How to Undertake a Supplier Performance Review

When it comes to supplier procurement, the true value of an acquisition is almost entirely dependent on an organisation’s ability to successfully manage and monitor a supplier’s performance. Nonetheless, as consultants in contract management, we find this area of procurement is still overlooked way too frequently by organisations. So, without further ado, how should you undertake a supplier performance review, and what the main benefits?

The Purpose of a Supplier Performance Review

 There are multiple reasons that an organisation may utilise supplier performance reviews, though the three most common reasons are:  

1. To reduce costs associated with unnecessary or unfruitful supply areas

2. To identify and mitigate risks, such as capability limits or reduced capacity

3. To identify shortcomings and drive continual improvement

 Supplier performance reviews are also an opportunity for businesses to develop stronger relationships with their suppliers, and as such, it is important that a review is a two-way assessment of the working relationship – rather than a one-way stream.

Supplier Performance Evaluation Criteria

There are lots of different resources available for organisations and all vary slightly, though in principle all evaluations for supplier performance reviews typically follow three main criteria:

1. Performance & Delivery: first and foremost is how the supplier has performed. At this point you should assess whether KPIs set at the outset of the contract have been met, or if they are on target to meet them. Alongside this, delivery of the services should also be assessed against the SLA.This includes a consideration of the timeliness in which tasks have been completed, the supplier responsiveness and quality of the services or products produced.

2. Incidents: next, it is important to address any key issues or incidents which have had a negative impact on your business. This could be owing to poor product     quality or a delay in producing services. Typically, this would be backed up with an incident report from the time of the incident. You should talk with the supplier to understand how the incident arose, how it was resolved and how a re-occurrence can be avoided.
      
   
3. Billing: finally, it’s important to approach the topic of billing. Here, performance should be considered both ways to best improve inter-party relations. Organisations should consider the accuracy and timeliness of billing and processing new orders / requests. On the other hand, suppliers may also wish to discuss the timeliness of invoice payments.

 Different organisations choose to evaluate the above criteria in different ways, with some opting to use scorecards for each criterion, whilst others adopt a more informal, conversational approach. Neither way is wrong, though it is important to keep a record of each performance review to assess any improvement or decline in performance between reviews

How Often Should You Undertake a Supplier Performance Review

Supplier performance reviews can be undertaken at whatever frequency an organisation deems suitable, though typically this is quarterly, bi-annually, or annually. Alternatively, one may be undertaken six months prior to renewing a supplier contract to address any concerns about moving forward and to assess whether the supplier takes steps to resolve such concerns.

 Whilst organisations may be keen to stay on top of new contractors, undertaking reviews too frequently – such as monthly – does not allow adequate time for performance to be assessed or KPIs to be met.  

The Benefits of Supplier Performance Reviews

 Though often seen as another administrative task, supplier performance reviews are a great opportunity for suppliers and organisations alike, offering a wealth of benefits including:

·  Reduce risk factors

·  Reduce waste and cost drivers

·  Prevent supplier complacency (usually evident within long-term contracts)

·  Improving supplier performance and client satisfaction

·  Increase supplier retention & foster long-term relationships

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How Can We Help?

Our Arrowhead software allows you to store and examine contracts digitally in one place, allowing for enhanced visibility and making finding contracts and contract information much easier. This not only increases productivity, freeing up resource for more productive things, but it also supports regulatory and contractual compliance, informing other business processes and delivering streamlined contract accountability. This is crucial to ensure you prevent financial, operational, or reputation loss and risk.

With decades of experience in contract management, our experts are also best placed to advise you on the supplier review process. Get in touch today at info@athena-commercial.co.uk

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