How do I know if my suppliers are performing well?
Posted on 10th May 2018 at 09:20
By continually delivering late and with poor quality a poor supplier can break your business – but good suppliers can also make your business by pulling out the stops for you to secure that big order.
How though do you know if your suppliers really are performing well or if your judgement isn’t being clouded by that one order that went disastrously wrong? Gut feel isn’t always accurate on how suppliers are actually performing. Appraising your suppliers after the contract has been formed is of equal importance as assessing your suppliers during the tender process. By introducing a systematic and quantitative way of rating your suppliers you are able to develop positive relationships and make informed decisions when looking at subsequent negotiation situations.
Ongoing supplier management also helps to motivate the supplier, ensuring that any KPIs that were put into the contract are met. But what aspects of the contract are important enough to develop KPIs for?
Many contracts have that clause “Time shall be of the essence.” Fundamentally this means if I request delivery on a specific date, then you as my supplier shall do your utmost to delivery on that date. This may be to meet your onward production plans, or a specific event that you need the item for. This clause would therefore mean that late delivery is not acceptable, so a KPI around delivery date should be included in any assessment of how well a supplier is performing. Good MRP systems will often be able to provide you with this data – deliveries get receipted against purchase orders and the number of days early/late can be calculated, thereby giving a proportion of on time deliveries. Likewise, quantity delivered can be monitored in the same way. By using a scoring system based upon On Time, In Full (OTIF) deliveries, you are able to understand initially how well your suppliers are performing and have initial discussions with them about any deviations.
It is always essential to have that initial discussion with your suppliers – they need to know what is important to you and understand that they are being monitored on these criteria in order that they can put steps in place to improve. This should be done at contract award stage, but by having regular review meetings with your suppliers you are able to show them that you do monitor these requirements and that they remain important to you.
In a number of regulated industries, conformance to specification is of equal importance to the above delivery matrices. This can be included in a quantitative review based upon reject rates, or provision of certification with delivery paperwork.
By going through the process of identifying what is important to you and agreeing what areas will be monitored, you are then able to identify the highest quality and best-performing suppliers, especially when you have multiple suppliers delivering the same item. It helps you to have proactive discussions with them on performance and expectations, ensuring that they put improvement plans in place if they are needed.
The only way to know if your suppliers are performing well is, as with any management relationship, to set and agree objectives and to monitor and review them on a regular basis. By developing this quantitative monitor system, you are able to understand, without relying on subjective feelings, how well your suppliers are performing and are therefore able to identify areas for improvement and progress your relationship further.
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