All about Supplier Performance Management (SPM)

No company operates alone. Suppliers play an essential role in ensuring the success of any company – and that’s exactly what makes Supplier Performance Management so important.

Supplier Performance Management is about making sure that your suppliers meet your expectations. Without Supplier Performance Management, you’re far more likely to face vendor disruptions, which can cause significant 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 you can improve your Supplier Performance Management.

What is Supplier Performance Management?

Supplier Performance Management (SPM) is the process of evaluating, managing and improving the performance of the suppliers a company works with. The term covers a range of activities and strategies aimed at ensuring that the company’s suppliers are performing well.

Essentially, the goal of SPM is to:

• Reduce procurement costs
• Effectively manage supplier risk
• Look for opportunities to improve
• Encourage positive business relationships
• Resolve any issues quickly and effectively

As a business owner, you want your suppliers to meet or, ideally, exceed your expectations. What’s more, you also need them to align with your company goals and requirements. Supplier Performance Management is your way to ensure it all.

What does Supplier Performance Management consist of?

Supplier Performance Management consists of a variety of key elements and practices whose purpose is to ensure your suppliers support your company’s operational efficiency.

Here are some of the most important elements of Supplier Performance Management:

• Risk management: One of the most important aspects of SPM is risk management. It’s about spotting and evaluating risks associated with suppliers and developing plans to keep potential disruptions at bay.
• Performance metrics and KPIS: Within SPM, performance metrics and KPIs are your report card. They’re about measuring, tracking and evaluating suppliers on quality, delivery, costs, services and innovation potential.
• Data collection and analysis: Part of SPM is to collect and analyse data. This element is like your SPM detective kit. Using a combination of manual audit, automated software tools and feedback from your team and end customers, you gather clues and piece together the big 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 teaming up with your suppliers and working together 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?

Supplier Performance Management 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 distinction between them.

Supplier relationship management (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.

Supplier Performance Management (SPM), on the other hand, 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, while it’s true that there’s an 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. Without Supplier Performance Management, it’ll be hard for you 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 Supplier Performance Management 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.
• Enhanced reliability and timeliness: With SPM, most hiccups and holdups 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 tips for enhancing your SPM efforts:

1. Establish clear performance metrics and expectations. Define clear KPIs that align with your goals, set benchmarks and standards for them and ensure that your suppliers understand your expectations.
2. Implement regular performance reviews and feedback. Conduct regular performance reviews and provide constructive feedback for your suppliers. 
3. Leverage technology and data analytics. Use Supplier Performance Management software to automate data collection, analysis and reporting and implement real-time monitoring to track supplier performance continuously.
4. Develop improvement programs. Play an active role in helping your suppliers improve. Offer training programmes and resources and engage in joint improvement projects to boost supplier processes and come up with new solutions.
5. Foster strong relationships through collaboration. 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.

Conclusion

Supplier Performance Management is a vital part of running a successful business. It helps you effectively manage supplier risks, reduce procurement costs, strengthen your supply chain and build lasting professional relationships.

By implementing the tips listed above, you can enhance your Supplier Performance Management efforts, helping you to improve quality, cost efficiency and innovation within your supply chain.