Success factors

J. Success factors and avoiding failure

What are the success factors and potential pitfalls when creating and rolling out a supplier appraisal system?

DO:

1. Start with the end in mind

What are you trying to achieve and how does the implementation of a supplier appraisal system support this? It is important to ask these questions early and to design any system with the end goal in mind. If risk management is the greatest need the supplier’s financial health may be worth exploring closely. If stakeholder satisfaction is more important, then using matrices to capture their views would be more appropriate. Any performance targets should be SMART: specific, measurable, attainable, relevant and time bound.

2. Keep it simple

Aim to make supplier appraisal as simple as possible, relying on easily obtainable information. Suppliers shouldn’t be required to spend a long time producing information to demonstrate performance because it could compromise the most important goal – delivery of the work. Appraisal system output must also be simple, and the results unambiguous, so there is no time and effort wasted on deciphering what they mean.

3. Allow for scalability

By allowing the system to be scalable to suit the needs of each supplier and their work, unnecessary effort for suppliers is kept to a minimum.

4. Ensure transparency

The appraisal process should be completely transparent so that suppliers can be confident it is an unbiased and fair system.

5. Build trust and goodwill

An environment of trust and goodwill means effective, clear, honest communication and supportive behaviour on both sides. The same is required of internal stakeholders across the organisation. In any relationship you will need to set clear expectations, such as:

• How the relationship is to be managed and the roles and responsibilities of the key parties, including the relationship owner;

• The nature and frequency of required information;

• How performance will be monitored and reviewed;

• How often face-to-face meetings will take place.

6. Provide feedback

Drawing up an agenda for providing feedback will ensure it is properly structured. Praise good performance, stressing why high performance is important. Areas of weakness should be highlighted and a plan put in place to correct any issues. Informing a supplier that their performance is below standard without discussion on how to improve it is not helpful.

7. Take corrective action

Without a resulting output or action the appraisal process is purely for information. In most cases small adjustments in the supplier’s performance will add significant value to the organisation.

8. Ensure appraisal is a two‑way process

Effective supplier appraisal should create two-way interaction. It should also allow:

• The supplier to challenge feedback they disagree with or would like to comment on;

• The supplier to discuss how support from the organisation could be improved, thereby improving performance.

9. Attempt to quantify the qualitative

It is important to note that some of the highest performing suppliers work in ways that are more qualitative. Elements such as their workplace culture and ways of working are difficult to measure, but not impossible. Why are these areas important? The answer gives a good insight into what may be more measurable.

For example, consider the following appraisal: “Supplier X is good because it fits with our own company culture. This is important because it shows they are aligned with our organisational goals and will be more effective when interfacing with the organisation.”

It follows that a “measurement” of how well a supplier communicates with stakeholders will provide a good indicator of performance.

DON’T:

1. Invest a disproportionate amount of time or money into a system that is not appropriate to the value of the benefits. A highly sophisticated system that measures detailed metrics would be overkill for small suppliers delivering simple goods, for example. Nothing is more likely to annoy a supplier than a firm using a process that is not fit for purpose.

2. Leave suppliers out

It is important to set out clearly how an appraisal system would benefit the suppliers themselves. Their co-operation will make the system far more workable. Also suppliers may well have been through this process with other organisations and will have good insights about what has worked well and what not so well in the past.

3. Assume suppliers have the same objectives

Buyers need to recognise that managing and improving supplier and supply chain performance requires co‑operative working, openness and a willingness to change.

Suppliers may not share the same objectives and priorities as the buyer and may well need to reconcile them with the needs of other potentially conflicting customers.

Supplier appraisal and monitoring techniques should be used constructively to inform and influence the development and capability of suppliers and supply chain partners as part of the wider contract and supplier management process.

K. Ending the relationship

The relationship may come to an end in a planned way, either because the contract is complete, because of changed circumstances or if the supplier’s performance is unacceptable. The circumstances will influence the motivation of the supplier.

In all cases, supply risk increases during the latter stages of a contract, particularly if the relationship will end completely. Performance monitoring is more vital in this period to ensure the supplier remains committed and focused.

Contract planning should ensure that the exit strategy is well thought through in good time so that the contract can be concluded in an orderly fashion.

It is good practice to conduct a post-contract review with the supplier to capture learning from both sides that can be used in new arrangements.