3 ways to predict supplier performance

A supplier’s performance, potential and current, is typically looked at under two circumstances, the qualification and the selection process. An organization has the opportunity to avoid potentially poor-performing suppliers during the qualification and selection process. The other opportunity to view performance and take action is during the life of the supplier’s contract with the customer. But how do you know during the selection process which suppliers will be good and which will not?

Of course it’s better to avoid choosing poor-performing suppliers in the first place, during the selection process. However, if a supplier is not currently contracted with your organization, how do you determine and even predict how well the supplier will perform? Besides supplier RFI and RFP responses, other ways of determining performance potential can be used. Even suppliers who perform well today can always hit an unexpected bump in the road. The good performers of today can become the risky suppliers of tomorrow.

Here are 3 ways to predict supplier performance:¬† business rating services; site visits; and checking references of other customers with whom the supplier is currently contracted. One or all of these approaches can be used. How well any or all of these approaches work depends upon how well they’re deployed.

  1. Business rating services and analytics. Many kinds business rating services are available, such as Dun and Bradstreet, Briefcase Analytics, Rapid Ratings, Cortera, and many others. They use approaches ranging from analyzing  public available financial information to customer surveys to data mining and information crowdsourcing. They can alert the user to financial problems and supply chain risks (issues such as human rights, integrity, sustainability, environmental health & safety problems, etc.). One common gripe about rating services is the accuracy of information about private companies and also the dearth of good information about low-cost country suppliers. Rating services are typically used in conjunction with other methods.
  2. Site visits. Visiting a supplier and performing a business analysis of a supplier can be very useful in determining current and potential performance. Performing a reliable and robust site visit requires both expertise and a good site visit instrument. The customer must be able get past appearances and know how to tell what’s real and what’s staged for their benefit during the site visit.¬† When done well, site visits can be a vital tool. Typically organizations do their own site visits. But when it comes to offshore suppliers, third-party services can be useful. Good providers of offshore site visits know the local language, culture and customs, and can determine if suppliers can meet customer requirements. And very importantly, they can help firms avoid choosing sham, misrepresented, and inappropriate suppliers.
  3. Reference checking. Finding out how a supplier performed for another firm is very important and can help predict how well they will perform for you. According to a poll conducted during a recent webinar that I co-presented for NIGP on supplier selection, buyers can spend an average of 30-45 minutes per reference check (including reaching the reference, interviewing them, and transcribing notes). Besides being time-consuming, reference checking can yield uneven results. Some people are better than others at maximizing the value of reference calls. And some references are hesitant to say anything negative to a prospective customer of a current supplier. One company, eVendorCheck, helps overcome these challenges and scales the process with a software tool that gathers multiple data points from multiple respondents within each customer organization. However you go about supplier reference checking, don’t skip this critical step.

Predicting supplier performance is not an exact science. Using good qualification and selection techniques helps increase the odds of success.

-Sherry R. Gordon

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