The relationship and performance of a vendor within a business is key to supporting the business and IT strategy. The use of vendors allows organisations to outsource non-core business functionalities in order to focus on the bigger picture of the organisation. Along with the use of vendors, comes a crucial aspect of managing vendors and measuring and monitoring their performance. There are various methods used to do this including, key performance indicators and Service Level Agreements (SLAs), but the most significant factor in monitoring and measuring performance in two-way communication between the customer and the vendor. Poor performance can lead to corrective action, and will go through a 3-step process of identifying the problem, putting an action plan in place and lastly (if needed) to go back out to market to find a replacement vendor.
VENDORS IN AN ORGANISATION
A vendor or supplier is a key component in most organisations as they allow non-core business functionalities to be outsourced to those suppliers across the world. This may be a part of a business strategy to reduce business costs and enhanced business services to key clients. The governance of a vendor is extremely important in this regard as to avoid potential service level failures, financial loss and business risk.
Vendor performance is a measurable performance of the vendor in delivering a service, product or agreed objective at the mutually agreed level of satisfaction. Thus poor vendor performance is the failure to meet the set standard by the supplier’s customer, which in turn has significant effects on the customer’s business.
Although it may seem unlikely to have a risk factor of zero, there are still processes and steps that can be taken to mitigate those risks and provide a cost effectively management of suppliers.
BENEFITS OF MEASURING AND MONITORING PERFORMANCE
Performance management and measurement is important for any business, not only as an indication of quality assurance but also as report for better business decisions and relationships. The following benefits of measuring and monitoring vendor performance are outlined below.
Avoid costly supply disruptions and mitigate risk
One of the main benefits of vendor management is being able to avoid costly disputes or disruptions to the supply chain and business as usual. In governing vendors, any risk of poor performance, inability to deliver a service or a product, the possibility of defects and environmental or safety issues can be detected early and implementation of corrective action can reduce the likelihood of problems occurring. This benefit is quantifiable; i.e. if an organisation knows there are usually about 50 supply disruptions a year that average $100,000 dollars each, the monetary benefit of preventing these disruptions would equate to millions of dollars each year.
Increase performance visibility and supplier performance
The performance of a supplier is not always known and based on guesses, thus a defined evaluation process will need to be put in place to measure performance of the vendors. Additionally, the act of measuring performance can improve performance and place expectations on suppliers to perform to a certain standard. Further improvements can be made when businesses award and engage further business with suppliers on the basis of meeting performance expectations – not only does the customer win, but also the vendor.
Align customer and supplier business practices
One objective of vendor management is building a stronger customer-supplier relationship in aligning the same business ethics, expectations in standard of quality and commitment to the end result. The best relationships are those that share the same business goal and thus both organisations can work towards the same end. This forms a better communication process as there is a common understanding in what is...