Now you’ve identified underperforming suppliers. What’s next? It is important to hold suppliers and vendors accountable by directly addressing poor performance. How you do this though, is paramount. Building strong supplier relationships will benefit both sides. It’s better for your suppliers to acknowledge how important your business is to them, so they make every effort to provide the best service possible, or when necessary, give them an opportunity to improve. We understand the delicate nature of addressing underperforming suppliers, so we’ve collated four of the best practices to help your business tackle this more strategically.
1. Decide when to issue a warning
As you monitor a supplier's performance, you have to decide when to praise them and when to raise a red flag. You can drop a supplier for poor performance but strategically it is better to retain your suppliers. By issuing a warning, you give the supplier or vendor an opportunity to correct the problem. Review performance against service agreements and uncover the problem areas. For example, using data that you have collected like on-time delivery rate, return rate, and the number of supplier corrective actions to first try and work with your suppliers. This process is not just about reviewing and addressing underperforming suppliers but helping them to improve their performance. By clearly identifying the issues with data to back this up is the best place to start to move forward.2. Collaborative discussions without prejudice
Once made the decision to issue a warning it is time to have an honest conversation with your supplier. Without prejudice facilitates free and frank discussions to voice concerns in order to find out where the roadblocks or issues lie. Like in the workplace, the problems may be more easily fixed than you first think. The best way to do this is by talking it out and asking.3. Restore the relationship
Once there is a better understanding of the underlying issues aim for SMART resolutions: Specific, Measurable, Achievable, Realistic and Timely criteria. This can help end up in a win-win situation. Doing this together with your supplier allows both parties to be a part of the problem-solving discussion. This cultivates more invested interest to address issues properly and restore the relationship. This keeps suppliers aware of what they need to do, it also helps to reality check each other’s businesses to aim for achievable goals and manage expectations. Be prepared to make changes in-house if needed.4. Termination
No business should tolerate ongoing bad service from a supplier. If all attempts to address underperforming suppliers and resolutions fail, it’s time to review and consider alternative suppliers. Exiting the relationship with an underperforming supplier is sometimes what needs to be done. There will be a point where it is no longer feasible to waste any more time, money or energy. Have a process in place for when it is no longer in your best interest to keep bad suppliers to exit the agreement smoothly.