Supplier Performance Measurement: Best Practices for Improved Outcomes

Posted on Apr 23, 2023 at 08:04 PM

Supplier performance measurement can be defined as a systematic process of measuring the performance of suppliers and their products against agreed targets. It is a critical component in any supply chain management system and allows organisations to ensure that their supply chain meets their requirements.

This article will examine some of the benefits of supplier performance measurement, how it works and how you can implement it in your business.

What is supplier performance measurement?

Supplier performance measurement is a tool for monitoring suppliers' quality and delivery performance against agreed targets. It can also be used to measure product innovation or capability development.

The primary purpose of supplier performance measurement is to ensure that all suppliers provide the necessary level of service while helping companies achieve their objectives in ways that align with their goals.

In addition, supplier performance measurement helps improve supply chain efficiency and increase the effectiveness rates of their procurement processes. This will ultimately lead to improved business outcomes for your company, 

Benefits of supplier performance measurement 

Supplier performance measurement involves assessing and rating internal factors (such as total production costs and logistics) and external factors (such as delivery times or external risk). The results from this analysis are then used to determine clear targets for future improvements, along with action plans for achieving them. This may include:

• Establishing new processes or procedures based on existing best practices.
• Implementing new technologies that improve productivity.
• Providing additional training programs or support for employees who work with suppliers.
• Assessing the number of materials received through supply chains.
• Introducing quantitative or qualitative improvement strategies in operations to create better ratings.

Where can you use supplier performance measurement?

Supplier performance measurement is an evaluation process that measures your suppliers' performance against agreed-upon standards and expectations (metrics like KPIs or other success indicators).

It can also be used as part of a supplier development programme, where you work with suppliers to evaluate and improve their internal processes and capability to deliver high-quality products or services on time and at an acceptable cost. This can be achieved through various methods, such as:

• Training programmes 

Training is crucial for improving employees' skill sets within your supply chain network. It enables them to perform better at their jobs, ultimately leading to higher customer satisfaction and improved overall business outcomes for you as the customer!

• Quality control 

Quality control allows you to ensure that products or services meet pre-defined specifications or standards before they are shipped out from the supplier’s facility – this ensures that all products comply with the highest possible standard and that any defects can be identified and rectified before they reach your customers. 

• Performance measurement

 Performance measurement allows you to evaluate the performance of suppliers against agreed-upon performance criteria such as defect rates, delivery times, product specifications etc. This enables you to identify ways suppliers can improve their performance over time.

Through procurement training courses in Dubai, you can learn about the best procurement practices to apply in your supplier performance measurement and management. You will learn how to create and implement a supplier performance measurement system aligned with your business strategy.

How does supplier performance measurement work?

Supplier performance measurement involves:

• Developing a comprehensive list of performance metrics (e.g., on-time delivery, product quality)
• Setting specific, measurable targets for each metric and KPI and tracking progress against those targets over time
• Providing effective feedback to suppliers based on their actual performance compared with your expected performance levels
•  Adjust your supplier performance measurement system based on the feedback you receive from suppliers. 

Supplier performance measurement is a continuous process. You’ll need to implement this system for each supplier and monitor their performance continuously.

How to implement a supplier performance measurement system in your business strategy? 

The pressure to improve supplier performance measurement is growing as companies increasingly recognise that poor supplier performance can significantly impact their business outcomes. Organisations that use a proactive approach to managing their supply chain can realise substantial benefits in areas like quality, cost and speed to market.

How this system should be implemented at different levels within your organisation includes:

• The strategic plan: What metrics should be tracked? How often should they be reported? How will you communicate these results? Which metrics will evaluate results (efficiency, reliability etc.)?
  
• The operational plan: How does data collection work? Who is responsible for collecting data? How do you choose metrics that matter most to your business? What tools are available to collect data from multiple vendors?
  
• The SRM management plan: Who needs access to data? How do you share it with people outside of procurement or sourcing departments?  How will the assessment process work? What is the best method to manage and track the success of the supply chain? 

Supplier performance measurement is a crucial business process that helps companies improve supplier relationships. Following the best practices can help you measure supplier performance, identify problems and assist in making improvements. That's why you should implement it in your business today.