5 Simple Things Your Organisation Can do To Improve Supplier Performance

8 Mar
2013

Supplier management is the process that ensures that suppliers produce value for the money that purchasing
organisations spend on their goods and services. ITIL gives specific best practice guidance regarding what an
effective supplier management process does in an organisation. With supplier management, there are numerous
simple things that an organisation can do to improve supplier performance. This blog discusses five of those
things, which are:
• Consider how your organisation appears to your suppliers
• Establish clear supplier performance targets
• Categorize suppliers
• Establish clear accountability
• Engage suppliers in change management

1. Consider How Your Organisation Appears to Your Suppliers

An organisation should care about how it appears to its supplier because modern-day supplier management is
about strategically partnering with suppliers to generate the most value at an acceptable cost. To be successful,
organisations must accept that they and their suppliers are working towards common purposes and goals. If an
organisation’s suppliers share this viewpoint and recognize that both the supplier and the buying organisation
can benefit from improvements, efficiencies, and partnering, then the relationship with the supplier is likely to
be stronger and have a greater positive impact on business results.

2. Establish Clear Supplier Performance Targets

When a purchasing organisation contracts with a supplier to purchase goods and services, it is critical that the
contract define specific measures and set achievable targets for those measures.

Targets established in contracts with suppliers should be SMART. The best supplier performance targets meet
these criteria:
• Specific. The target is clearly identifiable and unambiguous
• Measurable. It is possible to collect measurements against the target
• Achievable. The target can actually be met
• Relevant. The target pertains to the goods and services described in the contract
• Time-bound. The target has a useful time component
It is one thing to establish clear supplier performance targets in a contract; many organisations do exactly that.
However, it is another thing to regularly review supplier performance against those targets and to use that
information to help improve the supplier’s delivery of goods and services. Fewer organisations do the latter.

3. Categorize Suppliers

ITIL describes four categories of suppliers:

Strategic suppliers
These are suppliers that provide goods and services that are a key aspect of the purchasing organisation’s over-
all delivery of services. Strategic suppliers are very important to the purchasing organisation’s ability to remain
competitive and effective and are more closely managed. Purchasing organisations should work very closely
with strategic suppliers

Tactical suppliers
Tactical suppliers are those with whom an organisation conducts a significant amount of business activities
but, due to having a lesser impact on the purchasing organisation’s services, they are likely to be managed at a
lower level in the organisation. Similar to strategic suppliers, tactical suppliers are likely to be regularly managed
and subject to a program of ongoing improvement of their quality.

Operational suppliers
These suppliers provide services that are of less value and importance than either tactical or strategic
suppliers. Operational suppliers are likely to be managed less stringently than strategic and tactical suppliers and at a
lower level in the organisation.

Commodity suppliers
Commodity suppliers provide services that are of low value or are easily replaced with other offerings in the
market.

4. Establish Clear Accountability

Accountability with respect to supplier management shows up in many ways. First, when a purchasing
organisation establishes a contract with a supplier, it is critical that all necessary accountabilities are clearly defined
in the contract. Second, it is critical for success that the purchasing organisation uses one consistent voice to
communicate with its supplier.
Purchasing organisations should establish a clear “point of contact” for each supplier who owns the relation-
ship between the purchasing organisation and the supplier. Without clear ownership in place, suppliers will
often arrive at different arrangements with different parts of the purchasing organisation, which can result in
significant confusion about the level of service that the supplier is committed to providing. It also results in no
centralised management or accountability for supplier-related performance improvements.

5. Engage Suppliers in Change Management

Effective change management ensures that communication occurs and that risk is optimized. When both sup-
pliers and purchasing organisations fail to communicate, they can cause negative impacts for one another. One
way to avoid negative impact and to improve overall supplier performance is to regularly engage in shared
change management activities and responsibilities.

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