What Are Supplier Management KPIs?

Supplier management key performance indicators (KPIs) are metrics that help a business understand the value it is (or isn’t) receiving from the money it spends on suppliers and vendors.

When evaluating your organization’s supply chain, you can review several areas, including lifecycle management, supply chain management, performance measurement, and contract management – but if you don’t have benchmark metrics to monitor those business processes, you won’t be able to gauge how efficient your suppliers and your supply chain truly are.

Worse, you might overlook potential cost-savings, efficiency gains, and customer satisfaction by not measuring the procurement process. Poor oversight can also lead to unhappy vendors and a lack of understanding about areas that need improvement.

In this article, we’ll explore eight supplier management KPIs you should use. We’ll also look at different supplier performance measures and at useful tools to help you manage your suppliers effectively.

8 Supplier Management KPIs to Consider

There are several KPIs to consider when conducting vendor performance reviews.

1. Contract Compliance

   Managing supplier relationships is crucial for any organization that has compliance obligations. You are not only responsible for your own organization’s compliance, but also for assuring that your suppliers meet those same obligations too.

   Incorporating contract compliance KPIs into your procurement management offers several advantages. For example, you could track suppliers’ time to complete required due diligence or onboarding forms; or submission of forms certifying their adherence to certain regulations.

   This lets you build a robust framework for monitoring and evaluating your suppliers’ compliance performance and identify any areas of concern that need addressing.

2. Supplier Defect Rate

   The defect rate measures vendor quality. It is calculated by dividing the number of defective orders by the total number of orders placed with the vendor, providing valuable insights into the overall quality of the vendor’s products or services.

3. Order Accuracy

   Order accuracy KPIs help you to identify high-risk vendors that don’t meet your standards. For example, you could calculate the number of times an order was delivered and completed accurately compared to total orders over a period of time. The higher the accuracy rate, the better the vendor.

4. On-time delivery

   Delivering goods and services on time is vital for maintaining customer satisfaction and loyalty. The on-time delivery KPI allows you to assess suppliers’ adherence to the agreed-upon delivery dates.

   The on-time delivery KPI is calculated by dividing the number of deliveries made within the agreed-upon timeframe by the total number of deliveries, multiplied by 100, to determine the percentage of deliveries that were on time.

5. Supplier Lead Time

   Supplier lead time evaluates the amount of time elapsed from a vendor receiving your order to the vendor delivering it. Prolonged lead times may indicate a decline in procurement efficiency.

6. Purchase Order Cycle Lengths

   The purchase order cycle time refers to the duration between the submission of an order and its transmission to a supplier, encompassing the entire ordering process. This calculation should account for all activities involved in processing a purchase order, including data input, confirmation of receipt by the supplier, and the time required to receive pricing and delivery confirmation.

7. PO/Invoice Costs

   The cost of each purchase order or invoice can vary across organizations. The main goal is not to avoid costs altogether, but to gain a clear understanding of the different factors contributing to the total cost.

   This can help to identify areas for improvement. For example, organizations may consider sourcing to a more affordable vendor or automating certain aspects of the purchase order or invoicing process.

8. Procurement Return on Investment (ROI)

   Procurement ROI is a metric that assesses the cost-effectiveness of a procurement strategy and the investments made in it. It is calculated by dividing the annual cost savings by the annual procurement costs.

What Are the 4 Types of Supplier Performance Measures?

When evaluating supplier performance, procurement teams can classify the performance measures they use into four broad categories.

1. Quality performance measures. These metrics assess the quality of the goods or services suppliers provide. Examples of quality performance measures include defect rates, customer complaints, or returns.
2. Cost performance measures. These measures evaluate the cost-effectiveness of suppliers. They can include metrics such as price competitiveness, cost savings achieved through supplier negotiations, and cost variances against budgeted amounts.
3. Relationship performance measures. You can assess the relationship between a company and its suppliers by considering factors such as supplier responsiveness and the ability to resolve issues promptly. Relationship performance measures also help you to assess overall supplier availability and a supplier’s willingness to work closely with the company.
4. Regulatory compliance measures. These measures evaluate the extent to which suppliers comply with contractual agreements, legal requirements, and other regulations related to supply chain compliance. Compliance performance measures can include metrics such as on-time delivery, adherence to safety and environmental standards, fulfillment of contractual obligations, and the results of supplier audits.

What are the performance measurement tools for supplier management?

You can use several tools to measure supplier performance.

• Scorecards. Scorecards provide a structured framework for evaluating and comparing the performance of suppliers. They typically include a set of predefined performance metrics and targets.
• Audits. Supplier audits involve a systematic review of a supplier’s operations, processes, and quality management systems.
• Surveys. Surveys collect feedback from internal stakeholders or customers who interact with the suppliers. Surveys can help assess factors such as communication effectiveness and product/service quality.
• Self-assessment questionnaires. Suppliers typically complete questionnaires to gauge their performance against predefined criteria.
• Performance reviews. Regular performance reviews involve meetings or discussions among procurement leaders and suppliers to evaluate their performance, address concerns, and detect opportunities for improvement.

Supplier Management Made Easy with the ROAR Platform

Efficient supplier risk management is an intricate task, especially when organizations lack the knowledge of which metrics to track and how to deploy those metrics across your supply chain.

Enter the RiskOptics ROAR Platform, a risk management platform to empower organizations to manage supplier data, KPIs, and vendor relationships. With its comprehensive suite of features, ROAR allows you to centralize all supplier-related information, including risk assessments and compliance documents, providing a holistic view of your supplier ecosystem.

Sign up for a demo and see firsthand how the ROAR Platform can improve your supplier management practices and unlock strategic insights for your organization.