Supplier Performance Management Best Practices for Creating Key Performance Indicators (KPIs)

Jun 25, 2020

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Supplier performance management is a widely-used business practice that enables a business to measure, analyze, and manage a supplier’s performance in order to reduce expenses, alleviate risks, and drive continuous improvement in business. The ultimate goal of supplier performance monitoring is to identify potential and upcoming issues and their root causes so that they can be resolved as early as possible. With continuous evaluation, supplier performance monitoring, and comparison of supplier performance, businesses can ensure the best service quality by eradicating non-performing or poorly performing suppliers. Supplier performance monitoring brings together the different components of supplier segmentation and risk management and also provides actionable insights into the criteria for selecting suppliers.

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Before we analyze the most important supplier performance management best practices for creating (Key Performance Indicators) KPIs, let us take a look at the most useful KPIs used in evaluating a supplier’s performance.

  • Quality Are the materials of proper quality and value? Can the provided materials be used in production? How often is there an issue with the materials?
  • Risk Assessment – Are the materials used for production and produced goods in compliance with applicable laws? If a risk is associated with the material, how can it be mitigated quickly?
  • Delivery – How quickly is the supplier delivering the goods? Does the supplier have the capacity to handle a large order within a much shorter span of time than usual?
  • Cost – How frequently does the supplier raise their cost? Can the cost be negotiated?
  • Customer Service – If a problem arises, how quickly and efficiently can the supplier resolve it? How is the supplier handling customer problems?

Supplier performance management best practices help a business leverage supplier scorecards. If suppliers are monitored in an organized fashion, these scorecards will enable the business to communicate expectations, thus resulting in a quick and comprehensive understanding of the supplier’s –

  • ability to fulfill orders on time
  • ability to provide materials of the required quality
  • ability to comply with the terms and conditions of a business
  • ability to comply with government’s and business’s safety requirements

Supplier Performance Management Best Practices

Deploy Supplier Scorecards

A supplier scorecard enables businesses to align KPIs with the financial goals of the business. Every business expects a level of quality from their suppliers, supplier scorecards are of great help when a business tries to convey their expectations to the suppliers in a formal way. A scorecard also helps in keeping records of business activities to avoid risks, provide easy access, and enforce accountability.

Improve Supplier and Vendor Evaluation Process

Sales, profits, and liquidity are the main indicators of the financial strength of an organization. Assessment of the financial strength of suppliers and identifying the blind spots can be helpful in mitigating upcoming risks. However, it will be a blunder to rely solely only on financial reports and metrics for overall supplier assessment. Assessing their operational performance can reveal and predict potential financial issues as well. Thus, obtaining reports from suppliers and vendors and conducting internal evaluation and assessments to measure, analyze, and manage supplier performances is much required.

Worried about adapting to supplier performance best practices? Speak with our experts today to improve your supplier performance management strategy.

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