“When you measure and communicate supplier performance regularly, suppliers improve their cost, quality and responsiveness. Done in an automated,

systematic way, performance improves dramatically, in some cases by over 50%.” (Source: Aberdeen Group)

Supplier of the Year program – A popularity poll or performance review? By Ron Latham

Many retailers have adopted Supplier of the Year programs to recognise and reward their trade partners for excellence in delivery of supply, service, partner relationships and in-store support.

The methodology of how winners are judged varies between retailers. Many ask their category managers/buyers and stores to “vote” for their Supplier of the Year – often without any specific performance measures or scoring guidelines. Only a few have defined KPIs and also involve other functional managers and most are still using pen & paper and spreadsheets to collate results.

Generally results take the form of suppliers just being told of how they ranked in their category and they are unaware of specific ratings and where or how they might improve their performance.

But all this is starting to change. In today’s tough retail market and competitive environment, more retailers are realising that Supplier of the Year programs are more than just a vote, or a popularity contest, they are about communication of performance expectations and regular formal reviews, often two-way, to provide feedback on how suppliers are performing against those expectations.

We believe the five “Rs” of a successful Supplier of the Year program process are:

Rate supplier performance – Key stakeholders rate performance on specific KPIs and key metrics. Report - Provide key stakeholders with reports on results, by supplier and suppliers with their own reports

showing their performance benchmarked against their peers; Review - Meet with suppliers to identify strengths and prepare action plans to address any areas of

underperformance; Reward excellence, and encourage competition, with Supplier of the Year awards and publicity. Repeat the rating, reporting and review process at regular intervals to monitor progress;

Supplier of the Year programs generally focus on improvement in two key areas:

Product and supply chain: identifying the key value added processes in the supply and merchandising chain and working together with their trading partners to fulfil consumer wishes better, faster and at less cost. This is particularly so with extended supply chains and sourcing from low cost countries.

Business Partner Relationship: Retailers today do not just want their suppliers to sell them products. They want them to become “business builders”, helping to optimise the retailer’s profitability with a deep understanding of their specific business needs as a Strategic Partner. This means helping their key trade partners on the journey from “Vendor” to “Supplier” to “Key Supplier” to that of a “Strategic Partner”.

Supplier Performance Management (SPM) is absolutely critical in the “Strategic Partner” journey, using the process of regular reviews to measure, analyse, and manage supplier performance and relationships to improve quality, reduce costs, mitigate supply risk, and drive continuous improvement in supply value.

SPM, with its regular performance monitoring of KPIs and reward for excellence, through Supplier of the

Year programs, is a vital tool to plot the journey. It helps suppliers to improve their performance and reach their full potential and cement their “strategic Partner” relationship position.

As part of their Supplier of the Year programs a few retailers now undertake formal annual, or quarterly, performance reviews with their suppliers, using Key Performance Indicators and a formal rating process that looks at the entire business relationship:

Woolworths invite their 2000 plus suppliers to register for their Trade Partner Program each year. Suppliers are assessed across various areas of Woolworths’ business such as Buying and Marketing, Finance, Replenishment, Stores, eBusiness and more. Each product category is scored on a number of core criteria, KPIs specific to each and a sales growth score. Quarterly reports are provided to suppliers and scores are aggregated annually as the basis for awards, announced at a gala dinner.

Myer automatically enters all their 800 Trade Partners from their merchandise, concessions, supply chain and business support areas into their Supplier of the Year program. KPIs differ by category, with merchandise suppliers assessed quarterly on financial performance, delivery, in-store support and partnership. Top ranking results are published quarterly and the annual awards are announced at a gala ball.

Supercheap Auto involve their Merchandising and Marketing teams, Group Logistics and Finance. Each of the Business Teams have set criteria and an appropriate scoring system by which Trade Partners are judged and given an allocated result based on the previous six months performance, with results published to individuals. At the end of the 12 month period Trade Partner efforts are recognised and results of the program published.

The Mitre 10 Supplier of the Year program involves key suppliers being reviewed by their 500+ stores, Business and Category Managers and DC Managers. Suppliers are rated on their performance on fourteen KPIs in three areas: DIFOT, Store Representation and Support and Business Partnership. Suppliers also undertake a self-assessment. Mitre 10 Managers receive a range of reports on their category and each supplier gets a full report on their ratings and rankings, with detailed breakdowns by State and verbatim comments from store and National Office assessors.

In all cases the core objectives are the same: To drive continuous performance improvement through providing constructive feedback at all levels of the business partnership.

Our on-line performance assessment software is designed to objectively measure high value relationships and raises the bar for more effective supplier reviews. It is non-prescriptive, fully customisable and allows users to determine all content. We can easily replicate any current Supplier of the Year review format, scoring criteria and process and the tool is intuitive, with user-friendly features that makes efficient use of time for users.

As well as Category managers assessing performance, the 360◦ feedback tool enables functional managers and “front-line” participants to be involved in the assessment process - e.g. Stores, Regional/Operations Managers, Distribution, Finance etc – with section specific scoring criteria. Supplier self-assessment provides the opportunity for increased engagement and allows them to compare their self-ratings against the retailers’, as the basis for discussion on the differences in perception, expectations and any improvements required.

The ability to collect supporting comments, to compliment and explain ratings, adds perspective and clarity and makes the feedback more actionable for suppliers

Detailed, automated reports mean that analysis and feedback can be more timely, with a menu of reports in dashboard and graphics formats covering:

Retailer reports – By category, by KPI, rankings, ratings, trends;

Individual supplier reports – Ratings, comments, benchmarking - comparison with the average and top quintile ratings by category provides continuous improvement targets;

On-line supplier reports – Suppliers can have on-line access to their own reports, which allows for more detailed analysis (e.g. by State) to identify areas of strength/weakness and prepare appropriate action plans.

Summary

A Supplier of the Year program, based on regular performance reviews, will assist both retailers and suppliers to objectively assess performance and drive improvement. Our experience is that suppliers are keen to participate in, and contribute to the costs of, Supplier Performance Management reviews. They see value in the constructive feedback and the ability to access results on-line to identify their weaknesses and put action plans in place for improvement. The result is a Win: Win for both, with higher levels of engagement, improved performance and a closer and more profitable business partner relationship.

To contact Ron Latham, or to have your Supplier of the Year review converted to the Performware on-line assessment tool, go to: www.performware.com.au or email him at: ron@lathamconsulting.com.au or phone (02) 9959 3815