Does your procurement group have a formal and systematic program for monitoring and evaluating supplier’s performance?
The first step in this program is to evaluate and select those suppliers that can provide products and services at the desired quality level, on-time, and for a fair price.
However, it is also important to ensure that suppliers perform as required so that the buying company serves and satisfies its end customers. Therefore, the next step is to monitor and manage the supply base ensuring that the company meets its quality and customer service goals.
Types of Supplier Measurement and Evaluation
There are different types of performance management systems that companies use to measure and evaluate suppliers, e.g., a subjective based process or a weighted point system. However, one of the simplest performance measurement systems to develop and use is the ‘two-part’ performance scorecard.
Companies can develop their supplier performance management scorecard, using as few or as many criteria as they would like. As the number of criteria increases, so does the complexity. Typically, the higher number of criteria means more categories of data to capture, analyze, and score.
Likewise, this also means that there will be more results to be evaluated. Finally, it is necessary to find a way to incorporate the appropriate value for each of the criteria so that you compile an overall meaningful score.
Defining a Basic Supplier Performance Management Program
There are a couple of basic steps taken when it is decided to develop and implement a supplier performance management system.
- You must choose key performance characteristics [also referred to as key performance indicators (KPIs)].
- The performance characteristics must be completely defined so that it is clear to both the company and supplier what the required ‘deliverables’ are for a characteristic.
- The firm must assign a ‘value’ to each of the performance characteristics.
- The company must ensure that it can collect the necessary data, consistently and in its entirety, for a performance characteristic.
- The data collection should be made over specific starting and ending timeframe.
- The data collected for each performance criteria must be evaluated and scored.
- The Buying company should report and review the supplier’s performance scores, at the end of the measurement period, with the supplier.
‘See the forest for the Trees’
For this program, it is common for procurement groups to compile a long list of criteria that they would like to measure. However, it is easier to keep it simple at first, when starting such a program. This way you can keep your eyes on the ‘big picture’ (what it is you are trying to accomplish).
Keeping it simple doesn’t mean choosing unimportant criteria. Instead, the company should decide what it is trying to accomplish and find those criteria that will measure performance in these key areas. Later, once the company has established its system, they can build on it and incorporate additional criteria.
Supply Chain Management. Did you know that Supply Chain Management involves managing ‘all’ suppliers associated with the sale of a product to the buying company? For more on this topic, please follow this link.
Supplier Evaluation and Approval. Suppliers directly affect your company’s ability to meet its mission and serve its customers. Therefore, it is important to properly assess and qualify a supplier operationally before allowing them to do business with your company. For more on this topic, please follow this link.
Transforming Procurement Operations. Today, procurement is expected to bring value to the entire business enterprise. Some organizations have difficulty migrating their legacy processes to more advanced procurement models. For more on this topic, please follow this link.
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