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How to monitor your suppliers’ performance

Hiring a supplier involves several steps. The first one is a survey, in which all the options of suppliers are evaluated, followed by the elaboration and signing of a contract.

In the contract, all conditions for the provision of service or purchase are established: prices and payment terms, deadlines and delivery terms and other details, everything is agreed in the contract between company and supplier.

However, in addition to the contract, it is essential to follow up on the suppliers’ performance at all stages in which they are involved. This monitoring is not always carried out, mainly because the managers do not know the right way to or what they should accompany. The quality of products in deliveries, delays and problems and even a pro-activity of the supplier are points that can be measured and evaluated, for example.

Check out a few criteria that you need to track to monitor any suppliers’ performance, and how best to evaluate each one:

 

Quality

 

It is of the utmost importance to establish and maintain quality standards aligned between your company and each of the suppliers. To do so, monitoring the quality of the services provided is essential. After all, if this monitoring does not happen, the supplier can’t know ig the quality standards are aligned, if the company is satisfied and if there is a possibility of disruption of business relations.

One very important quality criterion to keep track of is a quantity of items that are rejected per delivery. This index says about the supplier’s concern to ensure that deliveries are made according to the customer’s request.

For this criterion, companies usually measures in PPM, parts per million, scaling how many PPM were delivered damaged or were rejected. The company should set an acceptable standard of quality problems for each type of delivery, and use this standard to evaluate the performance of each supplier.

In addition to monitoring, it is important to make those standards clear when contracting suppliers. Thus, the supplier who disrespects company quality standards should be penalized and even excluded from the list of service providers, depending on the extent of the situation.

 

Performance

 

Another set of criteria that should be presented are those related to the performance of deliveries. When you close a contract, it contains the dates on which the products are to be delivered or the services provided, and this date is to be followed strictly.

In the meantime, companies typically engage in a “standard deviation” of delivery dates, about 1 day before and 1 day after the date previously set. This deviation exists to foresee incidents in the delivery, and a margin of error is also established for undelivered goods – about 10% of the total order.

Of course, the ideal scenario would be delivery on the agreed date, in the correct quantity and without damage or rejected parts. In the case of services, the ideal would be that they were provided within the contracted term, without a need for contracting services that were not foreseen.

However, accidents and all sort of events can occur, and therefore, establishing an acceptable deviation is a better way to monitor the performance of your suppliers. So, keep strict control over respect for dates and results, while safeguarding an acceptable range of errors, and assign scores to each supplier on those issues.

On a scale of 0 to 10, for example, a supplier only scores a 10 if their deliveries perfectly match the three requirements: term, conditions and appropriate quantity.

 

Other evaluation criteria

 

It is also possible to assess supplier performance through its position on some negotiating fronts. Evaluate whether the vendor is open to reducing costs based on your bids and making payment terms more flexible. This shows the supplier’s desire to maintain a long-lasting relationship with your company.

Another possible option is to evaluate the transparency of the supplier, in the sense of providing previous customer contact information, with which you can seek references, as well as data such as company involvement in labor lawsuits and other charges, for example. That says of the suitability of the company, and your organization only has to gain by doing a full checking job of the suppliers to which it unites.

 

Analysis of supplier performance

 

After evaluating suppliers’ performance, assigning notes and making the necessary observations, it is important to analyze these data. For suppliers who provide the same type of service, it is interesting to draw a comparison between the notes and observations, and thus decide on the permanence of both or give preference to one of them.

For all suppliers, it is important to assess the feasibility of keeping them within the company. If a supplier does not perform in line with company standards, it is worthwhile to schedule a meeting and review the terms of that partnership, and even consider canceling the contract.

Providing constant feedback is the best way to pass these evaluations on to suppliers, enabling them to make improvements to their internal processes and keep an eye on the relationship with your company. Thus, it is possible to avoid extreme situations of dissatisfaction between the parties.

These evaluations are also a great way to analyze the workings of the processes involved in managing your company’s supplies, and to find loopholes and problematic points. In this way, the company gains not only by maintaining the best contracted suppliers, but also by constantly testing and optimizing management processes and methods.

How do you monitor supplier performance in your business? In addition to keeping files with this cataloged data, it is also possible to use automated systems and even joint worksheets to group the data and analyze the performance of each supplier.
We hope you have learned a little more about the importance and different ways of measuring the performance of the suppliers you hire. Share this article and help more colleagues improve their relationship with suppliers!

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How to better manage your supply chain

An efficient management of the supply chain is necessary for all companies that deal with product movement, whether purchasing or selling. Any business that produces or sells goods must be very aware of the entire process, from purchase to delivery, especially because internal organization can ensure higher levels of satisfaction with the buyers.

Basically, the supply chain is a group of methods that depend on one another, and require close cooperation between stages so that every action is controlled, managed, improved and executed successfully. Thus, a supply chain management model should include ways to provide better integration between the different stages in the supply chain, which means making sure that all of the logistical steps have the best performance.

Not only can accurate management promote satisfaction, but it can also be responsible for reducing the production cycle time, allowing the company to avoid waste of resources, improve the efficiency of the business and develop competitive advantage.

Want to improve the productivity in your company? We listed some key points one must be attentive to in order to best manage your supply chain! Check them out below:

 

Supply and demand

Specialists claim that it’s critical to maintain balance between supply and demand. The keyword here is forecast. The best method to anticipate demand is to look into the selling history, and take the future demand expectations from it. If you need to forecast the demand for December, go back a year, analyze the data, apply comparisons of growth or decrease, and there you’ll have the expectation for the month.

Keep supply on demand, especially if your company deals with perishable goods. That way, you don’t waste resources maintaining unnecessary inventory, that can become obsolete or be damaged, and save a lot of time when the goods are needed! Sometimes, that means keeping the lowest inventory levels possible, as the best policy to better control the storage costs, or implement a “just-in-time” process.

Selection and relationship with suppliers

Always partner with suppliers in which you see values that match those of your company. Don’t take into account only the fame or size of the supplier’s company – it’s more important to determine if they are able to help you develop and improve the quality and efficiency of your business. Sometimes, a smaller company can represent much more commitment and innovation than a big corporation.

Always strive to maintain a close relationship with your suppliers, being transparent about your company’s needs and expectations, so that the deliveries can match your standards. If something goes wrong, it’s easier to solve a problem with a partner who knows you and that you know well, than to deal with someone you don’t know what to expect from.

Sharing the processes with the suppliers is a good way to keep a good communication channel. Allow your suppliers to access your data bases and also keep tabs on the other stages of manufacturing and storage. By doing this, the supplier can work in sync with your company, improving the quality of the final delivery.

Manufacturing, storage and product delivery

The key to a good supply chain management is integration. It’s very important that sales projections are made accordingly to the strategic planning of the other steps, such as production, department budgets, investments and operation planning.

There are plenty of ways to ensure integration in the supply chain. One good method to keep all steps coordinated is to use the same software to manage the supply chain, so that everyone involved can receive up to date information. One of the biggest concerns about managing the supply chain is the lack of communication between the stages, but the technology available can make this process quite easier.

It’s also critical that the procedures involved in the production line are documented, so that management can control the entire situation. First, it helps to establish quality standards, and also makes it easier to find gaps along the way.

But more important than that, the more information you have, the easier it becomes to recognize weaknesses and flaws. Our advice here is to gather all the data one possibly can about the company’s (and the competition’s) operations, and analyze those numbers. By doing that, it’s possible to identify, solve and even predict possible problems and conflicts faster.

Performance

If one step fails, the entire supply chain process is impacted. Thus, it’s really important that performance indicators are followed, to monitor the activities of every part involved in the supply chain. It’s important to say that some companies find it best to outsource some steps, or all of them (from production to transportation). But even if that’s your situation, it’s essential to know how the entire process must go, to maintain the company’s quality standard!

To sum up this article, here’s a list to help you better manage the supply chain in your company. One should keep tabs on the following steps – how it should work, how it actually works and how the process can be improved:

1. Demand forecast and product offer
2. Location of suppliers
3. Manufacturing process
4. Product storage

Besides those 4 primary steps, here’s 3 checking points that can indicate the success or failure of the supply chain management:

1. Product delivery
2. Merchandise return
3. Customer feedbacks

As we’ve shown you, it’s fundamental to keep in mind that the supply chain management is a process, and as such, it cannot be treated separately. It’s true that a lot of companies have been investing in creating a supply chain management department for some time now, but remember: designating one person to worry only about the supply chain is supposed to make the process run more easily, instead of adding more complications and obstacles to the equation.

It’s all about the relationship between the company and its suppliers, so the manager must take into consideration that the entire experience has to be shared by everyone involved, balancing responsibilities and ensuring the highest quality levels possible!

Liked this post? Share it with your co-workers and leave a bit of your experience with managing the supply chain in the comments below!