9 Benefits of Supplier Performance Management & Tips to Get Started

About 65% of innovations are sourced through external suppliers and partners (ISM).

This makes supplier and partner contributions to a supply chain’s production and profitability rather pivotal.

Put into simple math… Good supplier performance = Good supply chain performance.

Supplier Performance Management (SPM), when done right, can help your procurement organization to harness supplier performance and innovation to positively impact your business’ top-line value creation.

SPM is an area that can be challenging for global procurement teams, as supply chain complexity continues to grow.

Unfortunately for many procurement teams, gaining basic buyer insights, from their supplier base, such as contract, spend, performance, risk, and compliance data isn’t so easy to get a hold of, or begin to analyze. Even in the most mature of procurement organizations evaluating and managing a supplier base’s performance can be difficult.

Kodiak Hub surveyed 526 Procurement and SupplyChain professionals on Linkedin asking what focus in Supplier Management is their biggest area of concern? As seen in the graphic below 40% of respondents listed Supplier Performance as their top area of concern.

At the same time, nearly half of procurement professionals who responded in the 2021 Supply Chain Resilience Report by BCI (seen in the graphic below) said that they don’t harness any kind of technology to follow up on Supplier Performance KPIs.

These two statistics highlight a clear yet confusing discrepancy.

Procurement professionals are concerned with addressing supplier performance management and understand the value it brings to their overall excellence, but almost 50% of teams don’t actually follow up on Supplier KPIs.

Maybe this stems from a lack of time, overly complex supply chains, or a simple lack of resources. No matter the reason, one harsh truth remains; you can’t manage what you can’t measure.

If you’re still reading this article it means we’ve made it this far in the article together. That means that the above statistics may resonate with you. No need to worry. We’re not going to utilize this article as an opportunity to reprimand or scold you for a lack of SPM. Quite the contrary.

You likely know the importance and benefits of Supplier Performance Management.

But, maybe you’ve gotten discouraged along the way, or don’t know where to start.

We will use this opportunity to inspire you to get back up on the horse and give you some tips as to how you can get started with supplier performance management.

9 Supplier Performance Management Benefits

1. Enhanced Supply Chain Visibility — Better supply chain visibility brings you closer to the pulse of your supply chain, giving you a better means to forecast and avoid costly supply chain disruptions.
2. Supplier Accountability — Supplier Performance Management systematically and implicitly expresses expectations and KPI acceptance criteria to your suppliers. This in turn allows the supplier to take accountability for their own performance and activities as partnerships are entered with a transparent framework for ideal performance, from the start.
3. Supplier Led (Enabled) Innovation — As stated in the first line of this post, 65% of innovations are supplier & partner-led (ISM). Communicating the importance of performance and innovation ambitions to partners welcomes them to more openly share their unique insights, industry-specific competency, and capacity for innovation. Remember, your suppliers are experts in their field; that’s why you started working with them in the first place. An SPM process will help you systematically listen to, and absorb, what they have to say!
4. Quality Performance (Product & Services) — Follow-up on product & service quality is a straightforward win from SPM. Systematic measurement, reporting, and analysis of supplier quality (deviations, complaints, claims, project quality, etc.) will help you to cut out suppliers who aren’t making the cut and bring better quality products & services to your end customers.
5. Easy Follow-up on SLAs — A service-level agreement (SLA) defines the level of service you expect from a vendor, laying out the metrics by which service is measured, as well as remedies or penalties should agreed-on service levels not be achieved (CIO.com). SPM aids definition, measurement, follow up and actions for agreed-upon SLAs. Contract compliance can be challenging, but solutions for SPM make it cut & dry.
6. Increase Buyer-Supplier Collaboration — SPM software provides a common platform to enhance buyer-supplier relationships and collaboration. As said before, simple things like beginning a supplier relationship with clear expectations can prove to build trust, respect and mutual goals. Learn more about supplier relations here
7. Spot Best & Worst Suppliers Faster — Utilizing technology to measure and analyze supplier performance KPIs will provide your team with a better means for data visualization and therefore a better means to spot best & worst performing suppliers. Do you know who your best supplier is? Read more on that in this article.
8. Make Sourcing & Procurement Decisions more Data-Driven — Make systematic & data-driven decisions a priority. SPM will give you the insights you need to make more data-driven decisions, but if you choose to act upon them, it will still require the EI (emotional intelligence) & HI (human intelligence) that makes you a talented procurement professional in the first place.
9. Align Team on Business Goals — Sometimes broader business initiatives can feel very distant. Aligning within your procurement team on a supplier performance management framework, system & process will allow your team to have a more holistic understanding of how greatly supplier performance impacts the broader business (such as how performance creates an opportunity for savings, innovation, brand-value creation, competitive edge and more). Change can be overwhelming. Sometimes, that feeling can become the barrier to jumpstart change at all. But, in order to apply supplier performance management tools and adopt a framework that will make an impact in your organization, change is inevitable. That’s why our team at Kodiak Hub has laid out these tips below on how to get started.

7 Quick Tips To Get Started With Supplier Performance Management Solutions

Align on KPIs

Workshop with your team to determine how you’d like to evaluate supplier performance.

Kodiak Hub breaks Supplier Performance KPI ‘areas’ into 6 parameters:
Supply Chain, Quality, Commercial, Collaboration, Innovation & Sustainability performance.

Locating these key performance parameters is important to build sub-parameters, and eventually find individual data feeds to structure your performance evaluations properly. See the graphic below to understand how these KPI trees can be built.

As you begin to define the content of these various KPI tiers, you’ll need to align stakeholder expectations, requirements & preferences. Team members will likely have strong feelings about what should be measured, and how it will be measured, but it’s important to remember that the end goal is a common one… to improve your supplier performance management!

Take a broader Stakeholder Perspective

In order to align on KPIs, and have robust criteria for supplier performance evaluation, you need to locate KPIs that are outside of the scope of solely Procurement, Sourcing & Supply Chain.

To achieve a broad range of stakeholder perspectives you’ll need to include Production, Quality, Sustainability, Finances and even Sales & Marketing in order to truly capture the various Supplier KPIs that exist within the broader value chain. This will help you to bridge functional gaps, and gain perspective for the necessity of supplier performance within various functions. This may require a development manager, a program manager, or a project owner to align supplier KPIs, targets & goals cross-functionally.

Typify/Segment the Supplier Base

Supplier performance management & evaluation should be adapted based upon a supplier’s characteristics, or a supplier type. It’s important to evaluate supplier performance in line w/ supplier typification; this could be based on category, country, spend, criticality, or other typifications.

Don’t forget about Governance and Risk Parameters

A supplier that lacks quality management, will likely not excel in quality performance, and should they show high-quality performance, but lack management capability this discrepancy could also cause issues.

Taking Governance & Risk into consideration will give you a 360º picture of a supplier’s overall performance, and it will ensure that your supplier partners won’t negatively impact brand or shareholder value.

Know what’s going on

We’re living in a new reality where the value of a brand is directly linked to & impacted by the operational activities of a global supply chain and its many tiers. Consumers aren’t sympathetic to supply chain complexity.

If something happens in the world, you need to know about it.

If you have a global, complex, or large supply chain, then Media Monitoring of some sort is suggested, to stay on top of current events, news, happenings, updated sanctions, blacklists, and more.

Locate the right Data

Do you need to send a performance evaluation to an internal stakeholder, or a supplier, or both? Do you need to send a performance evaluation to multiple stakeholders? If so, do all stakeholders need to respond to every area of the evaluation? Most importantly, do you already have the responses to the evaluation in another business solution, such as an ERP, or quality solution?

Take the time to locate where your supplier performance data can be sourced from, and it will streamline the process of gathering information. This will save your team time & headaches.

Adopt a Rating Methodology

Supplier Ratings will help you spend less time with your nose in an excel spreadsheet and give you more time to drive value with the right suppliers at the right time.

Much of performance evaluations are based upon qualitative experiences and evaluations of a supplier’s performance. Focus on Quantifying the Qualitative. Create opportunities to make your supplier evaluation criteria into a multiple-choice format. The more you can turn into multiple-choice options, the more you can weigh the questions you ask, and automate the scoring of responses, which will also serve as a time saver.

This publication is brought to you by author Sam Jenks, but also in part by Kodiak Hub — A Supplier Relationship Management SaaS functioning out of Stockholm, Sweden. Kodiak Community intends to challenge traditional business practices with innovative thinking and creation.