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Why You Need Vendor Performance Management and How to Develop an Effective Program

Scorecards, report cards, and performance measurements are all terms that are mainstays in today’s business world. From employees’ work contributions to keeping accountability of your vendors, scorecards and performance measurements are a critical component of determining how the successes or shortfalls align with your company’s strategic goals.

Your vendors are one of the fundamental keys to your company’s success. They are, after all, an extension of your company and a reflection on you as a distributor. As industrial distributors increasingly rely on vendors for sourcing parts and assemblies, the distribution process is becoming more complex and competitive. The more vendors you work with, the more difficult it can be to track performance when it comes to delivery and quality.

So, what criteria are you utilizing to measure the overall performance of your vendors and what tools are you using to convey and review this important information to your vendors? Below, we outlined some best practices that industrial distributors should follow when it comes to vendor performance management.

Build your vendor scorecards around your company goals.

Your vendor scorecards should be designed to complement and align with your company’s strategic goals and objectives. For example, if your goal is to decrease your delivery time to your customers, your vendor scorecards should additionally be tracking on-time delivery percentages to your industrial distribution business.

Your first step is to meet with your operations and purchasing teams to determine what your goals are and the criteria or metrics that you will be measuring.  This will ensure your vendors are performing to your standards and helping you reach your goals. Keep in mind that in most cases there is not a one-size-fits all scorecard. Each vendor scorecard should be unique in their percentage goals. Once you’ve established the criteria, you need to communicate the plan with each vendor, so they understand the expectations.

Determine tools and reports to build your vendor scorecards.

Rather than relying on outdated paper-based processes for building your vendor scorecards, your ERP software system should have the tools to help you effectively measure vendor performance against the goals you have established. It should be able to efficiently measure service levels, vendor purchase orders, purchasing volume, on-time performance, vendor rebate programs, and more. This will provide a more streamlined approach to track vendor performance over time and alert you of any underperforming vendors, so you can make the necessary corrections. In fact, businesses that take advantage of tools like scorecards can experience a 20 percent increase in accurately measuring supplier performance metrics.

Share the performance results with your vendors and internal team

You’ve got the results from the previous quarter and the reports are filled with valuable insight regarding your vendors. Now, it’s time to share this information. Schedule a meeting to review results, set improvement goals and create a plan with the vendor to achieve those goals that were missed. This meeting also opens an opportunity to discuss not only performance issues, but pricing structures and special pricing agreements that are beneficial to both parties. At the conclusion of the review meeting, it is equally important to share this information with your internal team to keep them apprised of any areas of concerns.

Frequency of Vendor Performance Evaluations

It’s best practice to manage your open purchase orders on a daily basis to ensure products are delivered to you on time, which in turn can affect the promise date given to your customers. This allows you to get ahead of any problem areas that may require attention before they get too out of hand. In addition, it is recommended you conduct vendor performance evaluations on a quarterly basis. However, if scheduling is an issue, at minimum you should try to meet with your vendors at least two times per year.

TrulinX empowers industrial distributors to control cost and risks associated with vendors.

By using an ERP vendor performance management software like TrulinX, the hard work is done for you. TrulinX enables industrial distributors to maintain visibility and record of vendor performance, which, in turn, can improve both the quality of your service and speed of your delivery.

With TrulinX software, you have the built-in reports and tools to rate your vendors by different criteria:

  • Vendor Service Level by Location - Track if your vendors are conforming to your shipping specifications with vital information and numerous filtering options like percentage of dollars and date range shipped on time, percentage of lines/units and date range shipped on time, dates beyond range percentage of lines/units shipped, plus Vendor Product Code, PO, SO and aging detail information.
  • Vendor PO Recap Expedite Report - Summarized the outstanding PO information by vendor. This report should be used daily to keep a pulse on on-time delivery stats and to alert you of any potential or repeated issues with vendor performance.
  • Vendor Report Code - To report sales and rebates to a particular vendor. TrulinX includes Eaton and Parker Hannifin POS and rebate reports as part of the standard package.
  • Vendor Summary Report - Accounting information by vendor purchase-from location, including YTD purchases and payments, current and future balance, and more.
  • Vendor Volume Report - the total amount of goods you have purchased from your vendors with numerous filtering options including Show Top (x number) Vendors.

TrulinX also provides numerous SQL queries to further sort your data:

  • Average Vendor Delivery Report - Data on how your vendors are delivering to you by item, showing average days from PO to receipt of parts.
  • Total Sales and Purchases for Vendor
  • Top Items Purchased from Vendor

Ready take control of your vendors? See how TrulinX can help.

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Tribute, Inc. is a provider of ERP business management software for distributors and system integrators in the fluid power, hose, motion control, automation, fluid handling & pump industry who provide value-added services.