Vendors and suppliers play an important role in success of a business. A good practice to undertake and apply is standard metrics which measures and improves vendor performance. This is crucial not only to help your business run smoothly, but will also increase your profitability.Dennis Wright, a management consultant with SCORE Orange County Office, concurs, “Ensuring it is a mutually beneficial partnership, will impact the price you negotiate today and the quality of service which you get in the future”.
However, one of the most common mistakes one needs to avoid is to have a combative relationship with one’s suppliers and vendors. Here is where supplier management and vendors management come into play. Businesses hire purchasing people who are hard on the vendors and try to get better prices or better terms. But, industry experts warn that this is a short-sighted way to go about one’s business.
“That is just the opposite of what you want to do,” avers Drew Greenblatt, President of Baltimore-based Marlin Steel Wire Products. While picking vendors, the emphasis should be more on quality rather than pricing. A vendor who quotes a low price will also mean low quality service or product.
Following are some more tips which can help you effectively rate your suppliers and vendors, track their performance, and ultimately increase the overall productivity of your business:
Establish performance indicators
Determine the characteristics that a vendor needs to have or demonstrate to do business with your company, with periodic performance evaluation of vendors and suppliers. Consider factors like the size of the company, number of certifications, quality management systems, complaint history and financial stability, if the vendor company has a documented procedure for the product or service which they provide etc. Do not forget to check if the supplier has a quality management system in place.
Try to know if the supplier has a certain set of procedures in place that its people are expected to follow. Is there a system for handling complaints or problems?
Are there corrective or preventive actions?
These are the concerns that will be addressed if the vendor is ISO certified.
Classify multiple vendors and suppliers
Classify the vendors and suppliers in order of importance. “Depending on your criteria, decide how best you can classify and evaluate the suppliers and vendors,” says Marlin Steel. By dividing them into at least two categories such as critical or non-critical and primary or secondary, you can devote more time to measure the performance of your critical suppliers.
Devise an evaluation method
Evaluation forms, surveys, system metrics and software applications are some of the commonly used techniques to evaluate suppliers and vendors. Marlin Steel tracks vendor performance by using a customised program which he created using the QuickBooks Enterprise Solutions Accounting Software, the Manufacturing & Wholesale edition.
Either you can design a survey wherein you ask your own employees to answer a few questions and rate vendors and suppliers or, alternatively, you can review how many corrective actions were issued to a supplier or vendor, how many products had to be scraped or returned because the supplier or vendor failed to meet specifications, or how many customer complaints were received due to a bad part or service received from a particular vendor.
Frequent audits help a great deal too. The bottomline is that it’s important to generate a system to measure and report right from the very beginning so that it can be retained for the entire duration of your relationship with the supplier/ vendor.
“We did vendor reviews with our IT and procurement people, where we took them to off-site meetings,” says Wright, who was the Vice-President and Director of procurement for a large global engineering company for eight years.
“We created a little competition amongst vendors,” he reveals. Wright believes that periodic vendor reviews should also include discussions about what the company had been buying, how much it had been buying, what a particular vendor had on the shelf or what the vendor or supplier was working on for push out six months or a year down the road and whether it showed a significant improvement over what had been previously purchased. He adds that it is also important to know what the competitors were buying from a particular vendor.
Selecting and evaluating Level 1 suppliers and vendors may require the chief financial officer or someone from the finance department along with the president and representatives from purchasing, operations, and engineering or IT teams. 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 their performance.
Forging and maintaining good relationships
Remember, it is a good practice to consider your vendors and suppliers as a part of your team and treat them accordingly. For this, communicating often and openly will help matters a great deal.
[sws_blockquote_endquote align=”left” quotestyle=”style02″]Technology is great, but don’t overlook the personal touch that phone conversations or one-on-one meetings have.[/sws_blockquote_endquote]
Avoid supplier and vendor conflicts by making payments on time. In case there is bound to be a delay, be honest about it and address the issue by speaking to the supplier or vendor about it.
“To improve our relationship and communication with our vendors, we added a page to our print materials (drawings) calling out exactly how we are going to package things,” reveals Greenblatt. “It is going to be two layers of bubble wrap or an extra layer of padding between each part, so that there is no scratching. We go through that level of detailing so that we are not disappointed when the parts come in,” he adds.
Decide when to issue a red flag
If a job has been well done, appreciation is important. So, in case a supplier has performed well, he should be provided with additional business.
[sws_blockquote_endquote align=”left” quotestyle=”style02″]Use the data that you have collected such as on-time delivery rate, return rate, and the number of supplier corrective actions to work with your suppliers.[/sws_blockquote_endquote]
Cut loose and weak links
Despite ensuring that the ties with the suppliers and vendors is a smooth one, what you also need to keep in mind is not to consistently tolerate bad service. Let go of an under-performing supplier or vendor.
According to Wright, the relationship with your supplier is a business partnership. If both parties work to make sure that the partnership is a successful one, it will be just that. In the long run, having a win-win supplier and vendor relationship will surely give your business a competitive advantage and an edge over others.