Taking steps to measure the performance of suppliers is essential to ensuring an efficient and well-functioning supply chain. If you take a lean enterprise view of supply management, there are a few things you will discover. For example, the supply chain is full of hiding cost drivers and waste. On a global level, supply management is full of risks. This is because companies are now dealing with a growing number of offshore suppliers. Measuring and fully understanding supplier performance is essential to create a well-functioning supply chain. It’s also necessary to maintain a company’s competitive position. The end goal of these evaluations is to improve the performance of key suppliers.
Benefits of Supplier Performance Evaluation
Companies that take time to evaluate suppliers discover improved visibility into supplier performance. They also reduce risk, remove hidden cost drivers, and increase their competitive advantage. This is achieved by reducing inventory and order cycle times. These evaluations also help companies gain more insight on how to leverage their supply base. This allows them to align the practices between the company and the supplier. Learn about the specific benefits offered by the supplier evaluation below.
Increase Performance Visibility
If a company is unaware of the facts regarding how suppliers are performing, supplier management is usually based on guesses. Also, just measuring performance can help improve it. The improvement is often even more dramatic if companies provide more business to suppliers meeting the set performance goals.
Avoid Supply Chain Disruptions and Risk
It is crucial that businesses become familiar with the third-party vendors that are part of their supply chain. This allows them to put measures in place to help prevent interruptions and reduce the potential of risk exposure. With supplier performance management, you receive in-depth visibility into risks that are posed by suppliers in the supply chain network. This results in a business being able to adapt to preventative measures to help reduce or eliminate any risks that may impact supply chain operations in the future.
Find and Remove Cost Drivers and Hidden Waste in the Supply Chain
All supply chains are full of inefficiencies. Some are improved with better communication between suppliers and businesses. Others occur because of poor business practices at the supplier that results in increased inventory, higher costs, slow deliveries, and quality issues. A company can reduce wasteful activities and costs caused by supplier glitches. Examples of these include:
- Extra freight charges
- Additional inspections
- Overtime (to catch up)
- Obsolete inventory
- Safety stocks
- Purchasing from several sources (this reduces the effectiveness of price leveraging)
Remember, time is money. When you measure and improve the supplier performance and reduce quality problems, you eliminate wasteful steps in your own processes. Also, by better understanding the performance of suppliers, you can help them drive inefficiency and waste from their business. This results in lower costs and higher quality suppliers.
Improve Overall Brand Reputation
The actions of a single, subpar supplier can negatively impact the brand image of some companies. This is another area where supplier performance evaluation and management are invaluable. When you leverage supplier management solutions, you can track your supplier’s performance against your KPIs. This allows you to enact the necessary corrective actions quickly. Over time, this will help improve your brand reputation.
Leverage Your Supply Base
When you measure supplier performance, you can create a threshold for suppliers that leads to improvements. You can also better plan for new services and products when you understand the capabilities and performance levels of suppliers. Also, understanding local suppliers helps determine if they can reduce total costs in a way that ensures they outperform the offshore suppliers being used. Suppliers can also offer technologies to customers to help with the development of new services and products. This adds revenue to their customer’s bottom line while enhancing their competitive position. This all helps customers add more value to the top line while removing costs from the bottom line.
Align Supplier and Customer Business Practices
In a perfect world, suppliers would operate their businesses to align with customer needs. This includes sharing the same business ethics, having a commitment to improvement, similar standards of excellence, and more. Consider any high-performance system or the lean enterprise. The goal is to drive higher quality, lower prices, and shorter delivery times. A supplier doing this is going to have an adverse impact on those who aren’t. If a supplier isn’t accustomed to ensuring continuous improvement, they may not be able to keep up with the customer’s growing requirements for faster, cheaper, and better services or goods.
Insight into the supplier’s performance and their business practices work to reduce business risk. This is especially true as more companies are growing even more dependent on key suppliers. Risks could be operational and financial, and they may increase as the geographic distance grows. A risk area of growing concern is the performance of the sub-tier suppliers that the prime supplier doesn’t have any knowledge of or contact with.
Increase Efficiency with Supplier Management
When it comes to a business’s suppliers, there’s no room for second-best. Issues related to the supplier will eventually cost the business, which is why using a performance rating for each supplier is such a smart move. Evaluating the performance of each supplier not only helps you see which ones are ideal for your business but also gives you the opportunity to weed out those resulting in excess waste or costs. Additional information about rating the performance of suppliers can be found by contacting us. We offer the tools and technology to help you with this process.