How do you define and track supplier performance metrics?

1 Identify your goals and expectations

Before you can measure supplier performance, you need to know what you want to achieve and communicate it clearly to your suppliers. Your goals and expectations should align with your business strategy, customer needs, and industry standards. For example, you may want to reduce costs, improve quality, increase delivery speed, or foster innovation. You should also define the criteria and standards that you will use to evaluate your suppliers, such as quality specifications, delivery times, defect rates, or innovation indicators.

2 Choose the right metrics

Once you have your goals and expectations, it's important to choose metrics that are SMART: specific, measurable, achievable, relevant, and time-bound. Additionally, the metrics should be balanced and cover different aspects of supplier performance such as quality, cost, delivery, and innovation. Examples of common supplier performance metrics include the percentage of products or services that meet or exceed quality standards, the total cost of ownership, the on-time delivery rate, and the number of new products or services. Additionally, you can measure the number of defects or returns, the price variance, the lead time, the inventory turnover, the savings achieved, the value added by the supplier, the customer satisfaction rating, the flexibility and responsiveness of the supplier, the percentage of revenue from new products or services, the number of patents or awards, and the level of collaboration and knowledge sharing.

3 Collect and analyze data

To track supplier performance metrics, you need to collect and analyze data from various sources, such as invoices, contracts, purchase orders, quality reports, delivery records, surveys, or audits. You can use different tools and methods to collect and analyze data, such as spreadsheets, dashboards, scorecards, or software applications. You should also establish a regular frequency and format for reporting and reviewing the data, such as monthly, quarterly, or annually, and in charts, tables, or graphs.

4 Provide feedback and improvement actions

Tracking supplier performance metrics is not enough; you also need to provide feedback and improvement actions to your suppliers. Feedback should be timely, constructive, and transparent, highlighting the strengths and weaknesses of the supplier, and recognizing their achievements and efforts. Improvement actions should be specific, realistic, and agreed upon by both parties, outlining the steps and responsibilities to address the gaps and issues. You should also monitor and follow up on the progress and results of the improvement actions, and adjust them as needed.

5 Review and revise metrics

Supplier performance metrics are not static; they may change over time as your goals and expectations, market conditions, customer demands, or supplier capabilities evolve. Therefore, you should review and revise your metrics periodically, ensuring that they are still relevant, meaningful, and achievable. You should also involve your suppliers in the review and revision process, soliciting their feedback and input, and ensuring their alignment and commitment.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?