Continuously Measure and Manage Supplier Performance

One way to identify the best suppliers is to track performance after awarding a contract. Supplier measurement and management is a key part of the purchasing cycle. As shown in Exhibit 2.2, buyers should not assume that the purchasing cycle ends with the receipt of an ordered item or the selection of a supplier. Continuous measurement is necessary to identify improvement opportunities or supplier nonperformance. A later chapter discusses purchasing measurement and evaluation tools. This section simply summarizes the key points about this phase of the purchasing cycle.

A desired outcome from performance measurement is improved supplier performance. If no formal evaluation takes place, a buyer has little insight into supplier performance over time, and tracking any performance improvement that results from supplier development efforts is not possible. Without a measurement and evaluation system, a buyer lacks the quantitative data necessary to support future purchase decisions.

A major issue when evaluating supplier performance is the frequency of evaluation and feedback. For example, should a buyer receive a supplier quality performance report on a daily, weekly, monthly, or quarterly basis? Although most firms recognize the need to notify suppliers immediately when a problem arises, there is little consensus about the frequency for conducting routine or scheduled supplier evaluations. For many firms, this overall evaluation may occur only one or two times a year. Regardless of the reporting frequency, supplier performance measurement is an important part of the purchasing process cycle.