Regardless of the business you are in, your supply base plays a pivotal role in your organisation’s success. Without a robust system in place to evaluate supplier performance you will never reach the point at which you derive real value from your suppliers and impact the profitability of your business.
A business must embrace its supply base. It is an asset and you should work with it in partnership. Mutuality of benefit is essential and will certainly impact on price as well as quality and service throughout the relationship. If a supplier is a key part of your operations, invite them to strategic meetings that involve the product they work with. Become the intelligent client.
The myopic focus on price reduction only; and no focus on quality or service is as short-sighted as it is redundant. Procurement professionals need to understand and communicate to the business what value can be derived from a solid, reliable supply network.
Here are seven tips to help effectively rate suppliers and monitor their performance:
(1) Deploy realistic performance indicators early
As you enter a relationship with a supplier determine what qualities you need to demonstrate and maintain. Create specific performance criteria for monitoring and evaluating suppliers from the outset and do it on a regular basis. Your system should reflect their size, quality management systems, complaint history, and financial stability.
(2) Create classifications for your multiple suppliers
If you have a large number of suppliers, separate them into groups based on how critical they are. You can then evaluate them according to the effect they have on your product or service in order of importance. Placing your suppliers into critical or non-critical categories allows you to spend more time measuring the performance of those key to your organisation.
(3) Develop a bespoke evaluation method
There are lots of techniques for rating a supplier’s performance: evaluation forms, surveys, system metrics, and software. However, by developing a customised method, you can ask your own teams to rate your suppliers. You can review how many corrective actions you’ve had to issue a supplier, how many products you had to scrap or return, or how many customer complaints you received due to bad service. The bottom line is that you need to generate measurements or reports at the beginning of the relationship and continue with it throughout the life of the relationship with that supplier.
(4) Maintain good relationships
Treat your suppliers as part of the team. Communicate often and openly. Avoid conflicts by paying on time or at least honestly addressing late payment issues. Be transparent with suppliers and make sure they understand your needs and expectations.
(5) Decide very carefully when to show the “red card”
Show appreciation for a job well done; give a supplier additional business because of excellent performance. If you have to give a warning, allow the supplier the opportunity to correct the problem. Help them to improve their performance as longer-term relationships yield loyalty and better service.
(6) You are the weakest link – goodbye
Never tolerate ongoing bad service. If having delivered a warning they do not correct the situation, then it’s time to say goodbye.
The relationship with your supplier is a business partnership and having a win-win attitude will bring competitive advantage.
Gerard Chick is chief knowledge officer at Optimum Procurement Group.
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