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Vendor Key Performance Indicators

| Blog, Third Party Risk Management


Any successful IT company must have an effective IT vendor KPI management. Regardless of how talented each individual in the company is, tracking the KPI of vendor management is critical for any business to thrive.

It’s always been common practice to evaluate the Key Performance Indicators of employees in yearly reviews; any business should apply the same principles to third-party vendor KPI management.

Vendor management KPI is often unequally applied across the board. For example, a vendor in a business’s supply chain is often held as the scapegoat for failures that are attributed to lower-level vendors whose vendor Key Performance Indicators are either never measured or infrequently measured.


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5 KPI Best Practices

Just like a math problem, there’s no fixed way to perform vendor KPI management. However, just as programmers have a set of malleable rules, there are best practices to follow when performing it to maximize return on investment.

  1. Stick With the Contract. The adage that “simpler is usually better” applies to vendor KPI management. Often, businesses end up falling short because their vendor contracts have too many stipulations. While you should enforce every provision, you should also ensure that there are as few as necessary contained in the contract.
  2. Create Internal KPI Standards. Scaling for demand often requires bringing new vendors into the supply chain. Vendor management KPIs should be created through a standard panel of employees, working off a list of rules. Businesses should attempt to make formats of their KPIs identical for every vendor.
  3. Identify the Big Picture. Businesses often get low bids from vendors that seem great. This is why creating service and response standards is critical for IT vendor KPI management. It scares away poor quality contractors and ensures the business is entitled to good service.
  4. Consult a Legal Team. When everything in a KPI contract looks perfect, one item is often overlooked: legal compliance. Most industries have hefty civil and even criminal penalties for violating standards set forth by law. Have a lawyer look over KPIs before signing off.
    Assess the Vendor’s Scalability. Just as it’s important for your own business to be able to scale, each vendor must have a similar ability. Be sure to include this in KPIs.

The Importance of Vendor Risk Management Decisions

Assessing risk through KPIs of vendor management is the crux of superseding the competition. By simply determining the acceptable risk level of your supply chain through KPIs, you have the potential to significantly increase the value of your products and reduce your operating and overhead costs.
However, if this risk management isn’t performed by professionals, businesses’ own risk management methodology may cause the opposite to happen!

A trusted and well-known company like TrustNet will ensure that every risk management domain is assessed. Be sure that vendors won’t be able to get away with only needing to provide you with narrow, biased statistics.

It will allow you to constantly monitor every aspect of performance by every party in the supply chain. TrustNet can also help you figure out which vendors are simply too risky to retain and what alternatives are
there to consider.

Scorecards to Monitoring Vendor Performance

While Service Level Agreements (SLAs) and their associated KPIs are crucial for business relationships, these can take a while to interpret for the average vendor employee. Rather than only demonstrate what your expectations are in terms of vendor Key Performance Indicators through lengthy contracts, consider utilizing so-called “scorecards” for your vendors.

These are easy to understand sets of simplified versions of your expectations. Scorecards allow vendors to see how they will be assessed. That will lower the chances of last-minute surprises due to miscommunications with vendors. Many businesses even find that these scorecards help them to better understand and uniformly apply KPI assessments!

In conjunction with the scorecards, businesses should have a routine audit of vendor performance. If scorecards are created by seasoned specialists, businesses owners can understand the following about each vendor in the supply chain:

  • The average response time to inquiries
  • Both the timeliness and accuracy of fulfillment
  • The average quality of deliverables
  • Compliance with both compulsory legal requirements and company standards
  • The current “grade” assigned to the vendor

Besides, if scorecards are properly created and applied evenly, they can be used to leverage future contracts in a business’s favor. The price of low-grade vendors’ services can be decreased. Consequently, it will have a negative influence on the company’s revenue.

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