Why measuring supplier value drives performance
Procurement success is not just finding the best suppliers at the start of a contract. Many would argue the real value comes in getting to know those suppliers even better once they’re up and running.
Measuring supplier value is as important as effective sourcing. Rather than see the introduction of a new provider as an end point, every procurement head knows that they will only help their organisation achieve better performance if their team continues to be involved.
Equally, every experienced supplier knows that the winning of a tender is only the start of a relationship. Most suppliers will expect to be evaluated throughout the life of a contract. Ultimately this is good news for all parties, as regular evaluation can help to develop and cement relationships, reduce unnecessary spend, delivering innovation and demonstrating the strengths that good suppliers bring to their customers.
The term ‘performance monitoring’, according to CIPS, means measuring, analysing and managing a supplier’s ability to comply with and preferably exceed contractual obligations. There are multiple benefits to this.
Everyone’s on the same page
Agreeing standards for measurement with every supplier at the outset is crucial; having clear ground rules for performance will help everyone understand what to expect and when to raise issues, from either side.
Objective measures such as product quality, number of rejects, response times and increasing or reducing costs are just a few options, Subjective measures on communication and quality of response to requests are equally important goals to consider.
Agreeing the optimum number of measures that will paint a fair picture, without overloading all parties with a too-complex process, helps everyone stay on the same page.
Reducing risk and uncertainty
Risk and uncertainty is reduced when procurement helps the organisation to keep on top of the supplier’s performance. Ensuring that the right supplies or services are being delivered, on time and to the quality expected are the first steps, but tracking this over time is just as important.
Over time it is possible that the spec of a product or range could change, service levels may drop or fluctuate. Knowing that this is happening and taking steps to understand why will be much easier if tracking is already in place. Ultimately this can help to bring a much greater degree of certainty and forecasting capability into any enterprise.
Identify areas for improvement
Procurement can show its strengths when it works in partnership with other teams and suppliers to see how the contract can achieve more. People skills will be called into play as all parties listen to each other, learn from mistakes and address concerns. Being open to suggestions on all sides will help to make a contract much more than the sum of its parts, because many suppliers will have ideas for improvement. Much innovation can come when suppliers are enabled to use their learnings from previous experiences, as well as what they are gleaning by working with your organisation.
Many suppliers are entrusted with business critical data and business processes. If they are brought into the measurement process in a collaborative and open way they will be able to bring their unique insights into play.
Ensure effective contract renewals
By monitoring the performance of suppliers the process of contract renewal can be made much easier. If tracking is on-going, data on the current supplier will already be available. This can help to speed up the decision making process.
Scorecards that check supplier performance against pre-agreed measures can help people across the enterprise to give their views and feed into longer term supply chain planning. Those working with suppliers day to day can be sent short email questionnaires on a regular basis, enabling them to score their experiences. Where subjective information is given it may be important to have follow up conversations so that comments can be further explored.
Maintain approved supplier lists
Encouraging colleagues to help procurement to monitor supplier performance, regularly and fairly, will also enable approved supplier lists to be kept up to date. If there are issues, this will help procurement to review those lists and identify potential new supply routes in the case of problems. Procurement should give colleagues guidance on the issues to look for and ensure good relationship management with the supplier is a priority, so that working together to discuss performance is easier and more effective.