Supplier Management: Selection, Performance, Scorecards, SRM & Improvement

Supplier management is the discipline of selecting, onboarding, monitoring and improving suppliers so they consistently meet the organisation’s commercial, quality, delivery, service and risk requirements. It begins before contract award and continues throughout the supplier relationship.

Supplier Management Lifecycle

1. Define requirements – specification, service levels, volumes, quality and compliance needs.
2. Identify and evaluate suppliers – capability, capacity, financial health, quality systems, cost and risk.
3. Select and contract – negotiate price, terms, KPIs, responsibilities and remedies.
4. Onboard – approve master data, contacts, documentation, logistics and invoicing processes.
5. Monitor performance – review delivery, quality, cost, service and risk.
6. Develop and improve – corrective action, process improvement and capability building.
7. Renew, reduce, replace or exit – based on value, performance and risk.

Supplier Selection Criteria

For high-risk or high-value suppliers, desk research alone may be insufficient; field audits or third-party assessments can be appropriate.

Supplier Performance Scorecard

A scorecard should measure what matters in the contract and should not contain dozens of metrics that nobody acts on. One practical model is:

Weighted score = (90 × 0.30) + (96 × 0.25) + (85 × 0.20) + (80 × 0.15) + (100 × 0.10) = 90%

Useful Supplier KPIs

• On-time in-full delivery (OTIF)
• Lead-time adherence
• Incoming rejection / defect rate
• Corrective-action closure time
• PO or invoice accuracy
• Price / contract compliance
• Responsiveness to issues
• Emergency order frequency
• Supplier risk status

CIPS recommends that supplier objectives and performance targets be agreed in the contract. This makes performance reviews objective and gives both parties a clear basis for improvement.

Supplier Segmentation

Not every supplier needs the same management effort. A practical segmentation is:

• Strategic / high-risk: close relationship, executive reviews, joint improvement and contingency planning.
• Leverage / high-spend: commercial focus, sourcing competition and cost improvement.
• Bottleneck / constrained: supply assurance, risk mitigation, inventory or alternate-source planning.
• Routine: efficient transactions, catalogues, automation and simplified administration.

Supplier Management vs SRM

Supplier management covers the full discipline of supplier selection, governance and performance. Supplier Relationship Management (SRM) is the relationship-oriented part, typically concentrated on suppliers where collaboration can create meaningful value or reduce significant risk.

Corrective Action Process

If a supplier’s OTIF falls from 96% to 82%, a useful response is not simply to issue a warning. A stronger process is:

1. Confirm the performance data and affected POs.
2. Determine the root cause with the supplier.
3. Agree containment actions for current orders.
4. Define corrective actions, owner and due date.
5. Track performance after implementation.
6. Escalate commercially if performance does not recover.

Common Mistakes

• Choosing suppliers primarily on unit price.
• Using KPIs that were never agreed contractually.
• Scoring every supplier with the same criteria.
• Reviewing performance but not assigning corrective actions.
• Ignoring the buyer organisation’s own causes of poor performance.
• Keeping weak suppliers indefinitely without an improvement or exit plan.

Common Interview Question

Question: How would you manage a poorly performing supplier?

Strong answer: I would validate the performance data, identify whether the failure is supplier-caused or buyer-caused, agree immediate containment, establish root cause and corrective actions, track recovery against contractual KPIs, and escalate or re-source if agreed improvement does not happen.

Related SCMANA Guides

• Procurement vs Sourcing vs Purchasing
• Total Cost of Ownership
• Procure-to-Pay
• Supply Chain Abandonment Decisions: When to Exit a Supplier, Product, Lane or Project

References

• CIPS – Supplier Performance Management
• CIPS – Supplier Evaluation