Too many Procurement teams treat supplier management as “done” after a contract is signed. But simply handing a deal to your Operations team and walking away can erode value quickly. A robust supplier performance management (SPM) program is essential for building a competitive, resilient supply base and maintaining strong supplier relationships.
Here’s a 5-step framework for creating a procurement-led supplier performance program that delivers long-term value:
- Choose the right Key Performance Indicators (KPI’s)
Effective supplier performance tracking starts with the right KPIs. Ask yourself: What are your business goals? Each industry and organization has different strategic priorities. Procurement and Operations must align on category-specific KPIs that reflect these.
- For retail supply chains, on-time delivery may be paramount.
- For utility procurement, safety and regulatory compliance might top the list.
What are you sourcing? Tailor KPIs to the product or service category. Most KPIs fall into four core buckets:
- Delivery & Logistics
- Quality & Service
- Pricing & Contract Compliance
- Safety & Environmental Performance
Use these KPIs to drive clarity in supplier scorecards, evaluations, and feedback loops.
- Establish Service Level Agreements (SLAs)
Your service level agreements should reflect both your business priorities and the performance realities of the category.
- For high-velocity retail distribution, a late shipment—even by 15 minutes—can disrupt operations.
- For capital goods in energy or construction, a one-week delivery window may suffice.
Make sure SLAs are realistic but rigorous, and remember that higher service expectations usually come at a cost. It’s important to balance value-for-money with risk mitigation.
- Track Supplier Performance Quantitatively
Once KPIs and SLAs are in place, define how you’ll track supplier performance. Use data from systems like Transportation Management Systems (TMS), Warehouse Management Systems (WMS), or ERP platforms to measure actual vs. expected performance.
For harder-to-quantify services, use a standardized rating scale (1–5 or 1–10) for key categories like:
- Customer service
- Site cleanliness
- Responsiveness
- Technical capability
Historical tracking is key. Use data over time to identify trends: Are suppliers improving, or declining? Are issues isolated or systemic?
- Address Supplier Performance with Regular Feedback
A structured supplier feedback process creates transparency and accountability. Meet quarterly with strategic suppliers; lower-tier vendors might receive annual performance reports via email. Share performance benchmarks and supplier scorecard rankings to show where they stand among peers.
Quantitative tracking makes it easier to communicate performance gaps objectively—and gives your suppliers clear targets for improvement.
- Take Action: Reward and Remediate
This step is what separates good programs from great ones. Reward strong performers with financial incentives, preferred supplier status, or recognition through internal “blue ribbon” awards.
Address poor performance by:
- Helping suppliers improve processes
- Facilitating better communication between teams
- Escalating issues through structured supplier performance reviews
- Offboarding suppliers when necessary
Sustained improvement depends on accountability and recognition, which are the core pillars of a strategic supplier management process.
Following this 5-step process will allow you to build stronger supplier relationships and strengthen your business. A critical part of effective supplier performance management is giving suppliers feedback and letting them know how they are performing, offering them insight they may not otherwise have. Be sure to select the right KPIs, measure them quantitatively, address any gaps in performance, and take action to ensure suppliers are consistently delivering what your business needs.
