10 Supplier KPIs You Can’t Ignore

In an ideal world, there’s respect both given and received. And that respect’s been built over years of collaboration.

After all, the promises your suppliers make, and their ability to deliver on them, ultimately impact your ability to fulfil promises of your own.

And if you fail to deliver, it’s your customers who’ll be renegotiating, in the form of walking away.

Having suppliers who can meet demand is one thing.

But, you need suppliers who support your growth, sustainability & innovation goals. Suppliers who are useful now, but also worth keeping around for the long term. Suppliers who can grow with you. Suppliers who can help you achieve your goals, not be an obstacle to them.

And yet they so often are.

When a delivery’s missed, the lack of performance is a rather obvious issue.

In other cases, it’s a little harder to spot where they’ve gone wrong. And worse still, sometimes you don’t know until it’s too late. I’m sure Tesco still rue handing the reins of their meat supply to whoever sourced horse meat in lieu of regular pork sausages.

Hardly a way to ensure a stable supply of custom, is it? Not if you want them around furlong (…excuse the pun.)

The need for KPIs

To properly benchmark whether your suppliers are toeing the line, you must have KPIs.

These indicators will tell you about the quality of your supplier relationships and measure the value each one brings to the table.

Your KPIs should also help detect potential problems before they arrive. Or, worst case, before the horse has bolted.

After your KPIs are in place, effective collaboration becomes a whole lot easier. And strategic decision-making is undertaken by simply following the process.

But what kind of KPIs should you measure?

There’s an almost infinite amount of data you can retrieve about your suppliers.

Naturally, some of it is more important than others and should be weighted accordingly. Where you can use metrics to provide a black ‘n’ white view of supplier performance, do so.

These metrics are data-driven & can be easily visualised. They’re also easy to present and make informed decisions with.

But you don’t have the benefit of such data with every metric.

The relationship with your suppliers is far more nuanced than simple charts can depict.

And your supplier performance monitoring should look beyond the tangible numbers to shine a light on performance issues where simple data can’t tell the whole story.

Remember to look at softer, less tangible performance offerings. And your supply chain performance will grow tall and strong, alongside your business.

10 supplier performance KPIs to implement now

Firstly, because it’s the easiest place to start, let’s begin with the tangible metrics.

1. Supplier OTIF

OTIF, as we discussed here, considers a supplier’s ability to deliver. Are they on time? Is the order full?

It’s typically the most obvious to point out, should they fall short. So much so, it’s unlikely they wouldn’t tell you beforehand if a shortfall was expected.

OTIF doesn’t tell us the full story, however.

2. Lead time deviation

Lead time is a critical factor in a huge amount of your inventory calculations.

If a supplier promises an order will be with you in 12 weeks, but takes twice that long, it’s going to create problems all over the business.

Similarly, if your order arrives too early, you’re going to need to find warehouse space in a hurry. And warehouse space in a hurry doesn’t come cheap.

Lead time’s used to determine the order moment, safety stock requirement & order frequency.

And there are lots of reasons why lead times may be shorter or longer than promised. And of course, they’re not the supplier’s fault in every case either.

But sooner rather than later, incorrect lead times must be questioned.

3. Defect rate

Defect rates, like OTIF and lead time deviations, are an obvious spanner in the works.

They can also make a good OTIF rating and no lead time deviation pointless. After all, what good is your order arriving on time, if half of it’s broken or not up to standard?

Your customers won’t accept shoddy products and neither can you.

Even if the order was damaged in transit or the materials aren’t up to spec, a full enquiry into why must be undertaken.

4. Volume deviation

Lead time variation’s one bad example. But getting fewer or too many items can be just as hazardous.

Especially if that deviation impacts sales. Or you’re left holding the baby, at your own personal expense.

Volume has to be bang on. Every time.

If it’s not your order volume, pack quantities and pallet sizes will also be off. And that’ll set off a chain reaction which is expensive to fix.

5. Supplier ROI

What value are you getting from this supplier? How much does it cost to work with them over a competitor? And does that represent value for money, or are you being ripped off.

Every business promises value.

You need to benchmark whether they’re actually delivering it or not.

And if you can’t point out the return on investment you’re getting, likely, you’re not getting one.

And now, for some slightly less tangible metrics…

As we mentioned above, it’s not a great analysis tactic to only focus on the obvious stuff. The clear data’s there for all to see.’

So let’s look at some of the more difficult supplier performance factors you can define KPIs with.

6. Sustainability

Sustainability should be so much more than a buzzword for marketing to throw out.

And there’s a lot to be said for making sure it’s that in your business. Something Volkswagen will be wishing they’d done, before recalling 800,000 vehicles.

Consumers these days care about sustainability. It’s no longer a buzzword. It matters.

And can you call yourself a sustainable business if your supply chain partners show no regard for the environment?

That’s not rhetorical by the way, the answer’s no. You can’t.

There are some industries, like Food and Paper which have very clear, indelible sustainability metrics. Taking inspiration from these might be a good start, but you may need to adapt individual KPIs to have full control of your supplier sustainability.

7. Innovation

I’d imagine you spend a lot of money and a whole lot of research in getting ahead of the curve. And possibly even more money to stay there.

Your suppliers therefore must be held to the same account.

Not only are they a good conduit to innovation, but they can be priceless in your quest.

How are they investing in R&D?

Are they advancing their product offering?

Can they keep up with the demands of your market?

Can they diversify in range?

Are they able to fulfil new markets?

What speed can they service new locations around the world?

All correct and proper questions to be asked if you want to make sure they’re as innovative as they’d like you to believe.

8. Flexibility

Is a supplier your flexible friend? Or is it rigid beyond belief?

Sometimes, and sometimes far more often than that, the unexpected happens. And you need a flexible friend to help you out.

A good supplier will be just that.

A bad supplier will leave you out to hang in your moment of need.

9. Risk mitigation

They say prevention’s better than a cure.

As stated above, agility’s a great characteristic to have in a supplier. But not in place of one who can proactively mitigate risk in their operation.

Of course, this is the kind of information you can’t just assume. You may need this information directly from the horse’s mouth.

But if Covid has taught us anything, it’s to expect the unexpected.

So ask what your suppliers are doing to make sure they fulfil your orders – even if the world is falling apart outside. Because some will be doing lots. And others will be relying on their agility.

Who you run with after knowing which is which, is your call.

10. Ease of collaboration

Often an overlooked KPI to benchmark with, but commonly one of the most important.

Sure, you want suppliers who deliver on time. And in full. And as expected. But you also want suppliers who you can work with seamlessly.

A supplier who values collaboration, just as much as you do.

One who doesn’t take your business for granted. And treats you the way you deserve to be treated.

Some suppliers are better prepared to support end-to-end collaboration. And some just take your order and leave you for dust should you have a problem.

Perhaps you have good chemistry? Maybe they share key supply chain insights? It might be they’re brave enough to challenge your way of working and help you improve?

Of course, this fits in the ‘hard to measure’ column. But it’s one of the most important elements in business. Collaboration and harmony.

After all, the closer your collaboration, the more likely you are to improve the points above, and the better your supply chain.