This is a guide to supplier performance management - what it is, how the supplier performance management process works, the core supplier performance management KPIs, and the real supplier performance management benefits procurement leaders can expect.
What Is Supplier Performance Management?
Supplier performance management (SPM) is the discipline of measuring, evaluating, and improving supplier outcomes—quality, delivery, cost, service, risk, sustainability—on a continuous cadence. In practice, SPM connects what you award in sourcing to what you experience in operations, via scorecards, reviews, and supplier development plans.
Why it matters now: procurement is under pressure to deliver savings, resilience, and ESG improvements simultaneously. Research shows high-performing procurement functions systematically measure and act on supplier performance as part of broader digital transformation and value creation. (McKinsey & Company)
The Supplier Performance Management Process (End-to-End)
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Define the outcomes
Align with stakeholders (operations, quality, supply chain, finance) on what “good” looks like: e.g., OTIF ≥ 98%, PPM ≤ 250, cost-to-serve targets, incident response SLAs, CO₂ intensity thresholds. -
Select metrics & build the scorecard
Choose a small set of leading and lagging indicators (see KPI section). CIPS recommends using structured scorecards and keeping them current and actionable. (CIPS) -
Instrument the data
Integrate ERP/MES/WMS/QA systems, incident management, and audit tools so updates flow automatically. -
Run the cadence
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Monthly for operational KPIs (delivery, quality, service).
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Quarterly business reviews for cost, innovation, risk, and improvement plans.
ISO 9001 requires ongoing evaluation and re-evaluation of suppliers with documented criteria and evidence—good SPM operationalizes this. (Advisera)
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Improve (or exit)
Co-create corrective actions (CAPAs), track to closure, and—when needed—rebalance share of business or initiate replacement. Digitally mature teams embed these decisions in their governance and performance dashboards. (McKinsey & Company)
Learn more about the supplier performance management process here and get templates to follow.
Supplier Performance Management KPIs (What to Track)
A focused set works best. Start with five to eight, then expand for category-specific needs.
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On-Time, In-Full (OTIF) and Lead-Time Adherence
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Quality PPM / Defect Rate, NCRs, Right-First-Time
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Cost & Should-Cost Variance, Price Indexation Compliance
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Service & Responsiveness (acknowledgement, corrective action SLA)
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Risk & Compliance (audit status, certifications current, incidents)
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Sustainability/ESG (e.g., scope 3, H&S incidents where applicable)
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Innovation & Collaboration (ideas submitted, pilots completed)
CIPS highlights scorecards and KPIs (order fulfilment, delivery costs, inventory cost, response index) as practical levers to monitor and improve supplier outcomes. (CIPS)
Under ISO 9001, monitoring and re-evaluation against defined criteria is not optional—build that requirement into your SPM cadence and documentation. (Advisera)
Read more on supplier performance management KPIs here.
Supplier Performance Management Benefits (What You Can Expect)
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Fewer Disruptions, Higher Service Levels
Continuous monitoring exposes early warning signs (missed milestones, rising defect trends), allowing you to intervene before OTIF drops. Read more about supplier performance monitoring. -
Hard Savings & Cost Avoidance
Scorecards and clean baselines let you compare suppliers like-for-like, enforce indexation, and remove “hidden” costs (expedites, scrap, rework). Procurement programs that link data, KPIs, and accountability deliver more durable savings and business impact. (McKinsey & Company) -
Quality & Compliance Confidence
ISO 9001-aligned evaluation and re-evaluation reduce nonconformities and audit exposure—because evidence lives with the metric, not in email. (Advisera) -
Supplier Development & Innovation
With shared facts, QBRs shift from debate to improvement. You can target development support where it moves the needle and reward top performers. Read more about supplier development. -
Transparency for Executives
One page that tells leadership where the risk is, what the plan is, and when performance will return to target—critical in volatile markets. PwC’s latest procurement survey underscores performance, digitalization, and supplier management as board-level priorities. (PwC)
How to Launch (or Fix) SPM in 90 Days
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Day 0–15: Pick the pilot
Choose two categories and the critical 20 suppliers. Lock the KPI set and thresholds. -
Day 16–45: Wire the data
Map fields from ERP/QA/Logistics; create an initial scorecard view per supplier; backfill three to six months for trendlines. -
Day 46–60: Run the first cycle
Publish scorecards, hold supplier reviews, document CAPAs with owners/dates. -
Day 61–90: Prove impact
Track early wins (e.g., OTIF +2 pts, defect rate –30%, expedite cost –40%). Present the business case to scale.
Tip: keep the supplier performance management process lightweight and explainable. If people can’t see how metrics are calculated—or how to improve them—adoption stalls.
Advanced Topic: AI-Assisted SPM
Modern teams are layering analytics and GenAI on top of SPM to:
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Predict late deliveries or quality slips weeks ahead,
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Explain drivers behind KPI swings (mix, lane, plant, shift), and
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Auto-draft supplier review packs and action plans from live data.
Independent research indicates data & AI in procurement are accelerating impact where processes and datasets (like SPM) are well structured. (McKinsey & Company)
Read more about supplier performance management software here.
FAQ (Quick Answers Procurement Pros Are Asking)
What’s the difference between SPM and SRM?
SPM = measure & improve performance. SRM = broader relationship management (collaboration, risk, innovation). They’re complementary—your internal SRM page should link from here.
How often should we review suppliers?
Ops KPIs: monthly. Strategic KPIs and improvement plans: quarterly. High-risk or corrective action suppliers may need weekly check-ins.
Which KPI targets are “good”?
Relative benchmarks work best: top-quartile within your category/region and your own trend improvements over the last 6–12 months.
What if performance doesn’t improve?
Escalate: remediation plan → reduced scope → exit. Document decisions and evidence against contract and quality requirements (keeps audits clean).
If you're on the lookout to elevate your supplier performance management with modern software - reach out to us at Kodiak Hub!
