The supply base plays a pivotal role in any organisation’s success. Without a robust system to evaluate supplier performance, a business can never reach the point at which it can derive real value from its suppliers.
CPOs need a system in place for evaluating, selecting and re-evaluating the suppliers they work with. Here are seven tips to help effectively rate suppliers and monitor their performance:
1. Deploy realistic performance indicators early
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.
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.
4. Who’s calling the shots?
You need to decide who will be responsible for reviewing the data and the relationship. When evaluating level one suppliers you may require input from other senior managers across the business, whereas with level 2 and 3 suppliers it may be only the procurement team that approves the supplier list and monitors performance.
5. 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.
6. 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.
7. 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.