SUPPLIER PERFORMANCE MANAGEMENT

Supplier Performance Management is a critical component of the entire supply chain governance and integrates with supplier quality and supply chain management processes. It includes critical processes to define, measure and control supplier performance to meet business goals.

An effective Supplier Performance Management system addresses the following:

Supplier Management

Ä  Define key suppliers in the supply base

Ä  Define and create contracts for goods and services from suppliers

Ä  Link suppliers with the contracts for performance management against contracts

Ä  Define quality, financial and operational metrics in the contracts

Supplier Performance Measurement and Management

®    Define Service Level Agreement for contracts

®    Define metrics and key performance indicators (KPI) for contracts

®    Manage the certification status and compliance requirements of their suppliers

Evaluating Supplier Performance through Scorecards and Supplier Rating

Ø  Evaluate and measure supplier performance through supplier scorecard

Ø  Generate executive dashboard reports for entire supplier base and supply chain performance

In particular, supplier scorecards are an integral part of the supplier performance management process. It should define categories or groupings of metrics/KPIs by which suppliers will be measured, such as, cost of poor quality, delivery cost, inventory cost, response index, order fulfillment score, order visibility score, returns/charge-back score and can be extended to custom categories such as vendor risk, innovation, customer complaints and corporate social responsibility.

An effective supplier scorecard system for supplier performance measurement should use data based on real-time information, allow weighting of their various components to determine an overall score, providing trending information on the supplier's performance over time, and enable comparison to other similar suppliers that server the company.

Increasing global competition, changing product customization, price and margin pressures and increasing customer expectations are forcing companies to evaluate their external supplier performance system as part of their supply chain governance initiative. A proactive and effective organization should take necessary steps to manage supplier performance by defining and managing supplier scorecards and evaluate supplier effectiveness against SLAs laid out in contract.