How to improve supplier performance

Did you know on average, an organisation will spend 80% of its money with only 6% of suppliers? Or that procurement cost can make up about 60–80% of a manufacturer’s production cost?

This highlights how important it is for organisations to measure supplier performance and ensure they are getting a return on investment.

But while many have processes and analytics in place to do this, others still rely on out-of-date systems that could make those figures blow out even further. If this is you, you might already be struggling with long order delays, costly rush fees and overtaxed staff. But it isn’t too late to turn things around. Here are six steps you can take to manage and improve your supplier performance and ensure the reliability of your supply chain. 

Be Proactive

If supplier performance is less than optimal, you need to review your systems. Even small businesses can outperform larger organisations and become the industry leader with the right strategy in place. To begin with, what is your enterprise resource planning (ERP) system like? Can it forecast product spikes or delays? Most ERPs are designed to be reactive, and when you’ve got high demand for a product, or a supplier is hit with a strike, you may not have the processes to deal with it. This not only stresses your customers but everyone in your supply chain.

Measures such as predictive analytics can help. They’ll forecast transport disruptions and product demand, or how the cost and availability of goods may be affected by tariffs, trade regulations and pandemics. This will allow your buyers and managers to stay ahead of the curve. They can stockpile goods or pivot to alternate suppliers – and avoid unnecessary delay to customers.  

Improve Communication

The importance of communication can’t be underestimated. If you have buyers across different sites, they may not always share information with each other. This can result in stress, erratic buying and pricing patterns. To avoid this, encourage your buyers to share performance and pricing data, and if they keep supplier scorecards, make sure they’re updated regularly. You’d be surprised how many organisations fail to do this and base buying decisions on old or incorrect information.

If you don’t already have one, a single platform can provide greater transparency and prioritise actions for all stakeholders in the supply chain. It allows buyers to assign, track and be accountable for certain actions, or corrective actions, and suppliers can get a clearer understanding of their needs. By simply implementing buyer-supplier communication strategies, you can improve delivery times, reduce inventory and boost your bottom line.

Prioritise Your Action Messages

Buyers can often find themselves trawling through hundreds of ERP action messages because their systems aren’t equipped to identify priorities. This means that it could be hours before they find a time-sensitive order or corrective action – and by then it might be too late. What’s more, overworked buyers are likely to make critical errors that could cost the company and its clients' thousands of dollars. But there are tools you can use to complement your ERP and prioritise your messages. This means that buyers can spend more time on messages that bring value to the company and less on those that don’t. Once buyers start focusing on critical tasks and sending orders sooner, supplier performance improves.

Automate Your Daily Scorecards

Scorecards can be slow to update because many supply chains still use a manual system. They collate purchase orders, receipts and data into spreadsheets, and it can take weeks to complete. By the time they’ve finished, the information is already out of date and it’s time to start again. Scorecards are critical for assessing performance, and when this information isn’t available to buyers, they can’t drive change or improvement.

Suppliers are judged by their quality, cost and delivery (QCD). But the labour-intensive aspect of manual scorecards can make it hard for suppliers to meet all these KPIs. There may not be the time, or data, for the supply chain to address all of them.

Automated daily scorecards are far more efficient and can be a gamechanger. They’re faster to update, offer real-time data and communicate improvements daily. This means that buyers can make informed and timely decisions that improve the QCD performance of their supplier, and most importantly, maintain it over the long term.

Use Diagnostic Tools to Address Problems

Tracking supplier performance is just the first step. You also need to be able to diagnose and solve problems as they arise. If a shortage is holding up the supply chain, you may find yourself with irate clients and frustrated staff. A reactive approach might result in communication delays and exorbitant delivery costs.

With the use of smart analytics, not only can you work out who and what caused the delay, but you can also find out how much it’s costing the company. With this data at hand, your team of buyers, managers and analysts can initiate corrective actions that are shared and tracked with the supplier, and plan for similar occurrences in the future.

Manage Improvements Together

Working with your suppliers to improve processes and performance isn’t always easy. You may send initiatives or requests once a month, but the supplier may not have the time to respond, or they may use different guidelines to measure their progress.

By having a supplier management platform that complements your ERP, you can provide clear metrics that measure the success of an initiative and ensure its ongoing viability. Each initiative will have clear goals and accountabilities, and suppliers will receive daily updates to track their progress. This will help suppliers meet their KPIs and enable buyers to see improved efficiencies and savings on a global level.

Another way to drive improvement is to make the buyer-supplier relationships mutually beneficial. Studies have shown that both competitive and cooperative incentives, like bonuses and profit shares, can reduce costs, shorten lead times and build stronger long-term relationships with suppliers. If you do introduce an incentive scheme, make sure it is fair and achievable for both parties.

Managing a large number of vendors can be complex. Whether you’re purchasing goods, parts or raw materials, a supplier performance strategy can benefit your business in many ways. Through open communication, smart analytics and collaboration, you can do more than just build stronger relationships with your suppliers. You can optimise your supply chain, maximise profits and, most importantly, keep your customers happy.

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This is a guest blog post for Felix. All views expressed in this article are those of the author only.