Monday, 26 May 2014

Relationship Through Performance Management

Authored by  Junaid Khan

In simple words Performance Management can be defined as the process of evaluating, measuring and monitoring supplier performance and supplier’s business process and practices for the purposes of reducing costs, mitigating risk and driving continuous improvement in your purchasing process. The relationship between a large complex organization and its key suppliers is normally more than just "strategic". A Vendor is a third party that supplies products or services to an enterprise. These products or services may be outsourcing, hardware, software, services, commodities, etc. Vendor management is a strategic process that is dedicated to the sourcing and management of vendor relationships so that value creation is maximized and risk to the enterprise is minimized. This process requires dedicated effort from the enterprise and the vendor.

The approach and level of effort vary based on the vendor relationship and the scope of services and products. Each type of relationship may require a different set of steps and documents, depending on the relationship and enterprise strategy. Enterprise should focus their vendor management efforts on third-party relationship that:
  • Play a vital role in the enterprise’s daily operations.
  • Have a critical impact on the success of the enterprise’s strategic projects.
  • Require long-term contacts.
  • Have potential for significant financial implications.
  • Are difficult to change overnight.
  • Require frequent interaction and collaboration for disputes or have complex problem resolution mechanisms.
  • Access or manage substantial critical or sensitive data.

Managing supplier performance helps enterprises to focus resources on value added activities instead of reacting to supplier performance induced problems i.e defects, expediting, excess inventory, late deliveries, reduction of market competitiveness etc. By better understanding supplier performance via increasing performance visibility, companies can better monitor and manage key relationships by taking steps to prevent or remedy problems and on the positive side, they can identify and leverage suppliers capable of innovation and continuous improvement who will add value to the relationship.