How to monitor your suppliers’ performance
Hiring a supplier involves several steps. The first one is a survey, in which all the options of suppliers are evaluated, followed by the elaboration and signing of a contract.
In the contract, all conditions for the provision of service or purchase are established: prices and payment terms, deadlines and delivery terms and other details, everything is agreed in the contract between company and supplier.
However, in addition to the contract, it is essential to follow up on the suppliers’ performance at all stages in which they are involved. This monitoring is not always carried out, mainly because the managers do not know the right way to or what they should accompany. The quality of products in deliveries, delays and problems and even a pro-activity of the supplier are points that can be measured and evaluated, for example.
Check out a few criteria that you need to track to monitor any suppliers’ performance, and how best to evaluate each one:
It is of the utmost importance to establish and maintain quality standards aligned between your company and each of the suppliers. To do so, monitoring the quality of the services provided is essential. After all, if this monitoring does not happen, the supplier can’t know ig the quality standards are aligned, if the company is satisfied and if there is a possibility of disruption of business relations.
One very important quality criterion to keep track of is a quantity of items that are rejected per delivery. This index says about the supplier’s concern to ensure that deliveries are made according to the customer’s request.
For this criterion, companies usually measures in PPM, parts per million, scaling how many PPM were delivered damaged or were rejected. The company should set an acceptable standard of quality problems for each type of delivery, and use this standard to evaluate the performance of each supplier.
In addition to monitoring, it is important to make those standards clear when contracting suppliers. Thus, the supplier who disrespects company quality standards should be penalized and even excluded from the list of service providers, depending on the extent of the situation.
Another set of criteria that should be presented are those related to the performance of deliveries. When you close a contract, it contains the dates on which the products are to be delivered or the services provided, and this date is to be followed strictly.
In the meantime, companies typically engage in a “standard deviation” of delivery dates, about 1 day before and 1 day after the date previously set. This deviation exists to foresee incidents in the delivery, and a margin of error is also established for undelivered goods – about 10% of the total order.
Of course, the ideal scenario would be delivery on the agreed date, in the correct quantity and without damage or rejected parts. In the case of services, the ideal would be that they were provided within the contracted term, without a need for contracting services that were not foreseen.
However, accidents and all sort of events can occur, and therefore, establishing an acceptable deviation is a better way to monitor the performance of your suppliers. So, keep strict control over respect for dates and results, while safeguarding an acceptable range of errors, and assign scores to each supplier on those issues.
On a scale of 0 to 10, for example, a supplier only scores a 10 if their deliveries perfectly match the three requirements: term, conditions and appropriate quantity.
Other evaluation criteria
It is also possible to assess supplier performance through its position on some negotiating fronts. Evaluate whether the vendor is open to reducing costs based on your bids and making payment terms more flexible. This shows the supplier’s desire to maintain a long-lasting relationship with your company.
Another possible option is to evaluate the transparency of the supplier, in the sense of providing previous customer contact information, with which you can seek references, as well as data such as company involvement in labor lawsuits and other charges, for example. That says of the suitability of the company, and your organization only has to gain by doing a full checking job of the suppliers to which it unites.
Analysis of supplier performance
After evaluating suppliers’ performance, assigning notes and making the necessary observations, it is important to analyze these data. For suppliers who provide the same type of service, it is interesting to draw a comparison between the notes and observations, and thus decide on the permanence of both or give preference to one of them.
For all suppliers, it is important to assess the feasibility of keeping them within the company. If a supplier does not perform in line with company standards, it is worthwhile to schedule a meeting and review the terms of that partnership, and even consider canceling the contract.
Providing constant feedback is the best way to pass these evaluations on to suppliers, enabling them to make improvements to their internal processes and keep an eye on the relationship with your company. Thus, it is possible to avoid extreme situations of dissatisfaction between the parties.
These evaluations are also a great way to analyze the workings of the processes involved in managing your company’s supplies, and to find loopholes and problematic points. In this way, the company gains not only by maintaining the best contracted suppliers, but also by constantly testing and optimizing management processes and methods.
How do you monitor supplier performance in your business? In addition to keeping files with this cataloged data, it is also possible to use automated systems and even joint worksheets to group the data and analyze the performance of each supplier.
We hope you have learned a little more about the importance and different ways of measuring the performance of the suppliers you hire. Share this article and help more colleagues improve their relationship with suppliers!