When a supplier continually fails to perform, buying organisations all too often take a passive approach to the problems; firefighting, making excuses for the supplier, or perhaps cursing the supplier’s incompetence at internal meetings, but never directly addressing the poor supplier performance.
What’s Wrong With This Picture?
This rather fatalistic, but common approach to poor supplier performance is sure to deliver the worst possible outcome—and here’s why:
- Eventually the buyer drops the offending supplier, but by then, the reluctance to act has degraded the buyer’s operational performance, incurred cost and perhaps even harmed customer relationships.
- Supply chain performance suffers as long as the buyer continues working with the offending supplier.
- The buyer has to formulate an exit plan and identify an alternative supplier, preferably before divorcing the incumbent.
- Changing suppliers might negatively impact the price and/or quality of the buyer’s products.
- Huge opportunities for supplier performance improvement are missed (instead of the upheaval of changing suppliers, the buyer could have enjoyed the continuity and stability of an improved relationship with the incumbent).
Simply put then, if your supplier consistently fails to meet performance expectations, inaction is a huge mistake.
While I believe that beating up suppliers is bad practice, even use of a big stick is preferable to playing victim until the only way is out. I’d suggest the following course of action if, for some reason, a supplier’s performance shortfalls become chronic.
Action #1: Determine the Root Causes
The only time it’s OK to not bring an errant supplier to book is when your own company is at the root of the problem. When investigating the causes of poor supplier performance therefore, it’s a great idea to make sure they don’t lie within your own operation. If they do, it’s better to find out before trying to call the supplier out.
In order to get at the cause of sub-par supplier performance and find out if buyer or supplier is responsible, you should perform a detailed root-cause analysis of each performance issue.
Once causes have been identified, you will be able to start work on fixing the problems, either by direct action for issues lying within your own business, or by collaboration with the supplier—if the supplier’s management team is prepared to work with you.
Action #2: Supplier Performance Improvement
But what if the supplier doesn’t want to collaborate or even share plans for performance improvement? Suppliers aren’t always prepared to play ball, so the first thing is to find out if yours will. Set up a meeting with your problem supplier, to share and integrate action plans for performance improvement.
In many cases, suppliers willingly collaborate in action planning and performance improves as a result. Even so, you should be wary about increasing order levels on the basis of good behaviour.
Give the supplier a few months to demonstrate sustained improvement. If improvements are sustained, you might want to consider elevating the relationship to a strategic one, because clearly:
- A) The supplier saw the problems as opportunities to improve service.
- B) The supplier considers you to be a priority customer.
If performance doesn’t improve, despite willingness of the supplier to address problems, you have at least two possible courses of action. For example, you might seek an alternative primary supplier and use the problem one as a back-up only (giving the problem supplier an incentive to improve and regain its primary position), or you may decide to exit the relationship altogether.
If a supplier does little more than promise improvements, and/or is recalcitrant toward your attempts to get involved with its operation, parting company is really your most realistic option.
In this case your own action plan will include the necessary timeline and steps to secure a new supply source and to formally end any agreements with the incumbent supplier.
Action #3: Review Supplier Management Processes
Even if poor supplier performance was in no way attributable to your own organisation, somehow you reached a point where you had to react. Addressing poor performance is of course, an important aspect of supplier management, but prevention is even more so.
Review your company’s supplier performance evaluation and management process. Ask yourself the following questions:
- Was the poor performance addressed early enough?
- Do you have sufficient visibility into supplier performance?
- Do you have the right metrics in place to measure supplier performance?
- Are you continuously evaluating supplier performance?
- Did the supplier have sufficient knowledge of your company’s expectations?
Can You Prevent Chronic Poor Supplier Performance?
If you can answer “yes” to all the questions in the above section of this post, there is probably little that could have been done to prevent a reactive situation.
That’s why I have written this post: because if your supplier performance evaluation and management process is effective, you will rarely find yourself having to jump on seriously poor performance. Hence you might be glad of some guidance should the rare situation arise.
On the other hand, if your supplier management review results in any “no” answers, the need to address chronic poor performance might have been avoidable. After reviewing your supplier management, a focus on shoring up weaknesses should help you to prevent future scenarios in which performance improvement plans and stay/go decisions are necessary.