Author: Michael Scarborough

When a purchasing organization contracts with a supplier to purchase goods and services, it is critical that the contract define specific measures and set achievable targets for those measures. As part of the negotiation process, the supplier and purchasing organizations work together to choose metrics for the performance of the service, and both parties agree to and understand clear targets for those metrics.

Furthermore, the purchasing organization should regularly review supplier performance in the context of these targets and ensure that the targets are adjusted accordingly.

As Bossert (2004) indicates in The Supplier Management Handbook, the relationship between suppliers and purchasing organizations has historically been adversarial. However, due to significant changes in technology, increased levels of services desired, and a focus on generating shareholder value on both sides of the supplier/purchasing organization relationship, both parties are more likely to work together to create overall value. In other words, the success of the purchasing organization is highly dependent upon the success of the supplier.

Almost every organization purchases goods and services from third parties, or suppliers. The outputs of one organization are often the goods and services that form aspects of other organizations’ goods and services. Therefore, how an organization engages, establishes, manages, and communicates with its suppliers is critical to success. However, even though how an organization manages its suppliers is a critical success factor, many organizations are regularly impacted by poor supplier performance and unpredictable supplier behavior. Fortunately, there are some simple things that every organization can do to improve the overall performance of its suppliers.