What is Supplier Performance Review?

Supplier performance reviews determine how well a supplier performs by the key performance indicators (KPIs) and service level agreements (SLA).

For many businesses, the performance of their suppliers indeed has a direct effect on their organization. Often, organizations may be left in the lurch, as they would be unable to function if third-party suppliers fail to provide essential products and services. 

Businesses’ relationships with their suppliers are symbiotic and synergistic, with all parties benefiting. However, if vendors fail to meet expectations, the companies that rely on their products and services will also suffer. 

Supplier performance reviews enable businesses to regularly check the quality of their suppliers’ performance. It also ensures that organizations get the most out of their investment while also adopting a proactive approach to maintaining and enhancing supplier relationships. 

Why Conduct Supplier Performance Reviews?

The price of goods and services isn’t everything. Even if a supplier charges you at the agreed-upon price, you will not meet your savings goal if their services are subpar or their goods do not meet quality standards. 

As discussed, organizational performance and supplier performance are mutually dependent. For example, sometimes, certain businesses cannot function without the assistance of third-party suppliers who provide critical parts or services. In such cases, if the vendor fails to meet expectations, the contracting entity may also suffer. 

Vendor performance reviews can assist your organization in the following ways: 

• Tracking and monitoring supplier contract compliance
• Understanding when and where the vendor falls short of expectations 
• Cooperating with the vendor to resolve performance issues
• Proactively handling difficulties to protect your productivity or services
• Ascertaining that your organization is making the best use of vendor services

Keeping track of supplier performance is essential for realizing your projected savings. However, managing and enhancing supplier performance is challenging and time-consuming. Businesses can use supplier performance review software and add automation into the mix to successfully streamline and optimize the process. 

You can set automated triggers based on predefined performance KPIs to classify suppliers into different tiers. Vendor or supplier performance is monitored and reported monthly. 

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Key Benefits of Supplier Performance Review 

Organizations that regularly analyze the performance of their suppliers often reap great benefits. Depending on their sector and the KPIs utilized throughout the review process, firms can obtain improved visibility into their suppliers’ performance, remove hidden costs, minimize risks, and gain a competitive advantage. 

1. Increase Performance Visibility

The supplier management approach in most organizations is often reliant on guessing and “gut feelings.” Moreover, the companies do not have much information about their suppliers’ performance. On the other hand, businesses will be able to score and manage their vendors with significantly higher precision if they implement the easy procedure of Supplier Performance Reviews. 

Additionally, this will assist in improving the company’s performance, particularly when they award new business to high-performing vendors rather than the low-performing ones. 

2. Helps Identify and Remove Hidden Costs

Supply chain inefficiencies might be financial or operational. Besides, they can increase with geographic distance. But, you can avoid or reduce these risks by improving and clarifying communication with suppliers. 

Moreover, organizations can minimize process inefficiencies for suppliers by just understanding their performance and business practices – resulting in higher-quality services and cheaper costs. Furthermore, a greater understanding of supplier business processes can help firms eliminate waste in their operations. 

3. Improving Supplier Performance 

While supplier performance evaluations offer various benefits for the company that performs them, the procedure may also aid in the continual improvement of suppliers’ internal processes. 

In reality, the supplier review process is more effective in improving how suppliers conduct their business. Ideally, you can follow performance reviews by other activities such as supplier training & development and various counteractive actions that can address the evaluation’s conclusions. In short, businesses can set new benchmarks for supplier performance through a supplier performance review process, resulting in higher-quality products and services. 

4. Protect and Enhance the Brand Reputation

It’s not uncommon for brands to see a sudden dip in popularity caused by their suppliers’ acts or inactions rather than their own. For example, consider automobile recalls as a typical example. 

Organizations can use supplier performance assessments to take corrective action as soon as the first warning signs surface instead of waiting for them to become a major roadblock in the supply chain. By doing this, companies will be able to safeguard and increase their brand’s reputation by only giving excellent products and timely services to their customers. 

Who can use Supplier Performance Review?

Procurement professionals, supplier managers, and compliance officers use a supplier performance review to ensure that all suppliers get value for money. The CPO can also use it to evaluate supplier performance and identify the bottlenecks in the supply chain. Suppliers can also use this to optimize their internal processes and easily collaborate and communicate with the buyers for an efficient supply chain. 

Drive supplier contract performance by providing portal visibility into milestones, commitments, fulfillment tasks, and facilitating the submission of obligations through the portal experience.