Without effective communication, relationships with your procurement partners can quickly become stagnant. This and undoubtedly negatively impact your team’s vendor performance management strategy and outcome.
To nurture a supplier relationship that optimizes outcomes for both parties, performance management should be an ongoing and continuous process. Relevant feedback delivered when the supplier still has the opportunity to correct their course is much more valuable and makes for faster improvements. Therefore, bi-yearly or yearly formal reviews should serve not as the primary mode of communicating and evaluating performance but to augment and document your daily efforts and outcomes.
Building the communication of constructive feedback into your day-to-day operations ensures you keep your objectives at the forefront and foster a culture of goal-directed performance improvement.
To mitigate the risks of poor supplier performance, your ongoing process should include:
Effective goal setting
Data-first performance monitoring
Feedback and coaching
Effective Goal Setting for Better Vendor Performance Management
Achievable but challenging goals are the foundation of an effective vendor performance management process that motivates vendors to give their best effort. Although you may want to push your procurement suppliers if you set an unrealistic and unattainable goal, you’re more likely to demotivate them.
Goals must be clear, objectively written, and contribute directly to your overall department goals and organizational strategy.
Remember, to be understandable and easily evaluated and tracked, goals should be S.M.A.R.T.:
S – Specific
M – Measurable
A – Attainable
R – Relevant
T – Time-Bound
Goals should address the supplier’s responsibilities and your expectations while also covering the ‘how’ and ‘what.’ For instance, deadlines and delivery dates, expected costs, quantity, and quality would all fall under the ‘what’ while service levels and demonstrated behaviour would fall under the ‘how.’
You may also choose to set a start and finish date for your goals, with milestones in between. This allows you and the supplier fair warning and time to take corrective action if they veer too far off track.
To ensure you remain aligned with your overall objectives and further motivate procurement suppliers, you may want to consider using the new and more progressive S.M.A.R.T.A.—Aligned or S.M.A.R.T.R.—Reward.
Data-First Performance Monitoring
To track against your S.M.A.R.T. goals, you’ll have to take a data-first approach. However, collecting, aggregating and analyzing data through emails and spreadsheets can be time-consuming and prone to human errors.
Over the last few years, procurement technology solutions have seen massive growth. Increasingly, organizations are using cloud-based performance management systems that break down data and communication silos. Some offer little more than electronic appraisal forms, while others are more expansive, offering full performance and goal management.
Whichever approach you take, give careful consideration to how and what data points you want to monitor and any relevant market data you’ll require. Of course, you’ll want to ensure you have access to the data that allows you to evaluate progress against goals and make the comparisons necessary to support decision-making. You may even want to look for a system that allows you to drill down to item-level detail, update statuses and communicate back and forth on the nitty-gritty, all in one consistent platform.
If you require the supplier to provide you with any data, communicate this to them and confirm their capabilities at the beginning of the relationship or during the project kickoff.
Feedback and Coaching
Providing feedback in a timely fashion allows your supplier to respond and adjust immediately, correct performance plans, prepare contingencies and tackle any other obstacles that may be hindering outcomes. The squeaky wheel gets the grease, especially in procurement.
Without regularly tracking progress against goals, productivity is likely to dip as attention is quickly averted elsewhere. By having short but regularly scheduled performance talks, you keep your procurement suppliers’ eye on the ball and avoid any surprises come review time.
Here are a few tips for effective supplier communication:
Establish a clear communication plan and set your expectations, including how and when you plan to communicate. How often would you like to see the supplier in person? Are you able to preset meetings? Would you like them to call you between meetings to touch base, and if so, how often?
Things will often go awry in procurement, and it’s natural to become frustrated, but no matter the circumstance, it’s critical to always treat your vendors with respect.
When evaluating performance, it’s crucial to consider the perspective of other employees and departments, as they can offer a different perspective and see things you may not be aware of. However, you must always look at things objectively.
Ensure they feel supported. Rather than simply advising what they’re doing wrong, remember to provide some coaching and make sure you’re always clear on how they can be doing better. Perhaps offer suggestions based on what works with other vendors or tips on what you would like to see them try. Consider offering any resources that may help, educational or otherwise.
Create your governance framework—a schedule of mutually agreed-upon review meetings—with vendors and your key stakeholders. For example, your framework may consist of monthly contract or Service Level Agreement (SLA) performance reviews. In addition, quarterly reviews may focus on the supplier relationship and evaluating long-term strategic value.
To ensure ongoing resilience and risk management, you may want to set biannual reviews of risk mitigation plans. And to keep your organization and leaders aligned and further nurture the relationship, you could arrange for an annual executive review.
Your governance should also include a look back at past issues and any corrective actions taken. Were the actions successful in addressing the root cause? Is the issue ongoing? Was the supplier proactive and expeditious in dealing with the issue?
Lastly, a few extra tips:
To identify opportunities for mutual growth, inquire about their development plans and share yours.
To help open up the lines of communication at every level, meet with your supplier’s operational staff. If you can, bring some of your key stakeholders along.
Don’t ask your supplier for more than you need, including rushing orders unnecessarily.
Work collaboratively and model what you want to see by doing your part in moving things along.
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