Ever have that feeling where you just know something can be improved, but aren’t exactly sure how or what? That’s essentially the core of supplier performance management (spm). While that’s a relatively reduced example, the principle is mostly there. Supplier performance management is a continual business activity that involves the analysis and assessment of how vendors meet the expectations agreed upon. 

The other reason that makes supplier performance management a bit like that improvement you just can’t put your thumb on, is that often-times, it’s an analysis that’s conducted by a 3rd party. These auditors examine the data provided, from initial contracts to receipts of goods or services, performance reviews, and everything in between. From there, the analysis begins and usually concludes with the reallocation of the budget, cutting loose some current suppliers and vendors, and slightly restructuring the supplier management process as a whole.

Defining Supplier Performance Management

Supplier performance management is really the evaluation of current suppliers in order to find cost-cutting avenues, reduce risk exposure, and identify opportunities for continual improvement. These efforts championed by supplier performance management will build value into your organization through the lens of data and insights into vendor supplier relationships

While nothing is completely risk-free, one aspect of procurement, especially with larger volumes and operations, is risk management. The efforts of a company to minimize the risk with which they run their organization. While it’s true that in some instances, higher risk yields a higher reward when it comes to procurement, there’s typically a risk threshold under which professionals prefer to stay. 

By successfully maintaining a minimal risk level, your organization can rest assured that operations will continue running smoothly, and that supply chains have the robust support that they require. 

The Differences Between Supplier Performance and Supplier Relationship Management

Supplier relationships are inescapable in the realm of procurement. Because of this, there’s a lot of lingo and phrasing that involves them. For instance, supplier performance management and supplier relationship management sound like almost the exact same phrases, however, there are some distinct differences that are rather significant. 

Before going any further, it is true that supplier relationship management and supplier performance management have a symbiotic relationship, but still – there are differences that are important to note. Firstly, supplier relationship management is normally an ongoing activity that occurs in the house. It tracks and analyzes the current and potential contracts that are cycling through your organization and uses powerful software to pull impactful insights from raw contract and market data. 

On the supplier performance management side of things, however, this is an effort that can be both internal and external, and often is in the pursuit of saving money or eliminating systemic risk. So, while it’s important and vital to conduct both SRM and SPM, it’s almost just as important to know how they differ from one another. 

The Importance of a Strong Supplier Performance Management Process

Creating a strong supplier performance management process leads to a variety of benefits that emerge in your organization. Two of these benefits have already been mentioned a few times, such as cutting wasteful costs or finding risk liability that can be eliminated. Yet, the value of developing a strong SPM process extends even further into sourcing in the supply chain

By implementing a strong SPM process, your company has the insurance that vendors and suppliers are meeting their expectations that have been contracted. In the instance that standards are being disregarded, timelines are exaggerated, or any other important factor is misconstrued, SPM will help your team identify those issues, eliminate them, and build prevention processes.

How Artificial Intelligence Contributes

As with many procurement practices today, technology and software play a growing role in the industry. In this vein, SPM makes use of programming that implements artificial intelligence. The AI in these programs is designed specifically for efficiency and evaluation. By integrating the AI with business logic, now your team will be able to run stellar analytics in a fraction of the time that they used to. Artificial intelligence also assists with the data-entry aspect of the analysis, doubling down on its attention to time-saving practices. 

The ways in which technology is going to continue advancing the procurement industry are yet to be seen, but make no mistake; the digital era and the virtual economy are likely here to stay. 

Finishing Up: A Quick Recap

Supplier performance management and supplier relationship management are two efforts that have very similar goals: the curation of a sustainable and cost-effective group of vendors and suppliers with whom your organization can develop long-term relationships. 

For more information on supplier performance management, supplier relationship management, or anything else procurement-related, keep browsing ProcurePort. ProcurePort is the internet’s premier place for anything procurement, from software and technology to information and knowledge, and everything in between.