Sometimes it pays to state the obvious. Here are some insights into managing supplier relationships and supplier performance that you may have heard. Maybe you don’t even agree. But to me, they are essential to understanding how to improve supplier performance.
1. Treat supplier like peers, not subordinates. As it turns out, customer firms don’t always know best. And customers don’t have all the answers. While it’s true that the supplier gets paid to work for the customer, kind of a boss-subordinate situation, customers can miss quite a lot of value by not rethinking the notion of suppliers as being there only to do what they ask or to “be seen but not heard”. Suppliers can often add value in the form of ideas, best practices, and ways to save money and resources. A good relationship that fosters a two-way flow of information will help ensure that this value is captured.
2. Supplier scorecards don’t improve supplier performance. Taking action based upon scorecards does. While there is usually an initial performance improvement bump after scorecards are implemented, this improvement isn’t sustainable without action. Scorecards capture data. Data needs to be actionable and acted upon. Collecting data for the sake of a scorecard is not productive. Find and address the root causes of performance issues that scorecards raise.
3. The size of the scorecard is in inverse proportion to its effectiveness. Less is more. It takes time and resources to track and follow up on large scorecards. Focusing on the vital few is more effective. Quality of KPIs trumps quantity. Start small and expand slowly, but don’t let the number of KPIs on scorecards get out of hand.
4. It’s the customer, stupid, to paraphrase President Bill Clinton’s “it’s the economy, stupid“. The customer firm is responsible for >50% of supplier performance issues: poor planning, sloppy communications, changing requirements, and many more. Customers need to get their own house in order and make sure that their own internal business processes that impact the supplier are functioning well in order to ensure that they are part of the solution and not part of the problem for their suppliers.
5. Supplier performance is reflected not just by how suppliers are measured, but by how procurement is measured. This is the result of the old saw, “You manage what you measure.” If, for example, procurement is measured on PPV (Purchased Price Variance), then they may be incented to use the lowest-price supplier who may not be the lowest-cost supplier. The result may be supplier quality, delivery, customer service, warranty problems, you name it.Supplier Evaluation and Performance Excellence: A Guide to Meaningful Metrics and Successful Results CloudDVD: Supplier Evaluation and Performance Management