11 Supplier Performance Management Best Practices

In any business that relies on external vendors, supplier performance management is key to maintaining smooth operations. When you don’t have a system to track how well your suppliers are meeting expectations, problems like cybersecurity flaws, quality issues, or increased costs can quickly create massive business disruptions.

At Graphite Connect, we understand how important it is to stay on top of supplier relationships. Fortunately, with the right approach, you can prevent problems before they disrupt your workflow while reducing costs and ensuring that your products or services maintain the quality your customers expect. 

In this article, we’ll walk you through 11 supplier performance management best practices that can keep your business running smoothly.

What is vendor performance management?

Vendor performance management is the process of evaluating your suppliers to ensure they’re meeting the standards set by your business. It involves tracking how well they deliver in terms of quality, timing, cost, and contract fulfillment. 

Proper vendor management helps you pinpoint which suppliers are contributing to your success and which ones need improvement. By taking this approach, you can reduce supply chain and overall business disruptions, improve product quality, and make better long-term decisions. For more tips and insights, please check out our Complete Guide to Supplier Performance Management.

11 vendor performance management best practices

To get the most out of your supplier relationships, you’ll want to put some proven strategies in place. These supplier performance management best practices will help you proactively manage supplier performance and ensure that your vendors are working to help your business succeed.

1. Set vendor management key performance indicators

Your suppliers need a clear understanding of how their performance will be evaluated. Setting specific, measurable goals ensures both sides are aligned on expectations. 

Supplier performance management KPIs should cover areas like product quality, delivery speed, cost control, internal stakeholder satisfaction, and compliance with contracts. When suppliers know what’s expected, they are more likely to meet or exceed those standards. 

2. Use a centralized platform for tracking

Managing supplier performance manually or across different systems can create confusion, missed deadlines, or errors in tracking. By using a centralized supplier management platform, you can simplify everything and save valuable time. 

With all supplier data in one place, it’s easier to track performance metrics, monitor compliance, gather stakeholder feedback, and ensure accountability. A centralized system also allows you to compare suppliers based on quality, cost, and other performance indicators, ensuring you have all the information you need at your fingertips.

3. Schedule regular performance reviews

Just as you regularly review employee performance, your suppliers also need consistent evaluations. Quarterly performance reviews allow you to discuss any issues that arise, recognize where the supplier has met or exceeded expectations, and make adjustments as necessary. Performance reviews are also a great time to strengthen communication and address potential improvements before they become larger problems.

Some suppliers may only require an annual review. Focus your efforts on your most strategic suppliers with the largest amount of spend first. Then, prioritize more frequent check-ins with these vendors. Using a grid to “bucket” your entire supplier base can help clarify which suppliers are most important to manage to optimize cost savings.

4. Maintain open communication with suppliers

Strong relationships are built on open communication. Making sure your suppliers are aware of changes, expectations, or challenges you’re facing helps build trust and ensures mutual understanding. 

The more openly you communicate, the better your suppliers can respond to your needs. For example, knowing that you’ll be rolling out new compliance guidelines can help suppliers make quick adjustments, which benefits both sides. Regular communication helps reduce misunderstandings and keeps both parties on the same page.

5. Incorporate supplier feedback

Just as you provide feedback to your suppliers, it’s important to listen to their input as well. They may be dealing with issues you aren’t aware of, such as market challenges or material shortages. By being open to their feedback, you can gain insights into how to adjust your processes to support them in meeting your needs. Collaborative supplier relationships thrive when both sides feel heard and understood, which can lead to better performance and stronger long-term partnerships.

6. Segment your suppliers based on performance

Segmenting suppliers based on their performance can help you focus on the most important relationships while giving attention to those that need improvement. High-performing suppliers might benefit from longer contracts or larger orders, while lower-performing vendors may require more frequent check-ins or support. 

This segmented approach also helps you identify which suppliers are good candidates for long-term partnerships and which ones might need to be replaced if performance doesn’t improve.

7. Focus on risk management

It’s not enough to simply track how well a supplier is performing — you also need to assess potential risks. This might include financial instability, non-compliance with industry regulations, or dependency on a single supplier for critical components. 

Being aware of these risks allows you to develop contingency plans to ensure your business stays on track even if something goes wrong. A proactive approach to managing supplier risk can significantly reduce the chances of supply chain disruptions and costly delays.

8. Use data to drive decisions

By analyzing performance trends and identifying patterns, you can make more informed choices about which suppliers to invest in and which ones may need to be phased out. This data not only provides objective insights but also helps reduce any bias in supplier evaluations. When you rely on data, it’s easier to hold suppliers accountable and make improvements based on factual information.

9. Reward top-performing suppliers

Suppliers that consistently deliver on quality, cost, and timing should be recognized and rewarded. Offering preferred vendor status, increased orders, or improved payment terms can motivate top performers to maintain or even improve their service. 

Positive reinforcement also strengthens the relationship, making suppliers feel valued and more invested in your success. By acknowledging the efforts of high performers, you create a win-win situation that benefits both your business and your vendor.

10. Develop action plans for underperforming suppliers

When a supplier doesn’t meet expectations, you should create an improvement plan rather than immediately terminating the relationship and beginning the vendor offboarding process. Work with your suppliers to develop actionable steps that will help them meet your standards. You can set clear timelines and measurable goals, and offer the support they need to get back on track. 

This approach not only gives suppliers a chance to improve but also demonstrates your commitment to working together for the long term. If they fail to improve, you’ll have documentation that justifies finding a replacement.

11. Regularly review and adjust your strategy

Vendor performance management isn’t something you can set and forget. Your business needs will evolve, and your supplier management program should evolve along with them. 

Regularly reviewing your supplier performance management best practices allows you to make adjustments that keep your operations running efficiently. This could mean revising performance metrics, reevaluating supplier relationships, or incorporating new technology to improve communication. By staying flexible and open to change, you’ll ensure that your supplier relationships continue to support growth.

Supplier performance management made easy

Supplier performance management doesn’t have to be complicated. 

With Graphite Connect’s supplier performance management software, you can streamline every aspect of the process, from tracking performance metrics to improving communication and managing risk. Our centralized platform provides the tools you need to stay ahead of potential problems, build stronger supplier relationships, and ensure your business runs smoothly. Ready to take control of your supplier performance? Contact Graphite Connect today and discover how we can help you achieve your business goals.