There’s a saying in business that what gets measured gets managed. It points to the importance of measuring performance in order to get the best out of suppliers. Let’s take a look at the measurement tools, or metrics, that you can use to find out whether your supplier is performing well.
One of the key ways to ensure that your supplier is giving you good value is to set price requirements, and then measure how the supplier performs against them. It’s particularly important to keep track of prices when a contract is running over an extended period of years or is renewed annually.
Some suppliers quote highly competitive rates during the tendering process but prices edge up as the contract proceeds. So you need price checkpoints that you can use for comparison.
This tends to be a retrospective metric, where you carry out a historical analysis of the cost of buying a service, or specific goods, over several years. If the cost has increased disproportionately, even though your supplier offers the lowest prices, you need to look at why. The answer may lie in market conditions, or may be to do with increasing demand from your business. In either case, knowing what is fuelling the cost increases is the first step in controlling them.
Total Cost of Ownership – TCO is also a useful metric in this respect. For example, if buying a service from a supplier involves a great deal of procurement effort, risk management and monitoring, it may be more cost-effective to bring the activity back in house.
It saves a lot of time if these metrics can be automated, for example by using Contract Management Software contractswise.
Many businesses and organisations use a Service Level Agreement (SLA) as part of the contract. The SLA says what quality levels the supplier must achieve, how and when these will be monitored, and what kind of action will be taken if the quality of the goods or services provided drops below the agreed level. City University has a good briefing note on SLAs: https://www.city.ac.uk/__data/assets/pdf_file/0007/133936/Service-Level-Agreements.pdf.
Because the SLA is signed with the contract, it helps guard against suppliers quoting unrealistic service standards that they know they cannot fulfil, simply in order to win a contract.