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Supplier performance management is crucial for a company’s success, with managers setting goals and evaluating suppliers using scorecards. Communication and determining the importance of suppliers are also key factors, with software used to generate graphs and compare suppliers.
In the manufacturing sector, companies depend on suppliers who provide raw materials, equipment and utilities. Many business analysts believe that a company’s success often depends on the performance of its suppliers. Small businesses operating on a regional or domestic scale may only cater to a few local suppliers, although larger organizations may outsource supplier needs to companies around the world. To optimize a supplier’s performance and improve productivity and efficiency, many managers perform supplier performance management. This is the practice of evaluating and improving the services provided by suppliers.
The first step to effective supplier performance management normally requires a manager to set goals for their organization that could be impacted by a supplier’s performance. This can include factors such as budget, speed of production and quality of materials and services received. By creating a list of objectives, a manager can create a scorecard with which he can evaluate the performance of the supplier.
It is common for a manager to use a supplier performance management scorecard to find out where services need improvement. Many analysts believe that to use this tool effectively, a manager would need to rank a vendor periodically over the course of a year. Annual supplier performance reports can often allow a manager to observe inefficiencies after they have already occurred, while more frequent evaluations can allow a manager a greater degree of control.
Communication with suppliers is a key factor in supplier performance management. Traditionally, managers viewed supplier behaviors as something they could choose to address or else find other suppliers. Many experts believe that a more effective way for managers to visualize suppliers is an integral part of the supply chain. In other words, managers can benefit from clearly communicating needs with vendor representatives and forming plans or strategies that meet an organization’s needs.
Some suppliers are more important to a business than others. For example, a supplier who delivers raw materials to a manufacturing company could be essential to the company’s success. On the other hand, a vendor responsible for upgrading a manufacturing company’s phone system may be less important. A common supplier performance management strategy requires a manager to determine how much to focus on a particular supplier since not all suppliers are equally valuable.
Managers commonly use vendor performance management software. This type of program allows users to generate graphs that compare suppliers against each other and visualize the relationships between supplier performance and company productivity. Users can apply the data accessed through this software to supplier ratings.
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