Vendor performance evaluations or reviews help you periodically assess the quality of vendor and supplier performance throughout your organization’s supply chain, ensuring that you’re getting the most “bang” for your buck and avoiding poor performance and that your enterprise avoids exposure to third-party risks.

Essential to good vendor management, vendor performance reviews enable you to track and assess the products and services your third parties supply and to engage in proactive performance management in all your supplier relationships for continuous improvement and ongoing customer satisfaction.

What is a vendor performance report?

A vendor performance report is a document or analysis that provides an evaluation of a company’s or organization’s suppliers or vendors based on various performance criteria. The primary purpose of this report is to assess how well a vendor is meeting the requirements and expectations of the buying organization. Vendor performance reports are commonly used in procurement and supply chain management to monitor and manage the relationships with suppliers. Here are some key elements typically included in a vendor performance report:

  1.   Key Performance Indicators (KPIs): These are specific metrics and criteria used to assess a vendor’s performance. Common KPIs may include on-time delivery, product quality, pricing, lead times, and responsiveness to inquiries or issues.
  2.   Quality of Goods or Services: This section evaluates the quality and consistency of the products or services provided by the vendor. It may include details about defects, returns, or customer complaints related to the vendor’s offerings.
  3.  On-Time Delivery: Timeliness in delivering orders is a critical factor in vendor performance. This section assesses how often the vendor meets agreed-upon delivery schedules.
  4.  Cost and Pricing: A vendor’s pricing and cost-effectiveness are essential factors. This section may include a comparison of the vendor’s prices with market benchmarks or other suppliers.
  5.  Communication and Responsiveness: This evaluates the vendor’s ability to communicate effectively, respond to inquiries promptly, and address issues or concerns in a timely manner.
  6.  Compliance and Contractual Obligations: This section assesses the vendor’s adherence to contract terms, including compliance with regulatory requirements, service-level agreements, and other contractual obligations.
  7.  Supplier Relationship Management (SRM): An overview of the working relationship between the buying organization and the vendor. It may include feedback on the vendor’s willingness to collaborate, adapt to changing needs, and engage in long-term strategic partnerships.
  8.  Risk Assessment: An evaluation of the potential risks associated with the vendor, such as financial stability, geopolitical factors, or dependency on single sources for materials or components.
  9.  Recommendations: Based on the assessment, the report may include recommendations for improvement, such as renegotiating terms, exploring alternative suppliers, or providing the vendor with guidance for enhancing their performance.
  10.  Overall Performance Rating: A summary rating or score that reflects the vendor’s overall performance based on the evaluated criteria.

Vendor performance reports help organizations make informed decisions about their supplier relationships. They can be used to identify areas for improvement, negotiate better terms, or even make decisions to change vendors if necessary. These reports are an essential part of supply chain management and procurement strategies to ensure the efficiency and effectiveness of the vendor base.

Why Conduct Vendor Performance Reviews?

For many entities, organizational performance management is intricately linked with supplier performance management. Without third-party suppliers’ providing essential parts or services, some enterprises wouldn’t be able to function. Entity-supplier relationships are symbiotic, and when the vendor doesn’t meet expectations the contracting organization may suffer, too.

Vendor performance reviews can help your organization to:

  •   Track and monitor suppliers’ compliance with contracts;
  •   Know when the vendor is falling short of expectations, and in what areas;
  •   Work with the vendor to improve performance isues;
  •   Compare and contrast vendors’ performance;
  •   Proactively resolve issues to avoid harm to your own productivity or services;
  •   Ensure that your entity is making the best use of vendors’ services.

The Basics of Preparing a Vendor Performance Review

Evaluating the performance of your suppliers or vendors is a fundamental aspect of effective supply chain management and procurement. A well-structured and thorough vendor performance review is a key process that enables organizations to assess how well their suppliers are meeting established criteria and goals established by key performance indicators (KPIs) and service level agreements (SLAs) in your contract with your vendors or suppliers. By systematically evaluating key performance indicators and criteria, organizations can make informed decisions about their supplier relationships, optimize supply chain efficiency, and drive continuous improvement in vendor partnerships. In this guide, we will explore the essential steps and considerations involved in preparing a vendor performance review, providing you with the knowledge and tools to effectively manage your supplier relationships.

Develop Your Vendor Acceptance Criteria

Developing vendor acceptance criteria is a critical step in the vendor selection process. These criteria serve as the foundation for evaluating and choosing suppliers or vendors to work with. Here are the key steps in developing vendor acceptance criteria:

  1.   Define Your Needs and Objectives:

Begin by clearly identifying your organization’s specific needs and objectives related to the goods or services you’re procuring. What are you looking to achieve by working with a vendor? What are the essential requirements for your project or business?

  1.   Engage Stakeholders:

Involve relevant stakeholders from your organization in the decision-making process. This might include procurement teams, operations, quality control, and other departments that will interact with the vendor’s products or services.

  1.   Prioritize Criteria:

After gathering input from stakeholders, prioritize the criteria based on their importance. Consider creating a weighted scale to assign values to each criterion. This will help you focus on the most critical factors.

  1.   Quality Standards:

Define your quality standards and expectations. This includes specific product or service requirements, quality control measures, and any industry-specific standards or certifications that vendors should adhere to.

  1.   Delivery and Timeliness:

Specify your acceptable delivery timelines and lead times. Ensure that vendors can meet your scheduling requirements and that their delivery processes align with your production or project schedules.

  1.   Pricing and Cost Considerations:

Set clear expectations for pricing, including your budget constraints, payment terms, and any negotiated agreements. Make sure that the vendor’s pricing aligns with your financial objectives.

  1.   Communication and Responsiveness:

Include criteria related to the vendor’s communication and responsiveness. Vendors should be capable of addressing inquiries, concerns, and issues promptly, as effective communication is crucial for a successful partnership.

  1.   Legal and Contractual Terms:

Establish clear legal and contractual terms, such as liability, warranties, intellectual property rights, dispute resolution procedures, and any other contractual obligations that vendors must adhere to. Ensure that your vendor acceptance criteria align with these terms.

Remember that vendor acceptance criteria can vary depending on your industry, organization size, and specific needs. It’s important to review and update these criteria periodically to adapt to changing circumstances and improvements in your vendor management processes. Developing well-defined vendor acceptance criteria ensures that you choose suppliers who can meet your requirements and contribute positively to your business operations.

Decide When and How Often to Review

Deciding when and how often to conduct vendor performance reviews is a strategic decision that can significantly impact your organization’s supplier relationships and overall operational efficiency. The timing and frequency of these reviews should be carefully considered to strike a balance between effective vendor management and the efficient allocation of resources.

The decision on when to conduct vendor performance reviews should take into account the nature and criticality of the vendor’s products or services to your organization. Vendors providing essential goods or services that have a direct impact on your operations may require more frequent reviews. This ensures that any issues or deviations from agreed-upon standards are promptly addressed, minimizing disruptions. On the other hand, vendors with less critical roles in your supply chain may necessitate less frequent reviews, avoiding unnecessary administrative burden.

The frequency of vendor performance reviews can also be influenced by the duration of vendor contracts. Many contracts specify milestones for performance evaluations. These contractual obligations should be adhered to, as they provide a structured framework for reviewing a vendor’s performance. In cases where contracts are long-term and strategic in nature, more regular assessments may be beneficial to nurture and enhance the vendor relationship over time.

Event-driven reviews are another consideration, especially when dealing with unpredictable scenarios. Reviews triggered by specific incidents, such as delivery failures, quality issues, or missed deadlines, allow for timely issue resolution and can help maintain service quality. These reviews are crucial when exceptional circumstances arise and merit immediate attention.

Adopt or Design a Review Method

Regardless of the timing and frequency chosen, the ultimate aim of vendor performance reviews is to support continuous improvement and strengthen supplier relationships. A structured approach to conducting these reviews, documenting findings, and using the insights gained to enhance vendor relationships will undoubtedly contribute to the overall success of your organization’s procurement and supply chain management efforts. Careful consideration of when and how often to conduct vendor performance reviews aligns these processes with your specific organizational goals and operational requirements, fostering a more productive and collaborative vendor relationship.

A number of good vendor review templates are available for you to use when writing your vendor questionnaire and creating your scoring system, important first steps in the supplier evaluation process.

Vendor risk management software can also be helpful when designing your supplier performance review, and may even conduct your reviews, collect and collate answers, and present vendor performance in user-friendly dashboards so you can see where the gaps are in your vendor risk management program and how to fill them.

As your team writes, conducts, and assesses vendor performance reviews, it could also be stimulated to discuss, and refine, its use of the vendor including:

  •   What the company purchases from the vendor, and why
  •   What the company will need in the longer-term, and whether the vendor can meet those needs
  •   Who the vendor’s competitors are, and whether to switch.

Examples of questions to ask during a vendor performance review

During a vendor performance review, it’s important to ask questions that help assess the vendor’s performance, identify areas for improvement, and maintain a healthy supplier relationship. Here are some examples of questions to ask during a vendor performance review:

1. Quality of Goods/Services:

  • How would you rate the quality of the products/services you have provided during the review period?
  • Have there been any quality issues, defects, or complaints from our end-users or your team?

2. Timeliness and Reliability:

  • Were you able to meet all agreed-upon delivery deadlines and lead times?
  • Have there been any delays or issues with delivery schedules?

3. Communication and Responsiveness:

  • How would you describe our communication and collaboration throughout this period?
  • Were you responsive to our inquiries and concerns, and did you address them in a timely manner?

4. Cost and Pricing:

  • Have there been any changes in pricing or cost structures that we should be aware of?
  • Do you believe the pricing remains competitive and aligned with market conditions?

5. Compliance and Contractual Obligations:

  • Have you consistently met the terms and conditions outlined in our contract or agreement?
  • Are there any regulatory changes or compliance issues we should be aware of?

6. Performance Metrics:

  • How do you rate your performance against the key performance indicators (KPIs) outlined in our agreement?
  • Can you provide specific data or examples that highlight your performance in critical areas?

7. Problem Resolution:

  • Have there been any problems or issues, and how were they resolved?
  • What measures have been put in place to prevent similar issues from occurring in the future?

8. Innovation and Value-Add:

  • Are there any suggestions or innovations you can bring to the table to enhance our collaboration and provide more value?
  • Have you introduced any process improvements or cost-saving initiatives?

9. Sustainability and Social Responsibility:

  • Can you provide information on your efforts in sustainability and corporate social responsibility?
  • Are there any environmental or ethical considerations we should be aware of?

10. Future Planning:

  • How do you see our collaboration evolving in the future?
  • Are there any changes in your business or industry that might impact our relationship?

11. Feedback and Suggestions:

  • Do you have any feedback or suggestions for improving our working relationship or processes?
  • Is there anything you would like to discuss or clarify from your end?

12. Risk Assessment:

  • What measures are in place to mitigate potential risks, such as geopolitical issues or supply chain vulnerabilities?
  • How do you plan to manage risks that may affect our collaboration?

These questions can serve as a starting point for your vendor performance review discussions. Customize them to fit your specific vendor relationship and the goals you aim to achieve through the review process. Effective vendor performance reviews provide an opportunity to openly discuss and address concerns, drive continuous improvement, and strengthen your partnership with your suppliers.

How do you perform a vendor assessment?

Vendor performance reviews start by measuring whether your entity’s third-party vendors or

Your criteria may differ depending on a variety of factors, including:

  •   Company size
  •   Amount and sensitivity of your information handled
  •   Type of business
  •   Compliance requirements-yours and theirs
  •   Complaint history
  •   Financial stability.

If you’re dealing with multiple vendors, you may want to classify and rank them according to their criticality for your business and the sensitivity of the information they handle for you. Then you can devise supplier performance criteria for each classification rather than creating a separate review for each individual vendor.

How ZenGRC Can Help You Manage Vendor Risks

ZenGRC offers a robust solution for effectively managing vendor risks within your organization. This comprehensive governance, risk, and compliance (GRC) platform facilitates vendor risk assessment, centralizes data storage, and automates critical workflows. By customizing risk assessment questionnaires, organizations can thoroughly evaluate vendor risks, from cybersecurity and data privacy to financial stability and regulatory compliance. ZenGRC’s centralized repository ensures that all vendor-related information is easily accessible and well-organized, including contracts, compliance documents, and audit reports. The software’s automated workflows streamline risk management processes, from notifications to approval procedures. Furthermore, it aids in tracking vendor compliance, assigns risk scores, manages issue resolution, and keeps vendor-related documents up to date. With ZenGRC, organizations can proactively monitor vendor performance, making data-driven decisions to minimize risk and ensure the success of vendor relationships.

Best Practices to Mitigate Vendor Risk Within Your Supply Chain


Best Practices to Mitigate Vendor
Risk Within Your Supply Chain