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In the manufacturing industry, companies depend on suppliers who deliver raw materials, equipment, and utilities. Many business analysts believe that the success of a company often is dependent on performance of suppliers. Smaller businesses that operate on a regional or domestic scale may deal only with a few local suppliers, though larger organizations may outsource supplier needs to companies all over the world. To optimize a supplier's performance and improve productivity and efficiency, many managers perform supplier performance management. This is the practice of assessing and improving services provided by suppliers.
The first step in effective supplier performance management normally requires a manager to set goals for his or her organization that might be impacted by the performance of a supplier. This can include factors such as budget, speed of production, and quality of materials and services received. By creating a list of objectives, a manager can create a scorecard with which he or she can assess supplier performance.
It is common for a manager to use a supplier performance management scorecard to find out where services need improvement. Many analysts believe that to use this tool efficiently, a manager should grade a supplier periodically throughout a year. Annual reports regarding supplier performance often can allow a manager to observe inefficiencies after they have already occurred, whereas more frequent assessments can allow a manager a greater degree of control.
Communication with suppliers is a key factor of supplier performance management. Traditionally, managers saw supplier behaviors as elements that they could choose to deal with, otherwise they could find other suppliers. Many experts believe that a more effective way for managers to view suppliers is as an integral part of the supply chain. In other words, managers can benefit from clearly communicating needs with supplier representatives and forming plans or strategies that can satisfy the needs of an organization.
Some suppliers are more important to a company than others. For example, a suppliers that delivers raw materials to a manufacturing company might be essential to that company's success. On the other hand, a supplier that is responsible for updating a manufacturing company's phone system might be less important. A common strategy of supplier performance management requires a manager to determine how much to focus on a particular supplier since not all suppliers have equal value.
Managers commonly use supplier performance management software. This kind of program allows users to generate charts that compare suppliers with one another and view relationships between supplier performance and company productivity. Users can apply data accessed through this software to supplier assessments.