Do I Need to Measure Vendor Performance?

A few years ago we were asked by a customer to help them develop some performance metrics for one of their vendor relationships. We helped them establish some inventory and delivery metrics that would measure how well the supplier was supporting a critical part of their business. Our customer’s business requirements required some slight changes compared to how the suppliers typically handled business so they were very interested in finding a supplier that could support their needs well. These measures were important to our customer. The competing proposals were close and the vendor’s willingness to engage in designing performance metrics that could be tracked was a differentiating factor.

As the data started coming in over the first few weeks there were a few hiccups caused by changes that weren’t obvious but were affecting performance – a managerial change here, a software update there. You get the idea. The customer had objective data about the performance level and could approach the supplier so they could collaborate on how to remedy the problem. Our customer even jumped in and offered short term manpower resources one time. Our customer also had some unique subject matter expertise and when they shared this with the vendor the vendor soon adopted this knowledge into their own processes.

Soon the transition performance measures were tracking steadily and it was time to introduce two new performance measures. These would measure different aspects of the vendor’s performance and would help our customer attain the strategic objectives they were targeting over the next two years.

This little anecdote illustrates an important point. Managing vendors and their business performance – especially in outsourcing relationships where they are performing critical functions – is as equally important as managing risk. We all know that the risk of a vendor failure is very high but research suggests that the risk of an underperforming vendor relationship is even higher. An underperforming vendor relationship consumes massive amounts of manpower and results in significant productivity losses. Often, inefficient exception management processes consume and overtake the normal process of management-to-goals.

So, what’s the good news, you ask. With VendorINSIGHT you can get access to experts that can help you define good performance measures for your vendors and ones that are appropriate for the phase of relationship you are in. With these in place, the VendorINSIGHT system takes care of the rest – delivering the automation and workflow tools you need to capture performance metrics, monitor trend and performance and remediate underperformance.

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