Supplier Performance Management (SPM): Best Practices for Business Outcomes

No modern business can run successfully without the help of various suppliers that offer the goods or services required for business continuity. Although businesses focus on fostering and managing supplier relationships, they often make the mistake of overlooking supplier performance management – a crucial element of successful procurement operations.

Supplier performance becomes a strategic lever when it is governed as an operating model—segmented by supplier criticality, measured through a limited KPI set, and run on a consistent cadence with defined escalation paths. In practice, SPM reduces disruption exposure, improves service reliability, and strengthens procurement governance by converting performance variance into corrective actions rather than periodic reporting.

But what exactly is a supplier performance management process, and how does it impact business success?

What is supplier performance management(SPM)?

The concept of supplier performance management (SPM) refers to the business practice that can help measure, analyse, and manage supplier performance with the aim of optimising costs, managing and mitigating risks, ensuring compliance, facilitating continuous improvement, and supporting lasting vendor relationships. It is easy to confuse supplier relationship management with supplier performance management as the two share similar goals and can directly affect each other. It is easy to confuse SRM and SPM because both influence supplier outcomes through effective performance metrics. SRM focuses on strategic collaboration and governance with critical suppliers, while SPM focuses on KPI-based measurement, tiered reviews, and corrective actions across the supplier base.
For enterprise stakeholders, the differentiator is whether SPM is implemented as a closed-loop discipline (set expectations → measure → review → correct), rather than a scorecarding exercise. Programs that define ownership, data sources, thresholds, and corrective-action governance tend to produce more reliable outcomes because performance management translates into operational decisions.

Benefits of supplier performance management

Suppliers are no short of a lifeline for most businesses, from manufacturing companies relying on raw materials to businesses relying on third-party professional services. Failing to recognise the importance of SPM supplier performance management can pose a risk to your supply chain and bottom line.

In addition to this, having effective supplier performance measures in place can help you build a robust supply chain, where you can expect the following benefits:

Avoid supply chain disruptions

One of the primary risks when it comes to suppliers is supply chain disruptions, which can grind your day-to-day operations to a halt. Supplier performance management can help you identify the risk of potential disruption and address the situation before it impacts your operations.

Reduce unnecessary costs

SPM allows you to familiarise yourself with your suppliers, tracking the KPIs related to their services, which, in turn, can help you find opportunities to negotiate better terms and avoid unnecessary costs.

Segment suppliers

Supplier performance management process can greatly benefit the procurement team, allowing them to analyse how well each vendor is performing and make well-informed decisions to optimise budget allocation.

Protect brand reputation

A mistake from a supplier can translate into issues for your products or services, which, in turn, can damage your brand reputation. Analysing supplier performance can help you alleviate this risk while improving your own performance.

Improve business relationships

SPM is also intertwined with supplier relationship management, offering you insights that can help you foster more productive relationships with your suppliers and vendors. For example, you can negotiate more favourable contract terms based on past performance or develop a better communication plan to achieve the desired outcomes.
The measurable value of SPM increases when these benefits are linked to governance mechanisms—tiered segmentation, KPI thresholds, and structured reviews—so leaders can intervene early rather than after service failures occur. This linkage also improves auditability because performance evidence and corrective actions are documented and repeatable.

SPM vs SRM: what leaders should govern differently

SPM governs supplier outcomes against KPIs and contractual expectations, while SRM governs strategic collaboration with a small set of critical suppliers. Enterprises typically scale SPM across the supplier base but reserve SRM investments for suppliers that materially influence innovation, resilience, and long-term value creation.

Enterprise SPM operating model

An enterprise SPM program works when it is implemented as a closed-loop operating model: set expectations, measure performance indicators, govern reviews, and execute corrective actions for risk management. The model below is designed to be tiered by supplier criticality and repeatable across categories and geographies.

The 7-step loop

1. Segment suppliers by criticality and risk (strategic, core, transactional).
2. Define KPI taxonomy and thresholds by tier (what “good” means).
3. Assign KPI owners and data sources (ERP, quality, logistics, service desk).
4. Publish a supplier scorecard with weighting and evidence requirements.
5. Run governance cadence (monthly/quarterly by tier) with escalation triggers.
6. Execute corrective action plans (root cause, timelines, verification).
7. Institutionalize improvement (contract levers, supplier development, exit criteria).

Cadence guidance

• Strategic tier: quarterly executive review + monthly operating reviews.
• Core tier: quarterly performance reviews with defined escalation thresholds.
• Transactional tier: exception-based monitoring, automated alerts.

Supplier performance management best practices

The supplier performance management process is a key element of procurement operations, and its benefits are reflected throughout the organisation. The majority of the efforts going towards SPM involve addressing challenges of collecting and analysing real-time supplier data, facilitating clear 2-way communication, getting the upper management board, and bridging the gap of risk analysis capabilities.

However, following a few best practices can help you strategize and integrate robust supplier performance management within your procurement workflows.

• Start with a clear strategy in mind, aligning supplier performance goals with your sourcing strategy, setting up specific and measurable objectives, and delegating responsibilities to individual team members.
• Choose between the operational, relational, or transformational frameworks – or a combination of two or more – to ensure a holistic supplier evaluation.
• Prioritise vendors based on their importance – the value they offer your business and the amount of risk they contribute to. Devote proportional SPM efforts to each vendor for better outcomes.
• Leverage advanced analytics tools and supplier scorecards to analyse and assess supplier performance. This can not only guide your ongoing monitoring efforts but can also enhance visibility for your procurement team.
• Engage regularly with your suppliers, communicating common metrics and goals while fostering a collaborative supplier relationship.
• Try to be productive and learn from disruptions, leveraging data analytics to diagnose the root cause, foster proactive problem-solving, and implement corrective actions.
• Focus on mutual accountability – holding up your end of the deal while expecting your suppliers to fulfil their obligations – for a collaborative and successful supplier relationship.
• Keep up with the latest technological developments and embrace technology to integrate supplier performance management software solutions into your procurement workflows for effective communication, faster analytics, and data-driven insights.
• Define decision rights and escalation thresholds so performance variance triggers action, not discussion.
• Standardize scorecard logic (weighting, evidence, frequency) to avoid inconsistent supplier evaluation across regions.
• Keep KPI sets intentionally small by tier to improve signal-to-noise and reduce manual reporting load.
• Ensure corrective actions have owners, due dates, and verification criteria to prevent recurrence.

How can Infosys BPM help manage supplier performance?

Infosys BPM offers supplier relationship management solutions that can facilitate effective SPM while also focusing on contract performance and supplier relationship management. We apply a segmented supplier management model to move away from the one-size-fits-all approach many SPM solutions take. As a result, you can leverage advanced analytics, machine learning, and artificial intelligence tools for strategic supplier identification, relationship evaluation, and automatic recommendations for enhanced risk mitigation, strategic supplier innovation, and supplier performance improvement. With clearly defined processes, KPIs, and supplier management roles, a tiered fit-for-purpose model, and a value-focused program, Infosys BPM can help you improve your supplier performance management for better overall outcomes.