When a vendor’s performance doesn’t meet the distributor’s expectations (or the expectations of the distributor’s customers), customer satisfaction and loyalty is compromised. And getting that trust back from customers is expensive, if the distributor is able to do it at all. The following will explore vendor performance management for distributors.
The Importance of Vendor Performance Management
Like vendor communication, vendor performance management, or distributors’ practices to ensure suppliers are meeting expectations, is essential to fostering and maintaining mutually beneficial relationships between vendors, distributors and their customers.
When this visibility is lacking, a host of challenges may arise, especially in today’s uncertain and unstable supply chain. If a delay, product shortage or another issue occurs, distributors need to be made aware ahead of time so they can shift to other sources of supply if needed.
While active communication assists in making this happen, a discipline must also be in place to ensure vendors are aware of expectations well in advance and understand the potential ramifications of failing to deliver on these expectations.
Distributors have a responsibility to their customers to drive vendor quality. In fact, nearly half of distributors have diversified their supply base in an effort to mitigate the supply chain challenges resulting from the pandemic. By monitoring specific metrics, they can capture a vendor’s overall performance to ensure their distribution center is set up for success.
Top KPIs to Track to Ensure Vendor Quality
KPIs, or key performance indicators, are measurements that help organizations understand how well they are achieving their key objectives. They are essential for goal setting and measuring progress over time.
In the context of vendor management, there are a variety of KPIs that can be used to track different aspects of a vendor’s performance. It’s important for distributors to both communicate with suppliers upfront about the KPIs they should be working toward and periodically review these metrics to ensure they remain relevant and meaningful.
The following KPIs play into a vendor’s overall performance:
- Order Accuracy and Quality: If a vendor has a low order accuracy rate, it can lead to costly errors and delays in your operations. On the other hand, if you find that your customers are consistently happy with the products they receive, it may be worth working with that supplier on a regular basis.
- Pricing: Vendors that frequently increase prices without notice take a toll on your bottom line and may even require you to raise prices (or eat the cost) for your own unassuming buyers. Conversely, vendors that keep communication open about required price increases so that they don’t take you by surprise, or look for ways to cut costs/increase transaction efficiencies or provide appropriate discounts are more likely to win over distributors like you, creating a loyal customer.
- On-Time Delivery: This metric will give you a good indication of whether your vendor is able to meet your deadlines and deliver your products on time. If a vendor is consistently late with deliveries, it can cause disruptions in your supply chain and lead to dissatisfied customers.
- Customer Service: Vendor customer service impacts both distributors and their buyers. How suppliers handle complaints and other problems reveals a lot about their overall performance. Poor customer service and communication may uncover a supplier’s inefficiencies, unprofessionalism, and lack of attention to detail.
While you may be confident in your chosen KPIs, you may find them difficult to measure and track, as many vendor performance metrics are qualitative versus quantitative. With the help of Microsoft Dynamics 365 Supply Chain Management for Distributors, however, you have access to scoring tools that make it easy to record and track such metrics over time.
Vendor Performance Tracking Made Simple
Whether you’re tracking qualitative or quantitative data, relying on spreadsheets and manual scorecarding is cumbersome and frustrating. When a shipment comes in from a supplier, your team must make quick assessments, including whether the items are on time, accurate and in perfect condition.
Instead of turning to Excel or legacy software, you’ll find that there are much better options for tracking vendor performance, lead times and quality.
Microsoft Dynamics 365 Supply Chain Management offers features to save distributors time and resources, including an onboarding and approval process for new vendors in which they go through a series of questions to assess whether they may be a good fit.
Collecting this data is only one piece of the puzzle, however. Power BI, Microsoft’s business intelligence engine, helps distributors sort, arrange and present data. The rich data visualizations and dashboards in Power BI helps to analyze trends in vendor quality, on-time delivery, customer service and more.
With simple, automated means of gathering and assessing data in a meaningful way, distributors can easily understand which vendors are performing well and which ones may need revisiting. Supply Chain Insights, now in preview, enables you to improve decision-making with a digital supply chain twin with what-if simulations, as well as enhance multi-tier supplier visibility.
To learn how to make the most of these solutions, request a consultation with the experts at Sikich.