A collaborative approach to supplier performance management

by | Nov 7, 2024 | Data Management, Retailers, Vendor Management

A collaborative approach to supplier performance management

Managing supplier relationships remains one of the biggest challenges in retail. Even with sophisticated supply chain technology, many organizations struggle with fundamental supplier performance issues: inaccurate shipments, inconsistent fill rates and chronic delivery delays.

Recent industry research reveals the scope of these challenges, with over 80% of businesses reporting ongoing issues with shipment accuracy and more than two-thirds facing persistent problems with late deliveries.

Among the various tools available for improving supplier relationships, supplier scorecarding stands out as a common approach. But traditionally, supplier scorecarding brings to mind penalties imposed by retailers or grocers onto their supplier community. Scorecards are often associated with chargebacks for noncompliance in areas such as late shipments, incomplete shipments or even improperly placed shipping labels.

Of course, compliance is an important part of managing supplier performance, but it’s more important to consider the strategic purpose of a supplier scorecard. A scorecarding effort with insightful supplier metrics can help both the retailer and its suppliers perform better, together.

Using supplier scorecards to drive positive change

Scorecards can foster collaboration that helps all trading partners make positive changes in their supply chain performance instead of being used as a punitive measure.

For example, if a retailer wants to improve supplier metrics such as fill rate (or the amount of product shipped as a percentage of the total order), they can work collaboratively with suppliers to make improvements. This can involve activities such as making sure suppliers acknowledge orders and communicate any changes in what they plan to ship versus the original order.

By doing so, the retailer knows what to expect from suppliers and can send additional purchase orders at a later date for the remaining quantity.

Supplier scorecarding has significant benefits for suppliers as well. If suppliers have ready access to tangible metrics on performance, they gain more insight into what to improve.

For example, SPS Commerce worked with a supplier who was not consistently sending required advance ship notices (ASNs) to a retail customer. As a result, the supplier’s product got stuck on the receiving dock and was delayed getting onto store shelves, causing both the retailer and the supplier to lose sales. For reasons like this, SPS sees suppliers create their own scorecards to show retailers their performance and discuss what’s going well and what changes are needed to improve their supplier metrics.

Go beyond scorecarding to improve supplier performance

When retailers and suppliers work together to improve performance metrics, the financial results can be substantial. Research shows that companies who improve their supplier OTIF (on-time in-full) rates by just five percentage points can see dramatic revenue gains. For a $5B organization, this seemingly small improvement could generate an additional $158M in revenue.

The impact extends beyond just delivery metrics. Organizations that systematically track and improve supplier performance can see sales increases of up to 10% and margin improvements of up to 12%. When products arrive on time and orders are filled completely, retailers can maximize sales opportunities while keeping operations efficient.

Starting a conversation around supplier scorecarding isn’t always easy. Full-service providers like SPS Commerce not only provide a supplier scorecarding solution but also an expert team that can help retailers and suppliers interpret the information and formulate a plan to collaboratively improve supply chain performance.

Take the first step toward better supplier collaboration. Schedule a consultation with our team to explore your options.

Brandon Pierre
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