- Strategic Sourcing Methodology
- Supplier Relations and Performance
This chapter is from the book
This chapter is from the book
This chapter is from the book
Supplier Relations and Performance
Managing supplier relationships is one of the most important components of the strategic sourcing process. Over the life span of a contract, the procurement team can drive world-class supply chain practices and sustained total cost of ownership results. Managing a supplier relationship and establishing a supplier scorecard does not begin once the contract is signed. It begins with initiating the supplier selection process in the early stages of the strategic sourcing process by focusing on purchasing performance results, not goods and services. Such a mindset not only saves time, but also allows your organization to be better aligned with its internal customers. It is for the benefit of our internal customers and meeting their needs that we are focused on performance, rather than just goods and services. When supply chain practitioners view their role as procuring goods and services rather than procuring performance results, they are more likely to encounter internal customer frustration and personal job dissatisfaction.
By discussing results and asking internal customers the right questions, procurement is helping to define the performance results they want during the contract period. This also allows the procurement team to design results-oriented metrics. These are the metrics that will be used to measure supplier performance after the contract is awarded. They are typically related to quality, service (timeliness), delivery, fill rate, responsiveness, agility, safety, sustainability, and costs.
Most procurement teams use a supplier scorecard at the front end of the strategic sourcing process instead of the back end. After the contract is signed, it is too late for these metrics to be introduced and have the same impact with the supplier as they would before the contract is signed.
Once the metrics are agreed upon, the scorecard and measurements become part of the statement of work, specifications, RFX,7 supplier selection criteria, and the contract. Therefore, in the RFI or RFP documents, potential suppliers can review up front the performance results expected during the contract period. It is wise to ask suppliers during the RFP to submit two responses: One that provides exactly what was asked for per the specifications and a second response that details how the supplier believes it can best optimize the metrics and remedy potential failures. This second response becomes an extremely important document between the successful bidder and the organization.
Once the procurement team has solicited proposals and selected a supplier using the results-oriented metrics, contracted with the supplier, and predefined remedies for failure to achieve the metric targets, the stage is set for supplier performance management success. The supplier relationship understands what is required and expected of it. Goals and expectations have been clearly defined at the beginning and end of the supplier selection process. Now procurement can spend time in a supplier management and contract compliance role, rather than an expeditor and firefighter role.
The upfront investment in the strategic sourcing process made for each of the seven steps outlined pays long-term dividends. Engaging in supplier performance management supports the move to becoming a world-class supply management organization.
One final comment relating to the strategic sourcing process: All of the activities identified in this section will initially be subject to influences beyond the control of the procurement professional. These influences can determine how effectively each activity is performed. They include intra-organizational, inter-organizational, and external factors such as the geopolitical context. A change in marketing needs, manufacturing specifications, or the financial status of a potential supplier may require all or several of the seven steps identified to be repeated.