January 2013 | How-To | Ten Tips

Improving Supplier Compliance

Tags: Supply Chain Management

Developing an effective supplier compliance program requires a well-defined plan. To achieve success quickly, it is crucial to initiate the plan with the right suppliers. Peter Wharton, IBM's team lead for commercial product marketing, offers this advice for ensuring supplier compliance.

1. Define a successful supplier compliance strategy. Clearly define the stakes and risks, and how they vary by type of supplier. Expand the program as needed to ensure it continues to cover key compliance strategies, such as pricing and savings, that impact your business.

2. Identify metrics, thresholds, and targets. Capture key performance metrics in supplier contracts, and gather input from relationship managers to understand how they measure supplier performance. Use the information to establish metrics, and validate that they are aligned with the overall business strategy.

3. Provide a framework on which to build a successful relationship. Document and publish an online supplier's compliance guide explaining your standards and specifications.

4. Connect electronically to your suppliers. Take advantage of technology to reduce costs and improve efficiency by connecting with your suppliers using business-to-business integration or Web portals.

5. Achieve early success. Implement your compliance program with suppliers whose involvement will provide the biggest benefit to your organization. Then share the success internally and externally to gain more buy-in.

6. Foster an environment of collaboration. Rather than holding quarterly or annual reviews to discuss problems, share performance data in real time so suppliers can adjust to issues immediately. Providing real-time data gives all partners an opportunity to collaborate on a higher level.

7. Manage supplier risk. Be proactive in mitigating supplier risk to ensure that a supplier does not disrupt your manufacturing/fulfillment process. Employ best-in-class processes and technology to help collect supplier intelligence in one place, and assess the risks of key suppliers. Then analyze supplier risk based on potential impact.

8. Take a data-driven approach. Use automation and performance analytics to capture a current view and a forecast of what is most likely to happen. Employ prescriptive analytics to provide the best decision, rather than relying on institutional knowledge to resolve questions.

9. Implement continuous tracking. Supplier performance management is not a one-time event. Continually track performance to ensure previously identified gaps were remediated, and to keep the focus on continuous benchmarking and improvement.

10. Standardize the process. Build and automate compliance requirements into your sourcing and procurement process and contracts so that all new suppliers are immediately integrated into the program.