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It makes no difference what business you are in, suppliers and vendors play a key role in your company’s success. Having a formalized system in place to track and evaluate supplier and vendor performance is essential to the smooth operation and profitability of your company.

Successful companies embrace their suppliers and vendors, viewing them as partners in helping to grow the business. Making sure that this is a mutually beneficial partnership will impact the price you are negotiating today and the quality of service you get in future. If a supplier/vendor is a key part or service to your operation invite that supplier or vendor to strategic meetings that involve the product they work with.

Instead of getting stuck on price, focus on quality of service. A vendor can have the lowest price and the lowest quality of work, too. Your goal is understand what value-add is a given vendor bringing to your company. Your business should have a system in place for evaluating, selecting and then reevaluating the suppliers and vendors it works with.

Here are a few tips to ultimately increase your company’s overall productivity :

1. Establish Performance Indicators

At the onset of the vendor relationship you have to determine what characteristics a vendor needs to have, demonstrate, or maintain to continue doing business with your company. Create specific performance criteria for tracking and evaluating your suppliers and vendors on a regular basis—monthly, quarterly, and/or annually.

Considerations include size of the company, number of certifications, quality management systems, complaint history, and financial stability. For instance, you might consider if they have a documented procedure for the product or service they provide?

Your own processes and needs will dictate what criteria you apply. For a business owner who is looking for a shipping company, the biggest concerns might revolve around what is that supplier’s on time delivery track record, how many trucks they own, how many accidents have their drivers reported, and what certifications do they hold.

A basic consideration for every business owner should be whether the supplier has a quality management system in place. Is there a system for handling complaints or problems? Are there corrective or preventive actions?

2. Classify Multiple Suppliers and Vendors

If you have a huge number of suppliers and vendors and you intend to craft a survey to evaluate them, it will be cumbersome to apply the same survey to each and every one. It is better to separate suppliers into levels (1, 2, and 3) based on how critical they are decide the classification that is best for you. Then, evaluate suppliers according to the effect they have on your product or service in order of importance.

By divvying up suppliers into two categories such as critical and non-critical or primary and secondary, you can devote more time to measuring the performance of your critical suppliers.

Vendor Scoring

3. Devise an Evaluation Method

There are common techniques for rating a supplier’s performance including evaluation forms, surveys, system metrics, and software applications. You can craft a survey where you ask your own employees to answer questions and to rate suppliers and vendors.

You can review how many corrective actions you had to issue a supplier or vendor, how many products you had to scrap or return because the supplier or vendor failed to meet specifications, or how many customer complaints you received due to a bad part or service from a vendor. Y

You also can monitor suppliers and vendors by doing an audit periodically. The bottom line is that you need to generate measurements or reports at the onset of the purchase and throughout the course of the supplier and vendor relationship.

Periodic vendor reviews would also entail a discussion about what the company had been buying, how much it had been buying, what did that vendor have on the shelf or working on for push out six months or a year down the road and did it represent a significant improvement over what had been previously purchased, and what were competitors buying from a particular vendor.

4. Determine Who’s Calling the Shots

Once you establish the criteria for evaluating suppliers and vendors, who in your company will be responsible for reviewing the data. It depends on how much resources you have to dedicate to evaluating your suppliers. You may want to assign one person or a team with this task. For instance, selecting and evaluating level 1 suppliers and vendors, might require the CFOs. With level 2 and 3 suppliers and vendors, it may be the purchasing or procurement officer who approves the supplier or vendor list and monitors performance.

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5. Maintain Good Relationships

Consider your suppliers and vendors as part of the team and treat them as such. Communicate often and openly. Technology is great but don’t overlook the personal touch of a phone conversation or face to face meetings. Also, avoid supplier and vendor conflicts by paying on time or at least honestly addressing late payment issues and talking with your supplier or vendor about it. Be upfront and transparent with suppliers and vendors. Make sure they understand your needs and expectations.

6. Decide When to Issue a Red Flag

As you monitor a supplier’s performance, you have to decide when to praise them and when to issue a read flag. Show appreciation for a job well done; give a supplier additional business because of excellent performance. A bad supplier will provide you with mediocre or poor products and services and cause a problem with your customers.

You can drop a supplier for poor performance but strategically it is better to retain your vendors and not to flip around all of the time to replace them. By giving a warning, you give the supplier or vendor an opportunity to correct the problem. Use data that you have collected like on-time delivery rate, return rate, and number of supplier corrective actions to work with your suppliers. This process is not just about reviewing your suppliers but helping them to improve their performance.

7. Cut Loose Weak Links

No one of course should tolerate ongoing bad service. There may come a time when you have to let go of an under performing supplier or vendor.
We give a warning and then put them on notice or a short leash before we cut ties

The relationship with your supplier is a business partnership and if both parties are working to make sure that the partnership is a success it will be a success. In the long run, having a win-win supplier and vendor relationship will be a competitive advantage.

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