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Managing Supplier Performance – Key to Supplier Relationship Management

By Rahul Awtaney Subscribe to RSS | November 25th 2011 | Views:

Today competition is not just based on the assets that one control but on the basis of Intellectual Property and the relationship that organizations build with their customers and not to forget the suppliers. Apple and Wal-Mart can be good examples of the latter case.

In order to increase the competency and add new competitive advantages, organizations today are relying on collaborative relationships. Having a healthy relationship with the suppliers, helps organization in receiving better service, procure efficiently and maintain a sustainable relationship over the long run.

Supplier Relationship management involves working closely with suppliers in order to achieve competitive advantage for long term sustainability. As companies move toward a strategic based view of implementing supplier collaboration, having a set process can ensure success.

The process must be flexible considering the dynamic nature of the situation; however it is important to follow the outline in order to measure success of the implementation strategy. This is where Supplier Performance Management

(SPM) helps in providing the backbone to the alignment process.

SPM is an extension of supplier assessment. Today SPM is a business practice used to measure, analyze, and manage the performance of a supplier's performance in an effort to cut costs, alleviate risks, and drive continuous improvement, thereby ensuring a sustainable supply chain. Good supplier performance enables organizations to achieve business performance excellence. Some of the reasons for the increased spotlight on SPM are:

• Increased Outsourcing

• Globalization of business & supply chain

• Increasing supply risk & complexity of managing suppliers

• Changing view of suppliers as strategic drivers to increasing the bottom line

An on-going supplier performance monitoring and measurement, can realize some benefits for the organization. Consider an organization that faces 80-100 supply disruptions per year, with average cost of disruption per year being $50,000, then potential monetary benefit of preventing even 50% of the above disruption will work out to $2.25 million in savings.

An effective supplier performance management program not only encompasses risk mitigation but also helps in prevention of problems. Some of the positive benefits of SPM are:

• Improved collaboration between suppliers and the organization leading to better coordination

• Increased efficiency and productivity for the organization by saving valuable time and money.

o Enabling decision making based on quantitative data which in turn ensures quick and rational decision making.

• A good SPM system allows the suppliers to take initiative in performing tasks like:

o Updating their information to ensure that everything is current

o Improves invoice accuracy and reduces expenses

Thus it can be seen that managing supplier performance regularly can offer benefits in terms of improving supplier relationship which in turn can be a competitive advantage to organizations.

Rahul Awtaney - About Author:
At Zycus we are 100% dedicated to positioning procurement at the heart of business performance. For more than a decade we have been the world's most trusted leader in Spend Analysis. With our spirit of innovation and a passion to help procurement create even greater business advantages, we have evolved our portfolio to a full suite of Procurement Performance Solutions - Spend Analysis, eSourcing, Contract Management, Supplier Management, and Financial Savings Management

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