Supplier Performance Management

Procurement is about buying goods and services at the right price and quality. But how do you know that you are getting it right? Measuring the performance of suppliers is key. Organisations must be able to evaluate the delivery of the contract and whether they are getting value for money.

It’s true, if you cannot measure it, you cannot improve it. By measuring the performance of your procurement process, your organisation can find answers to other important questions, including what needs to be improved, how do you compare to other organisations and what are you doing better or worse than before?

When we measure performance, it means we can work with suppliers to come up with a plan that can deliver better results all round-better quality, shorter cycle times and lower costs.

This is where contract management comes in. This is how we can all track suppliers and check their performance. I find it builds long-term, collaborative relationships with suppliers and I would say, the best way to assess a supplier is by monitoring them against clear and agreed criteria, such as service levels and key performance indicators (KPIs).

Procurement KPIs are performance measurement tools used to evaluate and monitor the efficiency of an organisation’s procurement management. These KPIs help an organisation to optimise and regulate spending, quality, time, and cost. Procurement KPIs also help businesses stay in line with their overall process goals, procurement strategies, and organisational objectives.

Even though KPIs have always been used to manage procurement performance, they are flexible. Procurement KPIs mean different things to organisations in different sectors, but some KPIs work across most sectors. Most organisations are keen to measure the quality of service, costs and punctuality, for example. The right procurement KPI is relevant to your business goals and simple to track. By better understanding their purpose, we can identify KPIs that work for our exact needs.

When performance isn’t at the standard you require, take action as soon as possible and monitor its effectiveness in bringing suppliers up to the expected standard. You may need to adopt a firm approach to improve the service delivery. Keep a record of the performance and the action taken, so you have this record if a supplier continues to not meet expectations.