How To Spot A Poorly Managed Supplier

PurchTips edition #239

 

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How Competent Is Your Supplier's Management?

Any procurement professional in her right mind will get nervous about using a poorly managed supplier. How can you tell if a new supplier is poorly managed? Here are five things to look for when evaluating a supplier.

High Turnover - A constant change in personnel makes it difficult for a supplier to perform consistently, which is something important to you as a customer. Mass employee departures are a symptom of management that is disorganized, harsh with its employees, or just plain incompetent. Turnover in leadership roles is an even more serious indicator of poor management.

Declining Financial Performance - Most businesses strive for better year-over-year financial performance - greater revenues, bigger profits, a higher Altman Z-Score, etc. If these numbers are getting worse, not better, it could be indicative of poor management. In some industry or economic cycles, an occasional decline is expected. But if you use industry averages as a baseline and the supplier's financial performance trend is worse than the industry's, management may be to blame.

Lack of Success Metrics - A critical role of management is to establish performance metrics and set goals. Good managers know whether the company is performing well, poorly, or somewhere in between. Ask your supplier's senior management how performance is tracked and success is measured. If there is a lack of metrics, the supplier is not serious about maximizing its performance for its customers.

Workers Are Unaware of Corporate Goals - Even if a supplier has success metrics and goals, if non-management workers lack visibility into goals, that's an obstacle to them focusing on what's important. The people making a product or providing a service must know what constitutes success to be truly effective.

The Supplier Has A Bad Reputation - Almost every company has had a disgruntled customer at some point. But if you learn from multiple sources - Internet posts, Better Business Bureau ratings, procurement peers, etc. - that a supplier consistently underperforms, it's likely that the supplier is poorly managed and unlikely to do what's necessary to satisfy you.

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