Supplier performance measurement is critical for businesses dealing with multiple suppliers. It can help them to gain better visibility of their supplier performance and reduce risks in supply chain. Organizations can use supplier scorecards as tool to measure, analyze, share, and improve supplier performance.Download an Insight
Key Performance Indicators (KPIs) play a critical role in supplier scorecard design. It allows capabilities to measure supplier’s performance on various parameters such as cost of quality, responsiveness, CSR, innovation, efficiency, delivery etc.
Supplier performance process is a three step process and includes:
- Contract Management - Organization have contracts with suppliers for its critical manufacturing and supply chain processes. An organization should use these contracts to measure supplier performance. Contracts are the source of mutual agreement between the organization and suppliers for critical metrics such as SLA, Uptime, Quality expected, responsiveness, cost saving etc. The workflow for supplier performance measurement should offer capabilities to create contracts and associate key metrics to it.
- Performance Measurement - After supplier contracts are defined, it is critical to create a real-time system for measuring KPIs and relevant metrics as per contract. For an example if the supplier contract offers 99% availability of critical raw materials then supplier performance system should measure the order fulfillment rate from inventory and procurement systems. Organization should link quality KPI by connecting real-time quality notifications from ERP system and produce quality statistics.
- Performance Scorecard - After supplier performance is put in place with real-time data synchronization with ERP and Supply Chain Systems, the organization should generate reports such as
- Scorecard reports to gain visibility and intelligence around top and bottom performing suppliers for contract metrics
- Risk heat map reports to identify critical supplier related risks for manufacturing and operational processes
- Generate executive dashboard reports to analyze every supplier’s Strength Weakness Opportunity and Threat (SWOT) and evaluate decision on future business with them
Tight integration of supplier performance management system with quality notifications, inventory, financial and supply chain management system will provide a strong capability for proactive approach in governing supplier behavior and bring a process based approach for critical contracts. Scorecard metrics and KPIs well integrated with loss and risk management functionality will allow business to define multi-level thresholds for every supplier risk and enable timely actions to mitigate and controls risks.
Supplier performance measurement provides visibility to companies on their supplier’s performance. However it’s not the end result. It’s rather a window of opportunity for closed-loop supply chain management system, which is a key to driving continuous improvement, delivering superior performance, and ensuring continues efficiency and competitiveness across the supply chains.
Key Benefits of Supplier Performance Management
Supplier performance management program and supplier scorecards are an enormous asset in helping businesses rate the effectiveness of their supplier network. An effective Supplier Performance Management system allows companies to:
- Connect: Integrate to suppliers for the exchange of information.
- Coordinate: Synchronize purchasing requirements with supplier’s ability to deliver by sharing planning, schedule, and order information.
- Monitor: Track events and identify exceptions from order placement through delivery and payment. Use scorecards to measure supplier performance to ensure service level agreements and business objectives are being met.
- Control: Insert control points at suppliers to prevent latency. Resolve problems and disruptions that occur in a manner that meets business objectives.
- Improve: Identify defect patterns and risks in the supply network. Eliminate their root causes. Identify new opportunities to take cost and time out of the supply chain and customer satisfaction processes.