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?
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.
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:
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
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.
Though often seen as another administrative task, supplier performance reviews are agreat 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
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 firstname.lastname@example.org