6 Benefits of Supplier Performance Management
Posted by Georg Roesch, VP Direct Procurement Product Management in Supplier Management on January 14, 2016
An MIT study found that 77 percent of companies surveyed said two out of the top three major procurement risk factors were related to suppliers – specifically “dependency on supplier” and “supplier quality problems.” Over-dependency on a supplier and quality issues stemming from a supplier affect your organization’s product quality, brand image, production efficiency, and more.
Collecting basic supplier information and completing initial approval or vetting steps are the start of a successful supplier management program. But these actions are not enough to effectively evaluate an ongoing relationship with suppliers. To realize additional value from your supply base, your organization should consider implementing a robust Supplier Performance Management (SPM) program.
Having an SPM program in place helps your organization:
Avoid supply chain risk and disruptions
If you are not deeply familiar with the third-party vendors making up your supply chain, it will be difficult to put measures in place to prevent interruptions and reduce the incidence of risk exposure. Supplier performance management provides in-depth visibility into the risk a supplier may pose so you can put measures in place to reduce or eliminate that risk as it relates to your supply chain.
Protect and improve brand/reputation
A number of corporate brands have been tarnished by the actions of their suppliers – think automobile recalls as a common example. SPM can help you track supplier performance against these KPIs which will enable you to enact corrective actions early and keep your brand and reputation strong in the eyes of your customers and partners.
Avoid costs and achieve savings
There are a variety of cost factors tracked using supplier performance management which affect both hard and soft dollar costs. Lack of timely and accurate vendor information can have a huge impact on costs and can prevent you from capturing savings. Not only can you track supplier performance on cost and savings-related KPIs, the information provided by an SPM system can contribute to cost avoidance and savings achievements because it centralizes supplier data into a single source of truth for everyone interacting with vendors.
Segment and rank vendors
As noted in the point above, supplier performance management is useful beyond the supplier managers in your organization. For example, SPM gives procurement groups visibility into specific groups of suppliers and their overall ability to meet your organizations expectations and requirements. With performance data in hand, procurement can make data-based decisions regarding where to direct spend.
Collaborate with suppliers
When you collaborate closely with suppliers you create new value for your business. The data collected through a supplier performance management solution can help to start these conversations because it provides the supplier with a view of what is important to your organization. The results are numerous: continuous improvement of the supply base, creation of realistic contracts based on past performance, more communication with suppliers, the formation of common goals, and the establishment of trust. Ultimately, SPM drives the creation of meaningful and mutually beneficial relationships with suppliers.
Improve internal processes
Creating an SPM process is a great step towards optimizing your supplier management program. By utilizing a technology-based solution for SPM, organizations can achieve a standardized and automated approach for creating scorecards, issuing and tracking scorecards for completion, and in-depth reporting and analysis. If you tack this onto an existing supplier information management (registration, onboarding, qualification) process, SPM data will contribute to a complete supplier management lifecycle.
Industry analysts have found that SPM is a meaningful and valuable addition to any business. A benchmark study by Aberdeen reported that among companies surveyed, implementing standard metrics and procedures for measuring supplier performance improved supplier performance by 26.6 percent on average. The areas of improvement came from quality, on-time delivery, price, total cost, contract compliance, lead times, and overall responsiveness. These improvements resulted in direct hard dollar savings or as improvements in responsiveness and service to end customers.
This is just one example to demonstrate that supplier performance management is a value-adding activity for any organization. Whether you start big with a comprehensive SPM program, or small, with measuring a critical group of KPIs or suppliers, initiating SPM activities will put you on a path to making your supply base work for you in ways beyond simply providing a product or service. So what are you waiting for?
Supplier Performance Management software provides the tools to collect, measure, analyze and report on supplier-related KPIs in one centralized and standardized system. JAGGAER’s Supplier Management incorporates SPM functionality to deliver a complete supplier lifecycle management solution.
Ready to take your SPM program to the next level? Why SPM Technology?