leading automotive industry client.
Challenge: The client, a leading player in the automotive industry space wanted to profile their suppliers to understand the typical risks associated with them.
Benefits offered: Helped the client collaborate with key suppliers and optimally reduce costs associated with procurement.
Creating an efficient supplier performance evaluation framework is important for companies to develop effective strategies. Stay ahead by requesting service on our procurement platform to gain the latest insights into supplier performance management best practices.
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