Why Measuring Supplier Satisfaction Is More Critical Than It Looks?

There’s no room for argument with the statement that supply chain is the backbone of organizations, especially that of the manufacturing sector. And every CPO or relevant business stakeholder would strongly agree that suppliers are the backbone of the supply chain. However, here lies the irony.

We are well aware that customer satisfaction is considered to be at the root of business prosperity that organizations enjoy. Obviously, businesses invest a considerable amount of time, effort, and money to capture, understand and analyze how happy and satisfied are their customers. So is the case with the state of employee satisfaction as well. Organizations, rightly so, are investing their resources to keep a tab on the employee satisfaction as the old adage goes: happy employees mean happier customers. Somehow, supplier satisfaction, on the other, seems to usually get taken for granted and relegated to pricing and payment terms. This is rather unfortunate because employees from within and suppliers from outside the organization complete the ecosystem that, along with the company’s processes, strategies and continuous innovation, fuels the engine that keeps the customer ultimately happy.

It is not rocket science to understand that supplier or vendor satisfaction primarily drives business prosperity downstream and ensures optimal quality, performance and cost of products and services, in turn influencing customer satisfaction.

Why Should You Ask

The efficacy, efficiency, and capabilities of an organization's supply chain management systems, processes and policies heavily influence the supplier performance. It, in turn, forms the root cause of vendor satisfaction or its lack thereof.

In their article titled ‘Supplier Satisfaction: Conceptual Basics and Explorative Findings’ published in the Journal of Purchasing and Supply Management, Michael Essig and Markus Amann define supplier satisfaction as “a supplier’s feeling of fairness with regard to buyer’s incentives and supplier’s contributions within an industrial buyer — seller relationship as relates to the supplier’s need fulfilment, such as the possibility of increased earnings or the realization of cross-selling”.

Simply put, supplier satisfaction is all about implementing and running the supply chain smoothly, allowing the supplier to be cohesively involved in driving product or service innovation with complete visibility across product roadmaps and forecasting, and creating a conducive environment for collaboration, trust and mutual improvements. In a single sentence, supplier satisfaction stems from a trustworthy partnership where both the parties contribute to mutual benefit and growth and is not a transactional relationship which is all about buying and selling.

According to Sherry Gordon’s book on Supplier Evaluation And Performance Excellence, satisfied vendors help organizations drive and achieve better customer satisfaction and positively influence the bottom line. Gordon observes three critical components that impact vendor satisfaction: the existence of collaborative and cooperative environment, commitment to mutual satisfaction and open communication channels to share constructive feedback. 

Understandably so, an unsatisfied vendor may lose focus and be a tad less invested in enabling production quality, which may negatively influence the sales volumes and overall profitability. Businesses can hardly respond proactively to such a scenario because introducing significant changes in supply chain mid-production is akin to changing engines mid-flight. There will be unfavorable consequences in both shorter and longer run.

While the whole exercise to survey and analyze supplier satisfaction needs to be driven with established neutrality, organizations need to treat the inputs with a greater sense of discipline to acknowledge and assess the outcome and take necessary action. However, the insights from such surveys depend on the quality, scope and granularity of questions asked. The starting point of the survey should be the very definition of supplier satisfaction, which stems from the fundamental question that from among companies offering business with similar volumes, price and payment terms, why should a vendor choose to work with you?

S.Kannan is Executive Vice President at Aranca.

In my next blog on Supplier Satisfaction, read more on the kinds of questions that you may wish to ask your vendors to assess their satisfaction, and my recommendations on how you can derive the best value out of your supplier satisfaction survey programs.