No company operates alone. Suppliers play an integral role in ensuring the success of any business – and that’s exactly what makes supplier performance management (SPM) so important.
Supplier performance management is all about making sure your suppliers meet your expectations. Without it, you’re far more likely to face vendor disruptions, which can cause painful losses for your business – and not just financially.
In this article, we’ll cover what supplier performance management is, why it’s so important and how your business can take SPM to the next level.
Key takeaways:
- Supplier performance management (SPM) is the process of evaluating, managing and improving supplier performance to align with your business goals and needs.
- Effective SPM helps you reduce procurement costs, manage supplier risks, improve operational efficiency and build stronger relationships with your suppliers.
- The benefits of strong SPM include better risk control, improved product quality, cost efficiency, reliable supply chain operations and enhanced customer satisfaction.
- To boost your SPM, focus on clear KPIs, regular feedback, real-time monitoring, supplier collaboration and treating suppliers as partners rather than just vendors.
What is supplier performance management (SPM)?
Supplier performance management (SPM) is all about evaluating, managing and improving the performance of the suppliers a company works with.
As a business owner, you want your suppliers to meet – or, ideally exceed – your expectations. What’s more, you need them to align with your company goals and requirements. Supplier performance management is your way to ensure it all.
SPM covers a range of activities and strategies for ensuring your suppliers are performing well. Among other things, SPM seeks to:
- Reduce procurement costs
- Effectively manage supplier risk
- Encourage positive, lasting business relationships
- Discover opportunities to improve processes, quality and efficiency
- Drive innovation and added value through supplier collaboration
- Resolve issues quickly and effectively
In today’s interconnected, fast-paced business environment, monitoring suppliers won’t cut it. It’s all about building strategic partnerships that give your company a competitive edge – and that’s exactly what SPM helps you achieve.
What does supplier performance management consist of?
Supplier performance management consists of several key elements and practices for ensuring your suppliers support your company’s operational efficiency.
Here’s an overview of some of the most important ones:
- Risk management: This is one of the most important aspects of SPM. Risk management is about spotting and evaluating risks associated with suppliers – and developing plans to keep potential disruptions at bay.
- Performance metrics and KPIS: In SPM, performance metrics and KPIs are your report card. They help you measure, track and evaluate suppliers on quality, delivery, costs, services and innovation potential.
- Data collection and analysis: This is essentially your SPM detective kit. Using a combination of manual audit, automated software tools and feedback from your team and end customers, you gather clues to put together the full picture of your suppliers’ performance.
- Performance reviews: You can think of performance reviews as regular coffee dates with your suppliers. They’re opportunities to chat about how things are going, discuss performance, iron out any wrinkles and brainstorm how you can improve.
- Supplier development: If there’s room for improvement, it’s time to bring in supplier development. This could mean training and support to boost your suppliers’ skills, or working with your suppliers to enhance processes and products.
You might also be interested in: What is supplier risk management – and how do you benefit?
Supplier performance management vs supplier relationship management – what’s the difference?
SPM and supplier relationship management are often mistaken for each other. Don’t get us wrong: the two processes are related. However, they serve different purposes, and it’s important to know the difference between them:
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Supplier relationship management (SRM) |
Supplier performance management (SPM) |
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SRM involves going through your list of contracts with suppliers to pick up insights related to your partnerships. It’s primarily an internal process that focuses on creating and maintaining strong, collaborative relationships with your key suppliers. |
SPM can happen both internally and externally. Its main goal is to reduce costs and manage risks. As we mentioned above, it’s also about building lasting business relationships – but that’s only one aspect of it. |
In short, whilst it’s true that there’s some overlap between SPM and SRM, their purposes and goals aren’t identical.
The benefits: Why supplier performance management is so important
Regardless of your industry, it’s likely your company relies on third-party suppliers on some level, whether it’s for project management, content marketing, logistics, accounting, consulting or something else entirely.
Your business is only as strong as its weakest link – and without SPM, it’s hard to keep tabs on where your weakest link is. If it’s one or more of your suppliers, you risk compromising your entire supply chain.
Proper SPM strengthens the integrity of your supply chain. It can help you control your costs, support compliance and build long-lasting business relationships.
Here are some of the benefits you stand to gain from effective supplier performance management:
- Better risk management: SPM makes it much easier for you to identify potential risks and vulnerabilities in your supply chain – and that helps you craft effective plans to dodge disruptions.
- Improved product quality: With SPM, you’re the quality gatekeeper ensuring your suppliers meet or exceed your quality standards and play by industry rules.
- Cost efficiency: SPM helps you trim costs through smarter processes and better supplier deals. It also helps you reduce waste and inefficiencies in your supply chain, cutting down your operational costs.
- Better reliability and timeliness: With SPM, most hiccups and hold-ups will be a thing of the past. SPM enhances the reliability and stability of your supply chain, minimising disruptions and keeping deliveries running like clockwork.
- Stronger supplier relationships: SPM brings you and your suppliers closer. It promotes closer collaboration, trust and transparency and helps you build lasting professional relationships.
- Customer satisfaction: By improving your product quality, reliability and timeliness, SPM helps you meet and exceed customer expectations, boost satisfaction and bolster your brand reputation.
And much, much more. In short, there’s much to gain from proper supplier performance management – so let’s take a look at how you can improve yours.
How to improve your supplier performance management
Now that we’ve covered why managing supplier performance is so important, we want to leave you with some advice to improve your own supplier performance management.
Here are five quick tips for enhancing your SPM efforts:
- Define clear KPIs that align with your goals, set benchmarks and standards for them and ensure that your suppliers understand your expectations.
- Have regular performance reviews and give your suppliers constructive feedback.
- Use SPM software to automate data collection, analysis and reporting and implement real-time monitoring to stay on top of supplier performance.
- Play an active role in helping your suppliers improve. Offer training programmes and resources and work with your suppliers to boost processes and come up with new solutions.
- Treat your key suppliers as partners – not just vendors. Involve them in strategic planning and decision-making, and reward and recognise them for their contributions.
Final thoughts
Supplier performance management helps you manage supplier risks effectively, reduce procurement costs, strengthen your supply chain and build lasting professional relationships – all of which are essential for running a successful business.
By implementing the tips above, you can enhance your SPM efforts and improve quality, cost efficiency and innovation within your supply chain.
