Operational performance is focused on improving efficiency and effective systems which are reliable and can ensure excellence which exceed customer expectations. To get such sustainable operational results, operations strategy is developed which supports the organization in ensuring the key operational aspects of the firm are met.
It is therefore important to ensure that suppliers perform as per the contract terms. Effective supplier performance management is more than just the best KPIs. In fact, many performance management initiatives within the supply chain are unsuccessful because they do not measure the correct data, collect it accurately or communicate it with suppliers and other internal departments.
Here are four strategies to focus on when creating a supplier performance management program.
1. Align business initiatives with scorecards
To figure out which KPIs and which suppliers to focus on, meet first with the executive team to determine what the main goals of the business are. Find out where improved performance will actually improve the business‘ bottom line. Then, you can take a step back and develop scorecards that will benefit your business.
2. Establish how you will evaluate performance and communicate
The next step is to determine your thresholds for both excellent and poor performance. Before working with suppliers to improve their performance, you must internally set what your standards are going to be. When will suppliers be rewarded? When will you disengage with poor performers? Decide this before you begin working with suppliers.
3. Communicate with suppliers
From initial contact to the SLA to contract re-negotiations, performance mangers need to communicate with suppliers regarding performance expectations. Communicate and open dialogue will help both sides – suppliers will know what to expect and where they need to improve to succeed, and performance managers will learn what‘s working for suppliers and what‘s not.
4. Communicate internally
Performance scorecard results are useful for other supply chain departments, but information visibility is necessary for this to take place. Internal visibility will allow for collaboration between performance managers, and other stakeholders as they attempt to decrease the supply base‘s susceptibility to natural and financial disaster.
When evaluating the effectiveness of supplier performance management strategies, you have a broad list of best practices from which to choose. The keys to managing the performance of suppliers in a globally dispersed supply chain hinge on identifying the most optimal key performance indicators (KPI), implementing efficiencies in data collection practices and deploying a supplier quality management solution that nurtures positive supplier relationships. So, what are the keys to managing supplier performance?