The supplier performance is important and has a critical impact on the company performance ant it determines the company’s competitiveness in a particular field (Barret 2008). There are several reasons that make many firms to emphasis on the perfection of supplier performance. These include: there is more outsourcing and suppliers are relied in supplying commodities, supply chains and businesses have been globalized, their supply risks have gone high among others. To achieve high business excellence, there is need to a good and better supplier performance. If well employed, supplier performance management will lead to cutting down of business operation costs, the reduction in risks and the value of the products will increase. This calls for leadership with a vision, good alignment in the organisation, constant and effective communication in the company and well organised business processes (Rizza 2007).
If the supplier performance management approaches are employed in Devean plc, the performance will improve and the outcome will be evident clearly and their benefits will be reaped for long time duration. It is important that the senior management of the company understand the particular business case for supplier performance management and give it full support so that the success of the process will have high possibility (Gordon 2007). The main advantage of using this method is that the company will continue to gain additional savings as it continues using supplier performance management programs. From research carried out, it has been found that most managers do not go for supplier performance management as their return on investment is not very clear but instead go for cheaper supplier prices to measure their return on investment (FAO 2007). Actually, there two approaches that can be used in measuring the return on investments when using supplier performance management in a company. These are elaborated as follows:
For the top management of an organisation or any other person to know the return on investment gained from using the supplier performance management, then the estimate of the failure costs which are as a result of bad supplier quality are needed for this analysis (Haag et al 2006). Then extrapolate this estimates to tell how much of these costs can be minimised by using supplier performance management instead of the other methods. Then through this, the management and all concerned stakeholders will come to the understanding of the type of savings to be reaped by this method against the return on investment.
There is also another method of calculating the return on investment of supplier performance management by approximating the ratio of poor performance to cost. This is in terms of the percentage lost to bad performance factors for every cent spent on crucial suppliers. If well used, this is another important criteria which can prove to stakeholders how well supplier performance is in rationalisation of the business.
Making reliable supplier performance management process
For the supplier performance management to be successful, it requires a good business process to be put in place. These steps should be carefully followed and evaluated with time in order to avoid going out of track. Now that the supplier performance management is a process and it takes sometime before it becomes effective, this calls for support from stakeholders and not only from procurement as it cuts across many functions (Cooper et al 1997).
To start with, a good supplier performance program must conform to the goals of the firm and not concentrated only on procurement. Secondly this program should be planned and made bearing in mind the corporate goal and not instantaneously decided upon. Besides these, the program should monitor its advancements against the plan metrics so that it can be gauged whether the results are positive at every stage or not. Finally, the supply performance management should be regularly reviewed and undertaken through improvement processes in order to accommodate the dynamics in business. All these can be well explained using the diagram as shown below in figure 1.
In nutshell, the following process should be used in implementing the supplier performance management in the company. More especially if Devean plc will fully decide to follow them to the later, then there will be more benefits from it and solve any problem which may related to supply management.
Implementing supplier performance management stages
First, the company should make the supplier performance management strategies and plan to be followed. That is, the organisation goals should be borne in mind in developing supplier scoreboard so that we cannot deviate from them (Gordon 2008). Therefore, the supplier performance management strategies should not conflict the corporate goals but be aligned to them for the process to be successful.
Secondly, the performance method and expectations of the suppliers should be developed. These are the necessary criteria that the company should be expecting from suppliers. This will act as a guide to the team carrying out the whole exercise.
Then, the tools for evaluation and process steps should be selected by the team. They will use these tools to measure performance of the suppliers after collecting and monitoring the necessary parameters. The same team should also make rollout plans to stakeholders and other supplier communities.
The next step is to gather the performance data for suppliers both qualitatively and quantitatively. This data becomes important with time and therefore it must be collected and well kept. The time period should be set as regards with data collection. Data should be collected periodically. This is in order for the team to be consisted with time.
Then the data collected is measured and shared among the suppliers and also with stakeholders. This in order to update them of the progress achieved so far. The performance measurement is done against the set criteria.
The improvement objectives and plan should be set. This is in order for the companies to act on the data so far gathered and then influence the behaviour of suppliers.
The goals set should be reviewed and reset again alongside the strategies used in a periodical manner as the business grows in order to avoid misalignment of things (Barret 2008).
Subdividing the base of supply for supply performance management
There are four matrices used in segmenting the base of supply in a firm. These are strategic, custom, collaborative and commodity suppliers. The organisation should focus mostly on strategic suppliers as they are core suppliers and are integrated partners in business (Halldorsson 2007). The supply performance of the strategic suppliers is the main ones which the company should ensure that it has significantly improved as they play a grater role in the supply sector of the company. The segments like collaborative and commodity suppliers should also be made to register positive performances as they are part of the supply department.
The nature of goods to be transported. This is the first and most important factor to be considered in moving the goods. For instance, if the goods are perishable, they need a faster method of transportation so as to reach the consumers before they perish. However for durable good, a longer and slower channel can be taken in distributing them. Therefore as Devean plc is an international organisation, it has to consider locating it warehouses close to customers so that it becomes easier to get the products.
The size of the market. If the market of a given product is big, then larger channel of distribution will have to be considered. Now that Devean has wide market in various countries, it has to go for transport means which can accommodate large quantities of goods. However, for smaller markets the retail outlets will have to be used through the wholesalers.
The quantity of goods ordered by the retailers. Big orders from big retailers are easily transported through cheaper means as they are cost effective as compared to small orders from retailers. Therefore, before Devean decides to put up a warehouse at any place it must consider the quantities of goods which customers at that area normally take.
Size of goods to be transported. Bulky goods will not be transported by some expensive means like air but rather are transported on sea by ships as they are spacious enough. Small and light goods can be transported by air as it is faster and more reliable.
Atmospheric conditions. The condition of the weather determines the mode of transportation to be taken. For example, during stormy conditions, the sea cannot be used and hence a different mode of transport will have to be used.
Barrett, Jane and Rizza, Mickey North 2008, “Supplier Performance Management: It’s More Than a Scorecard – It’s a Strategy”, AMR Research Alert Barrett, Jane and Rizza, Mickey North 2008, “Supplier Performance Management: Cooper, M.C., Lambert, D.M., & Pagh, J 1997, Supply Chain Management: More Than a New Name for Logistics. The International Journal of Logistics Management Vol 8, Iss 1, pp 1–14.
FAO 2007, Agro-industrial supply chain management: Concepts and applications. AGSF Occasional Paper 17 Rome.
Gordon, Sherry R.2007, “Getting Senior Management Support for SPM”. Than a Scorecard – It’s a Strategy“, AMR Research Alert.
Gordon, Sherry R 2008, Supplier Evaluation and Performance Excellence, J. Ross Publishing
Rizza, Mickey North 2007,“Supplier Performance – Reality Check”,
Haag, S., Cummings, M., McCubbrey, D., Pinsonneault, A., & Donovan, R. 2006, Management Information Systems for the Information Age (3rd Canadian Ed.), Canada: McGraw Hill Ryerson
Halldorsson, Arni, Herbert Kotzab & Tage Skjott-Larsen 2003. Inter-organizational theories behind Supply Chain Management – discussion and applications, In Seuring, Stefan et al. (eds.), Strategy and Organization in Supply Chains, Physica Verlag.
Halldorsson, A., Kotzab, H., Mikkola, J. H., Skjoett-Larsen, T. 2007. Complementary theories to supply chain management. Supply Chain Management: An International Journal, Volume 12 Issue 4, 284-296.