Measuring the Right Supplier Performance Metrics

Selecting the best suppliers is the first step to getting quality, affordable, and timely deliveries. Business organizations must constantly ensure that the suppliers (or vendors) they select strategically meet quality expectations.

That’s why measuring supplier delivery performance is critically underpinning in maintaining quality, affordable, and timely supplies – all the time.

It’s critical to note that supplier performance metrics exist in a document known as a supplier’s scorecard or a vendor scorecard. A supplier scorecard is transparent and available to the vendor and the business in real-time.

Constant monitoring and recording of transactions and relationships in the scorecard allow both parties to understand the current state of their relationship. And while some performance metrics may differ from one company to another and from one supplier to another, there are agreeable supplier performance metrics to consider:

Supplier Performance Metrics to Measure

1. Acknowledgment rate

An acknowledgment indicates that the supplier or vendor has received the purchase order. It’s a formal acceptance of the purchase order, confirming the reception of the purchase order or a list of products or services needed by a particular buyer.

In most cases, buyers will request vendors to acknowledge receipt of the purchase order within 24 to 72 hours, although very few businesses will keep tabs on how many suppliers followed through.

And like many performance metrics, acknowledging purchase orders is only operative if it’s implemented. And thus, it’s critical for businesses to require a 100% acknowledgment rate from suppliers. This metric ensures that suppliers are pushed to recognize purchase orders – and no more job sheets get lost in emails.

2. Responsiveness

Responsiveness refers to how quickly suppliers respond to buyer requests – through phone or email. Responding can be simply acknowledging or accepting the purchase order, rejecting or requesting changes, or asking pertinent questions regarding the order.

And while it may seem like a simple metric, responsiveness is key to a successful supply chain. Research shows that 40% of all purchase orders will change at some point, and most of these changes are managed through spreadsheets, emails, and phone calls.

When suppliers are slow to respond to purchase order changes, the risk is introduced into the supply chain. So, changes must be identified, reviewed, and modified – and made transparent to other team members.

3. Order fulfillment rate

This metric evaluates the quantity ordered from the procurement department against the quantity received from the supplier. For instance, if you ordered 100 computers but received only 70 functional units, you will have a 70% order fulfillment rate.

This measurement will require data from your purchase orders or procurement department and data from the receiving department. The goods received notes (GRNs) will be compared with the purchase orders (POs) to determine the order fulfillment rate.

For instance:

Purchase order quantity in the current month = 200,000 units, quantity received = 199,880 units.

The supplier performance rate is 99.94%

When measuring this supplier delivery performance metric, you would need to decide whether or not to include the quantity changes that your supplier advised in advance. Alternatively, you can have two metrics, one for advised variations and one for variations after goods are received.

4. On-time delivery

One essential and perhaps the most critical supplier performance metric is on-time delivery. That’s because on-time delivery directly impacts the supply chain.

Supply chains that keep their deliveries at 90% keep their inventory low, their machines running, and their customers happy. A consistently high level of on-time delivery enables you to keep track of your manufacturing and production efficiency, thus improving customer satisfaction and brand value, and positioning.

Research has already related on-time delivery with increased business revenues. For instance, emerging evidence shows that suppliers with on-time deliveries contribute up to 70% of a company’s revenues.

There’s no doubt that on-time deliveries impact every department. So, it’s critical for both parties, suppliers, and buyers, to clarify what on-time delivery means to them.

For instance, a complicated order may have multiple deliveries arriving on different dates. So, does the arrival of the first shipment positively impact the on-time delivery metric or expectation?

So, buyers and sellers must clarify their on-time delivery priorities and metrics to ensure they reap the best from buyer-vendor relationships.

5. Advanced Shipment Notification (ASN) Accuracy

The ASN accuracy is another supplier performance metric to measure. For companies that provide advanced shipment notifications before they ship products, it’s critical to examine the accuracy of the provided data.

So, this metric compares with the order fulfillment metric, since the advanced shipment notification would either serve as advanced notification of dispatched quantities or quantities ordered.

So, other than assessing the quantities ordered versus quantities received, evaluate the accuracy of the ASN.

For instance, ASNs received (month of April) = 17, ASNs which are 100% perfectly matched to physical goods received, 16.

The supplier performance rate is 94%.

Other Supplier Performance Metrics

There are other supplier delivery performance metrics to measure, and they include:

• Ordered price versus the invoiced price
• Returns rate metrics
• Percentage of supplies failing inspection versus total inspected products
• Order fill rates
• Lead time variance

It’s critical to acknowledge that none of these supplier performance metrics require complex analytical capabilities. Indeed, most of these can be managed with emerging purchase requisition software and other types of procurement software.

ProcurePort – Improving Supplier Performance Metrics

ProcurePort is a leading provider of trusted procurement analytics solutions and software. ProcurePort’s software includes a wide range of capabilities including purchase requisition, contract management, spend analysis, and spend management.

Contact ProcurePort to streamline your supplier performance metrics.