How to Improve the Performance of Your Suppliers

The global economy is highly interconnected, and the actions of customers, manufacturers, suppliers, and retailers all impact other players in the supply chain. Smooth coordination between partners like distributors, retailers, and suppliers enables sellers to maintain a competitive edge, retain customers, and maximize operational efficiency. Yet sometimes you may find your suppliers are underperforming. Inefficiencies at the supplier level can cause disruptions along the supply chain and increase your risk of not meeting customer expectations.

You can’t control your suppliers entirely, but you can take a proactive approach to improve their performance. You can enhance your suppliers’ operations by implementing strategies to boost collaboration, measure efficiency, and leverage technology in your favor.

The Importance of Supplier Performance

As companies worldwide seek to manage consumer demands, they’re actively searching for strategies to improve their supply chain management. For example, the global revenues of the supply chain management software market surpassed $8.58 billion in 2020. This indicates the immense need for buyers and suppliers to work in harmony.

Consider a few examples of the benefits your business can gain by learning how to improve supplier performance:

• Minimized supply chain disruptions: With plans for continual supplier performance evaluation, you can proactively manage supply chain disruptions before they escalate.
• Increased savings: By working with suppliers to analyze their performance metrics, you may discover opportunities to cut unnecessary costs significantly.
• Optimized value chains: Enhancing the value chain through supplier relationship management (SRM) enables you to determine opportunities for improved efficiency.

• Long-term supplier relationships: Improving supplier performance could be an effective way to build long-term collaborative relationships that are mutually beneficial for both parties.
• Reduced risk: Monitoring supplier performance allows you to gauge the risk a supplier might pose in terms of costs, security, and your customer delivery promise.
• Improved reputation: Tracking your suppliers’ performance metrics enables your company to correct processes before they impact customers and other partners.

Common Performance Challenges

The supplier performance management process is crucial to maintaining a competitive advantage, but it can be challenging for both parties. While supply chain difficulties are a constant, improving your company’s SRM strategy can significantly reduce them and help your company limit inefficiencies, provide more value to customers, and maintain its reputation.

Here are some of the most common obstacles you and your suppliers might face when it comes to improving performance:

Challenges for Suppliers

Suppliers may struggle to hit performance benchmarks for their buyers for various reasons, including:

• Technology gaps: Suppliers increasingly rely on technology to manage their complicated global supply chains. Solutions like electronic data interchange (EDI) allow suppliers to automate transactions and process them faster to accelerate fulfillment. Smaller suppliers may not have the capabilities to implement an EDI solution. This technology disparity can lead to inefficient processes and poor compliance with larger institutions’ EDI requirements, making it difficult to scale.
• Improper inventory management: Inventory management is another significant supplier performance challenge. Properly managing inventory is crucial to ensuring suppliers can fill orders on time. Suppliers could experience issues such as improper inventory allocation or over-selling. Both situations can lead to stock-outs, reputational damage, and potentially lost sales or customers.
• Manual processes: Relying on manual processes can create costly delays for suppliers. Manually processing orders and sending emails and faxes is time-consuming and often leads to errors. Manual processes can also cause difficulties in meeting timelines for acknowledgments, advance ship notices, and delivery. Yet smaller suppliers may not have the ability to implement effective automation solutions.
• Inadequate risk management: Failing to adequately manage that risk can put suppliers in an unhealthy relationship with retailers. Suppliers may pose a risk in various areas, including production, finances, and cybersecurity. For example, suppliers with poor cybersecurity practices are vulnerable to hacking, leaving other partners open to cyberattacks through linked online accounts. A supplier might also pose a financial risk if it struggles to manage its supply chain cost-effectively.

Challenges for Buyers

Buyers can also face difficulties when trying to assess their suppliers’ performance and improve their performance. Here are the most common challenges:

• Lack of an SRM strategy: An SRM strategy is a plan for managing supplier relationships to best advance your company’s goals and mission-critical operations. Poor performance and supply chain disruptions may impact your expenses and reputation significantly. Creating an SRM strategy helps you monitor supplier performance and act proactively rather than reactively. Implementing an effective plan for managing relationships with suppliers also improves the chances you will obtain consistent results from your suppliers.
• Lack of Transaction Standardization: Suppliers sending outdated file types for key order documents— like email, faxing, or spreadsheets — can overwhelm your team and drag down their efficiency. Reconciling that data with information stored in your systems can also be time-consuming and create data riddled with errors. The ideal situation would be for all your company’s suppliers to use EDI software or a supplier enablement solution that can transform incoming data into your preferred format.
• Lack of communication: Sharing too little data with your suppliers or failing to share it promptly can cause operational inefficiencies. This lack of communication might disrupt the supply chain or result in unnecessary costs. A lack of collaboration can also lead to weakened supplier relationships. Communicating at every stage of the relationship helps build long-term partnerships that benefit both parties.

How to Improve the Performance of Your Suppliers

Having a supplier improvement plan is about developing strong partnerships as much as it is about tracking key performance indicators (KPIs). Monitoring your suppliers’ performance is an essential piece of the puzzle in improving performance, but it’s only one piece. Businesses need effective strategies for managing their supplier relationships that can proactively grow their partnerships, align their business goals, and result in mutual success.

These tips for how to improve supplier performance can help your company strengthen its supply chain:

1. Conduct a Needs Analysis

The first step in improving supplier performance is knowing where your company is and where it wants to go. Having a clear vision for the improvements your company needs to make to achieve its business objectives is invaluable. Conduct a needs analysis to determine areas for improvement in your supply chain and supplier relationships.

2. Update Your Service-Level Agreements (SLAs)

When retailers and suppliers have misaligned expectations, neither can operate at peak efficiency. Regularly update your service-level agreements with your suppliers to ensure your intentions are clear. Maintaining up-to-date SLAs also helps make your relationship more predictable. Updating SLAs can help your supplier gain a clearer understanding of your order scheduling and demand patterns as they change over time. Key SLA components to update include:

• Service-level timeframes, such as ASN turnaround times or delivery speed.
• Supplier metrics (covered below) as well as minimum performance expectations for each.
• Compliance requirements, including the required documents. You may wish to include updates or changes for each document, either in your SLA or elsewhere, such as a vendor portal.
• Any changes to penalty measures, such as changes to your chargeback procedures or amounts.

3. Measure Supplier Performance KPIs

The supplier performance management process becomes much smoother with agreed-upon performance metrics that allow your company to measure efficiency objectively. Measuring these benchmarks enables your company to have more constructive discussions about supplier performance.

These are the most common supplier performance metrics you may want to track:

• Delivery: Delivery should consistently be in full and on time when measured against the agreed-upon lead time.
• Cost: Suppliers and buyers typically agree upon the price of products, but noticing when those costs change and why can provide valuable insight into the supplier’s efficiency.
• Quality: By tracking the defects you observe or justified complaints you receive about the supplier’s products, your company may develop a threshold for determining product quality.
• Compliance: Determining whether the supplier complies with relevant regulations is vital for measuring performance.
• Responsiveness: How quickly a supplier responds to communication and acknowledges the receipt of purchase orders and other documents indicates its efficiency.

Once your company establishes the KPIs and performance metrics to use with its suppliers, aggregate the data and analyze it over time. Your company should regularly view reports on supplier performance metrics to prioritize the KPIs that most impact its bottom line and business continuity goals.

4. Be Proactive

Fluctuating market conditions and customer demands make a proactive approach to supplier relationship management more effective than a reactive one. Proactively communicating with your suppliers ensures your company can manage challenges before they negatively impact later stages in the supply chain. The ability to predict and correct performance issues also gives you more control over working with suppliers to meet business goals.

Taking a proactive approach to supplier relationship management may involve sharing data through integrated technology solutions and having frequent two-way conversations with suppliers about how to help them. For example, you can share performance analytics with suppliers who are failing to meet your benchmarks so they can be aware of any issues and make improvements. Implementing proactive strategies to communicate more effectively with your supplier can optimize processes for both of you and improve your supply chain’s resilience.

5. Collaborate on Improvements

Similar to communicating proactively, collaborating with your supplier community is an effective strategy for achieving mutual business objectives. Collaboration invites your supplier into the strategy-building process with you, using their perspective and expertise to develop solutions jointly. This approach to supplier relationship management is usually more sustainable than when retailers identify areas for improvement and ask their suppliers to figure out the solution.

To collaborate effectively with your suppliers, identify the causes of supply chain disruptions and other inefficiencies, then address the root causes together. Your company may also benefit from collaboration on other initiatives, like creating new products. Integrating your technology solutions with your suppliers can simplify collaboration.

6. Implement the Right Technology

Measuring supplier performance is impossible without the right tools to gather, organize, and analyze supplier data in real time. Implementing technology is an important way for your business to gain greater visibility into customer demand and other supply chain challenges while optimizing every step of the supply chain.

Here are a few solutions that may help buyers and suppliers address changing demands, streamline operations, and strengthen their partnerships:

• An EDI system: When trading partners want to exchange business documents quickly, accurately, and while maintaining compliance, the solution is often EDI. EDI software allows companies to automate business processes like sending purchase orders, shipping notices, and invoices, and do so in a standardized format. One option for buyers who want to maintain that standard is to require their suppliers to be EDI-capable.
• Supplier enablement portals: If you don’t want to require EDI from all of your suppliers, another option is to purchase a supplier enablement solution. These solutions come with multiple options for suppliers, including EDI connectivity, a simplified web EDI portal, and transformation capabilities for those suppliers using email or PDF documents. They often also come supplied with dashboards for analyzing supplier spend and performance against your KPIs.

Build Greater Connections With Your Suppliers

Your suppliers are invaluable partners in achieving supply chain optimization. By partnering with your suppliers and implementing strategies to improve supplier performance, your company can streamline its supply chain, achieve business goals, and benefit from stronger partnerships.

At TrueCommerce, we provide a unified commerce platform that improves partner communications across the supply chain. Our solutions include fully-managed EDI services and next-generation supplier enablement software to help retailers and suppliers oversee product information, inventory, and order statuses. TrueCommerce makes it easy to boost collaboration with your suppliers and gain a competitive edge.

To see how our solutions can improve your partnerships with suppliers, request a free demo today.