KEY PERFORMANCE INDICATORS (KPIs)

What gets measured gets managed; this gives us an idea of how important it is to measure supplier performance.

When we talk about supplier performance measurement, we mean assessing their current performance against;

1. Defined performance criteria
2. Previous performance
3. Performance of other comparable organisations

BENEFITS OF USING KEY PERFORMANCE INDICATORS (KPIS)

The benefits of key performance indicators (KPIs) will vary depending on whether you are the buyer of the supplier in the given transaction.

To the buyer

Some benefits of using KPIs as performance measures are;

1. Increased and improved communication on performance issues
2. Create a motivation to surpass the specified performance level
3. Supports the collaboration between the buyer and the supplier relations
4. Helps focus on key results areas such as cost reduction and quality improvement
5. Reduces conflicts that arise due to poorly defined goals

To the supplier

1. Setting clear performance criteria and expectations
2. Managing supply risk
3. Supporting contract management to ensure that agreed benefits are obtained
4. Providing feedback for learning and continuous improvement in the buyer-supplier relationship

What are the KPIs Setbacks?

It is worth noting that KPIs have some disadvantages as well such as;

1. Cutting corners in quality so as to achieve productivity
2. Focusing on results at the expense of relation

In conclusion

Incorporating KPIs in the contract with external suppliers helps in defining the buying organization’s expectations in regard to performance.

In other words they define the business needs in terms of measurable outputs, outcomes or behaviors which indicate that the required level of performance to meet has been met.