Question

some supply management experts argue that suppliers should not receive rewards for doing something that is already expected ( e.g. , continuously improving quality). Do you a gree with this position? What are some examples of rewards that a supplier can receive?

Answer 1

Supplier rewards program is basically a program designed to keep the suppliers motivated in continuously delivering the stipulated objectives and committed to improve their deliverables further for the betterment of both parties, as mentioned in the agreement between the supplier and the company.  

The supplier rewards program can be thought of as program that will rank diverse suppliers of the company based on a combination of several parameters.

So, Coming back to the question, important key result areas (KRAs) like continuously improving Quality standards (Which is the prime duty or responsibility of supplier) cannot be the sole criterion in determining the beneficiary of rewards.

Rather, It could be one among the several factors that could be measured to arrive at a weighted Loyalty score.

Some of the factors that could be used in a Supplier Reward program are:

Factors for Reward Program	Weightage	Maximum Raw Score
Adopting Innovation in new products	0.15	100
Improving Quality Management technique like TQM, Lean Manufacturing	0.3	200
Adhering to delivery norms of company	0.25	150
Matching key demand metrics with supply	0.3	200

The weighted score could be arrived at to find the beneficiary from among a given group of suppliers.

Some of the examples of rewards that a supplier can receive:

• Monetary rewards to help foster further innovation or to improve business processes.
• Extending the contract tenure with supplier by ensuring business continuity with them.
• Signing up MoU between think tanks of both parties to improve the knowledge sharing.
• Agreement for Faster Payment settlement and Quicker contract dispute resolution as a preferential treatment to the key supplier.