Sourcing and Procurement

Unveiling the essence of supplier performance management for business success

No modern business can run successfully without the help of various suppliers that offer the necessary goods or services necessary 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.

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

What is supplier performance management?

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. However, there are subtle differences between the two, as relationship management mainly focuses on internal business processes to learn from a business' various partnerships, whereas performance management can include both internal or external processes that focus on managing management and alleviating risk.

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.

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 sending 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.

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.