How Can I Improve Supplier Performance?

Measuring Is Key

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An optimized supply chain is a supply chain that helps your company deliver the orders your customers want, when those customers want those orders delivered—and spend as little money as possible getting that done. 

The chain that ends at your customers, links from your customers to your company and through your logistics and warehousing and transportation system, and then finally back to where it starts—at your suppliers.

If your suppliers are not performing, your supply chain is probably sub-optimized. 

But how can you improve supplier performance?

How Are Your Suppliers Currently Being Measured?

Do you know how your suppliers are currently performing? And, if so, would your suppliers agree with your assessment of their performance?

Aligning your supplier performance metrics—for example, measuring their on-time delivery—with your suppliers and their own internal metrics is an important first step. 

We'll take a like at the types of supplier performance metrics, how the supplier performance metrics are being measured and how often, as well as how they are published.

Type of Supplier Performance Metrics

If you are measuring your supplier performance metrics (and you should be measuring your suppliers' performance), you and your suppliers need to agree on which metrics you will be measuring:

  • On-time delivery
  • Cost of quality
  • Scrap/rejection rate
  • Cost of goods sold (COGS)

By choosing the metrics that are important to you and your company, you can help drive improved performance by not just reporting those metrics, but letting your suppliers know that you will be reporting those metrics.

For example, if you want to see an on-time delivery percentage improve, start measuring on-time delivery and publish those metrics.

How Are the Supplier Performance Metrics Measured?

If you are going to measure on-time delivery and you let your supplier know that you are going to measure on-time delivery, you better know how you're going to measure on-time delivery. And your supplier should agree that your measure of on-time delivery is how they measure on-time delivery.

There are many ways to measure any metric you choose to measure. For example, for on-time delivery, are your measuring from:

  • Your original requested ship date?
  • Your supplier's original promise ship date?
  • Your supplier's revised promise ship date?
  • The date you needed that product on your dock?

Each of those dates is a viable ship date—and each of them might be an acceptable date. And just because your supplier might have missed your original ship date, does that mean the product didn't arrive on your dock on time?

It's important that you and your suppliers agree not only on which supplier performance metric will be reported, but also how those supplier performance metrics are to be measured.

How Often Are Those Supplier Performance Metrics Measured?

Will you be measuring your suppliers' performance daily, weekly, monthly or annually? The intervals by which you measure your suppliers' performance are important, but the fact that those intervals are regularized can be just as important. 

Make sure that your suppliers understand that they will be measured on a regular basis. On-time performance and cost of quality and any of the other supplier performance metrics aren't just snapshots or one-offs—improving supplier performance should be a way of life.

Making the time between supplier performance metrics reporting more frequent will help drive that point home. If on-time delivery is measured monthly, for example, a supplier can drive toward improving an aggregate monthly data point. However, if on-time delivery is reported daily (or in real time), the supplier is encouraged to develop systems that drive real on-time delivery improvement.

How Are Those Supplier Performance Metrics Published?

To report supplier performance metrics is one thing. To publish those supplier performance metrics in a manner that drives improvement is quite another. 

The goal of supplier performance metrics reporting is to provide a report card to your supplier, but it also incentivizes that supplier to improve. 

One way to incentivize someone to be better at their job is to let their boss know who they are doing at their job. By providing your supplier performance metrics to not just your supplier's customer service teams, but to their management, you can help ensure the right eyes are looking at it.

Remember, supplier performance improvement is key to your optimizing supply chain. Using supplier performance metrics correctly can drive toward that objective.