Nearly every business relies on crucial suppliers, whether it’s a manufacturer supplying vital components, an IT firm overseeing your digital infrastructure, or a parcel carrier ensuring your eCommerce packages reach customers on time. Establishing and maintaining cost-effective contracts with such suppliers is only the tip of the iceberg. Indeed, it is essential that you have ongoing supplier management for fostering successful strategic partnerships. In this article, I’ll delve into the world of supplier management, examining its many benefits and the importance of utilizing data-driven key performance indicators (KPIs). We’ll also discuss key supplier management topics to include compliance, service performance, product quality, and risk mitigation to help you optimize your relationships with critical suppliers.
Benefits Of Cultivating Long-Term Strategic Supplier Partnerships.
Supplier management is key to developing long-term strategic supplier partnerships. In today’s world, the long-term viability of most businesses is dependent on a strong supplier network. Indeed, successful businesses leverage and maximize their supplier network to provide competitive service and product offerings. Furthermore, supplier management is not just about procuring the best products and services at the least cost. There are many more benefits to having an effective supplier management program that cultivates successful, long-term supplier partnerships. Benefits of an effective supplier management include:
Supplier Management Benefits
- Achieve Cost Savings and Efficiency. This is not just the cost of the supplier’s product or service. Supplier management also includes monitoring internal costs of partnering with a given supplier to maximize ROI.
- Assures Supplier Compliance. Using KPIs to manage supplers assures that you get what you paid for.
- Optimize Supplier Performance. Effective collaborative communications results in continuous performance improvement.
- Improved Supplier Product Quality. Using quality assurance / control KPIs assures that a supplier’s product is meeting and exceeding specifications.
- Improve Supply Chain Visibility. A good supplier relationship includes transparency.
- Increase Stability, Predictability And Minimize Risks. A stable and predictable supplier minimizes risks.
- Foster Innovation And Technological Advancements. Supplier management also means partnering with suppliers to encourage innovation and long-term value to increase market competiveness.
- Aligns Suppliers With Business Goals. Suppler management keeps suppliers in sync with changing business goals.
To achieve the full benefits of your supplier management program, key performance indicators (KPI) and ways to managing risks are essential. See below for more on KPIs for managing supplier compliance, performance and quality as well as how to best manage supplier risk.
Data-Driven Contract Compliance Through The Use Of Supplier Management KPIs.
Establishing benchmark KPIs and monitoring contract compliance rates is crucial for ensuring that all parties involved in a contract are meeting their obligations. Also, by setting clear expectations and regularly monitoring compliance, potential issues can be identified early on and addressed before they become major problems. Now, to conduct effective analysis, you need to have measurable contract terms and the data to measure compliance. To detail, below are some examples of contract terms and type of data needed.
Example Data-Driven Compliance KPIs
- Meet Delivery Deadlines. For example for shipping, measure this using shipment status against supplier’s promise data.
- Invoice Accuracy Rate. Contracts need to be specific on invoice accuracy requirements. Also, you need to specify who or what determines accuracy. Finally, you need to identify the data and system to use to determine compliance.
- Supplier Diversity And Sustainability. Many contracts will stipulate diversity standard and / or sustainability goals such as a percentage of minority representation or CO2 emissions. For data analysis, companies will need to figure out how to get the data to measure this criteria or get an independent 3rd party to measure your suppliers.
- Vendor Defect Rate. Here you need data from an agreed upon system that quantifies products or services provided that meet specifications and those that do not.
- Customer Service Performance. Need data from customer service systems that document key performance indicators such as time needed to resolve customer issues.
Maximize Supplier Performance Through The Use Of KPIs.
Unlike supplier contract management, which focuses on compliance, supplier performance evaluations consider the full spectrum of value that suppliers deliver. So this can include measuring things not originally specified in the contract terms. This could be anything that is key to the supplier relationship such as on-time delivery, product quality, and customer satisfaction. Measuring supplier performance is a collaborative effort and intended to provide feedback to the vendor. Data analysis is key to measure and monitor performance. Also, you need to quantify with the vendor where things are going well and not so well.
Establish Supplier Management Product Quality Assurance KPIs.
Ensuring high product quality is essential for maintaining customer satisfaction and loyalty. By establishing KPIs related to product quality, such as defect rates or customer complaints, businesses can monitor their performance over time and identify areas for improvement. From a data analysis perspective, managers have to have quantitative product specifications and the data to measure it. Usually, metrics are established as a percentage. As an example, to measure % of products damaged upon delivery, you need to have a system that records the number of products delivered as well as the number that were damaged.
Continuously Improve, Monitor, And Mitigate Supply Chain Risk.
Finally, monitoring supply chain risk is critical for ensuring business continuity and mitigating potential disruptions. By establishing a supply chain risk management program, managers can proactively identify risks and take mitigation action. For example, you can set up a quarterly review with suppliers to identify risk levels, and action items to mitigate risks.
Besides contract compliance, service performance, and quality, there are other topics that you should review. This would include an assessment on things like possibilities of natural disasters, political instability, or supplier bankruptcy. Also, it is important to look at the number of suppliers you have. For example, do you have enough supplier redundancy for critical components or service providers for a given service? Also for more on managing supply chain risks, see my article Risk Mitigation For Supply Chains: How To Best Identify, Make Assessment, Overcome.
Risk Mitigation For Supply Chains: How To Best Identify, Make Assessment, Overcome.
In the ever-evolving world of supply chains, we find ourselves navigating through a complex, delicate, and dynamic landscape. With the added pressures of supporting online shopping and expanding globally, supply chain risks are at an all-time high. As if that wasn’t enough, our thriving economies and diverse lifestyles depend on these very networks. That’s why it’s absolutely vital for supply chain leaders to excel in risk mitigation. Click here to dive into this article as we explore valuable insights on identifying, evaluating, and conquering supply chain risks like a pro.
For more perspectives on supplier management, see Simfoni’s What Is Supplier Management? Why and How it is Implemented? and Medius’ What Is Supplier Management. Also, see my article, The Strategic Sourcing Process And Data Analysis: The Best Ways To Secure Unsurpassed Supplier Results, for more on strategic supplier sourcing.
For more information from Supply Chain Tech Insights, see articles on Supply Chain.
Greetings! As an independent supply chain tech expert with 30+ years of hands-on experience, I take great pleasure in providing actionable insights to logistics leaders. My background includes implementing 100s of innovative solutions using emerging technologies and a data-centric development approach. I have also provided business intelligence (BI) solutions for 1,000s of shippers. For more about me, click here.