Supplier Management Process

Supplier performance management

Managing the performance of suppliers is a strategic focus of purchasing department as supplier performance is critical to a company that needs products and services in order to achieve certain results. If supplier performs well, company can reduce costs and increase profits, but if supplier performs poorly, it can fail the company in the eyes of its customers. Yet, few companies understand the importance of supplier management and fewer companies measure their suppliers' performance and follow motivation strategy to improve supplier performance.

Supplier Management Process consists of 6 main stages:

1. Selecting the suppliers to evaluate
2. Selecting raters
3. Selecting performance measures
4. Rating supplier performance
5. Correcting supplier performance
6. Motivating supplier performance

Selecting suppliers to evaluate

When selecting suppliers to evaluate, you should limit the list to a reasonable number of suppliers. The main criteria for adding a supplier to the list are 1) whether a supplier has a great impact on your company operations, 2) whether you spend much money with a supplier because if a supplier deals with a few orders or money from you, most likely there is no need to evaluate this supplier. Read more

Selecting Raters

When selecting raters, you shouldn't ignore any stakeholders or end users in the supplier evaluation process. Raters participate in the evaluation of suppliers to make the suppliers support company's goals well. The list of raters should include purchasing and supply management staff and may include engineers, quality staff and end users of the products or services because these people are highly interested in the performance of the product or service and are always happy to give their opinions. Read more

Selecting performance measures

When selecting performance measures, you need to define the important aspects of your supplier performance. Performance measures will differ from organization to organization based on the needs of each particular organization. However, they usually fall into one of four categories:

• 1. Cost
• 2. Delivery
• 3. Service
• 4. Quality

Each performance measure should be specific and measurable. Read more

Rating supplier performance

When rating supplier performance, you need to choose the right methods for rating. These methods should be dependent on the performance measures and the way of acquiring necessary information. The most common ways of acquiring information and converting it into supplier ratings are supplier scorecards and system metrics. Read more

Correcting supplier performance

If your rating methodology shows that supplier's performance leaves much to be desired, you should try to improve supplier performance. When correcting suppliers performance, you need to schedule a meeting with supplier and discuss supplier's poor performance. Do not end the meeting without agreed action plan that resolves the performance problem. Read more

Motivating supplier performance

If your rating methodology shows that a supplier performs well, you should reward this supplier to motivate him to continue performing well. It is not a difficult task, yet many companies ignore rewarding good supplier performance and don't benefit from more competitive pricing, on time deliveries and better services. You need to design a supplier award program that will cost you little money and little effort but will motivate your suppliers to improve their performance. The program can include various ways.

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