Estimated reading time: 5 minutes
• Supplier performance concerns primarily the ability to meet specific supply requirements.
• The statement of work and the supply contract represent two documents highlighting all the supplier’s expectations and work expectations.
• There are many methods (and tools) to assess supplier performance. Some of these tools are paper-based, while others are digital or automated.
Why Measure Vendor Performance
Measuring your vendor performance is a critical step in monitoring your supply chain. Measuring vendor performance gives important insights: on-time deliveries, late deliveries, defects, and delays. These statistics can shape decision-making on supplier selection, contract termination, and contract renewals.
Below are some of the reasons you should measure vendor performance:
- Reputation Risk. It’s critical to know which vendor poses a reputational risk to your enterprise. Knowing which suppliers threaten your brand and your business sustainability will enable you to make informed decisions, saving you time and costly damages. All suppliers do post some form of organizational risk. So, it’s crucial to know which threats are tenable and which ones are hands-down catastrophic.
- Keeping Agreements. Service level agreements SLAs are an important part of procurement planning and management. Vendor performance reflects the contract terms and contract languages used in the procuring process. There should be set service level agreements in all procuring functions. So, measuring your vendor performance helps you know whether suppliers meet the minimum requirements enshrined in the SLAs.
- Risk Management. Risk management is a critical component of any supply chain process. Risk management involves identifying potential risk sources, developing measures, processes, and strategies to mitigate the risks, and developing a contingency plan to counter and avert the risks. Applying vendor performance to your procurement planning and management process helps you foresee and avert risks. Vendor performance measurement provides leeway for risk assessment, keeping your business at bay from any potential risks.
- Cost Saving. Measuring vendor performance saves you significant costs that impact your bottom line. Supplier performance management tracks some financial factors that affect soft and hard dollar costs. A lack of accurate and timely vendor information can heavily impact your expenditure by preventing you from capturing and optimizing potential savings.
- Streamlined Workflows. The supplier performance management centralized vendor data, creating saving opportunities for everyone interacting with the vendor. Centralized information leads to saving achievement and cost avoidance. This data further tracks supplier performance based on cost-saving benchmarks.
How to Measure Vendor Performance
Evidence has shown that where there is little or no focus on managing vendors, all actions and processes are likely to be reactive and redundant. The chance of improvement becomes correspondingly low if there are no agreed-upon systems and measures to track and monitor performance and progress. Here’s how you can measure vendor performance:
1. Adherence to Contracts
Meeting and conforming to the requirements and contract specifications is the first step in measuring vendor performance. Vendor performance must be evaluated vis a vis a prior established contract or service level agreement. However, there’s one problem when evaluating vendors based on contract terms. There are often too many metrics to monitor. The most critical goal for each measure is to encourage and motivate the best behavior from both the vendor and the buying organization.
2. Classifying Vendors
If you have a wide supplier base and want to design a survey to evaluate them, it’s cumbersome to use the same measure for all. It’s critical to classify vendors based on their levels of priority and criticality. You can divide suppliers based on levels 1, 2, and 3. Decide the classification that works best for you. All suppliers must be evaluated based on their impact on your products and services.
3. Vendor Management KPIs
You can improve what you can measure. In procurement, this saying holds water. Vendor management KPIs must be established to know what to expect from suppliers.
4. Automation
The emergence of the fourth industrial revolution has streamlined the otherwise paper-based processes. Nowadays, automation provides an innovative model for replacing time-consuming, repetitive tasks with streamlined processes and operations. An easy way to track vendor performance is a dedicated vendor management solution. However, first, establish all your key performance indicators before deploying an automated vendor management solution.
Procurement automation boasts of the following benefits:
- Streamlined workflows. Streamlined workflows because automation takes away errors, human labor, and delays from your most common procurement processes.
- Spend visibility. Procurement automation provided end-to-end visibility into procurement processes. This enhances the visibility of costly expenditures and cost-saving opportunities.
- Strategic sourcing. Procurement automation takes the pain out of identifying and selecting suppliers. Centralization of supplier information provides an easy benchmark to select vendors.
- Low costs. Procurement automation allows procurement professionals and business leaders to focus on mission-critical business operations. By streamlining and analyzing spending, procurement professionals can return and focus on what they do best.
There’s no doubt that automation provides immense opportunities for procurement planning and management.
Contact Us Today
ProcurePort is a provider of superior automation solutions in the procurement and supply chain. ProcurePort .delivers robust automation solutions in a wide range of procurement functions: procure-to-pay, spend analysis, reverse auction, contract management, and purchase requisition. ProcurePort’s intuitive platform makes any procurement and supply chain process a rewarding experience. By simplifying and analyzing your spending, ProcurePort lets you get back and focus on what you do best.
Contact ProcurePort for automated procurement solutions.