@Risk

How would you rate your suppliers’ performance over the first half of the year?

With 10 years of industry experience in supporting a community of over 1 million buyers and suppliers around the globe, the Aravo Global Services team is constantly assessing supplier-buyer relationships in order to recommend best practices implementations. After completing its mid-year assessment last month, the team reported that 2009 is proving to be a down year for overall supplier performance, based on observations of supplier relationship management programs and different key performance indicators tracked across Aravo’s customer base.

It’s important to note that supplier performance is not just about compliance to negotiated contract terms. It’s also about expanding the collaborative and strategic nature of the relationship between the supplier and the buying organization to deliver mutual value. Both sides of the equation benefit when supplier performance is optimized. So, why is overall supplier performance sluggish now? Here’s my list of the

Top Seven Reasons Why Supplier Performance is Down in 2009

1. Confusion Around Regulatory and Compliance Requirements
RoHS. SaS 70. SOX. Carbon-emission tracking. The complex world of external regulatory standards –and even internal CSR standards –has created confusion for suppliers around certification requirements, proof of compliance, etc. As a result, there’s a strain on limited resources within suppliers on product and service delivery.

2.Reliance on Broken Communication Practices
Both the economy and the pace of business today have strained outmoded and typically infrequent communications between suppliers and buyers. Once-a -year surveys via email or fax, in which the data may or may not be entered into the right data or ERP system, is no longer adequate when real-time data is required to make quick business decisions.

3. Lower Supplier Headcount
Note: For both #3 and #4, the recession has played a key factor in the down turn of supplier performance.  The lower number of orders has required suppliers across all industries to reduce headcount –and in extreme circumstances, even go out of business.

4. Suppliers on the Edge of Bankruptcy
For example, Boeing recently announced that it was going to buy one of its key suppliers for its 787 Dreamliner plane. The supplier, who will continue to work on components for the 787 and other planes, had invested twice as much as it thought it would need to handle its work on the Dreamliner. The supplier said that with the credit crisis, it was not able to find financing for the hundreds of millions of dollars more that it would have needed.

5. Unclear or Ill-Defined Performance Metrics
Supplier relationship management has increased in visibility due to the material impact of supply chain disruption on shareholder price. (A recent report by PwC shows a 9% drop in share price within 48 hours of a supply chain disruption announcement.) As such, there are now “too many cooks in the kitchen,” setting new supplier measurements and creating complex, and often contrary, supplier performance metrics.

6. Newly Renegotiated Contract Terms
Due to the changing economy in the last nine months, it’s increasingly common for contracts to require renegotiation. This creates a vacuum in communication, and pits “current” versus “new” pricing and performance, quality, and delivery timelines.

7.Sluggish Supplier Responsiveness
Weak supplier governance systems and methodologies, inflexible outsourcing deals, and under-resourced supplier capabilities have resulted in sluggish supplier responsiveness overall.