Contents
- Why Does Vendor Performance Management Matter?
- What Are Vendor Management KPIs?
- Which Vendor Performance KPIs Should You Track?
- How Do You Establish KPIs With Vendors?
- What Are the Best Practices for Monitoring Vendor Performance?
- What Challenges Can Undermine Vendor Performance Management?
- How Can Automation Improve Vendor Management?
- How Does TalentDesk Simplify Vendor Performance Management?
Why Does Vendor Performance Management Matter?
Vendor performance management matters because it gives your organization some key strategic advantages – to improve margins, to drive process enhancements and to ensure you are working compliantly. It tells you whether your talent vendors and suppliers are getting you the advantages you brought them in for.
You would never hire employees without having a structured review framework to track their performance. So why not take the same organized approach for your talent vendors and external workforce?
If you’re new to the overall concept of vendor management, you can explore a broader introduction here: 👉 What Is Vendor Management?
What happens when there’s no structured performance tracking?
Vendor performance management helps you eliminate some common inefficiencies. This includes:
- Visibility gaps: You don’t have an objective view of how your vendors are performing.
Why does it matter?
Without objective performance metrics for vendors, your assessments can be tinged with personal biases. If you share a great rapport with the vendor POC, you may miss seeing that their firm is actually not giving you the ROI you want!
- Reactive risk handling: You don’t foresee risks like vendor delays or inefficiencies, until they impact your projects.
Why does it matter?
Being reactive about performance may mean you miss important project deadlines – or have to make expensive last-minute hires to make up for the inefficiencies they created.
- Non-compliance by vendors: You don’t know if your talent suppliers are following the legal, ethical or compliance protocols they need to follow.
Why does it matter?
This puts you at risk with the regulatory authorities. You may face steep fines, penalties, legal fallouts or even co-employment risks that interrupt your company’s operations.
- Margin erosion: You bring in vendor talent hoping they help you generate profits and drive efficiencies. This doesn’t happen when they don’t perform at the level you expect.
Why does it matter?
This impacts your bottomline, reducing your margins and making your projects not as profitable.
The right KPIs help you avoid these situations, providing clarity early on and enabling proactive decision-making.
What Are Vendor Management KPIs?
KPIs are Key Performance Indicators that help you benchmark and measure vendor performance. KPIs make the process objective, quantifiable and auditable.
Your vendor management KPIs will vary based on your needs but broadly, these are the areas they should cover:
- Contract compliance
This sets out exactly what your vendors are supposed to deliver – in terms of quantifiable headcount numbers, the skills they need to provide, the availability of talent and so on.
- Risk
This category of KPIs should list out the certifications, insurances, financial stability indicators, security measures and data protections your vendors must provide so as to minimize your risk of non-compliance.
- Cost
This should cover the financial side of the engagement, listing out all the ways you’ll track whether the engagement is successful – the cost per talent, how they weigh against competitors, the percentage increase in their prices every year and more.
- Service
This should assess the services that the vendor will provide – whether they will just supply the talent, or also offer managed services and compliance support.
- Innovation
Here, you can track how innovative the vendor’s solutions are, how many such offerings they deliver per quarter and whether they are able to actually provide viable solutions.
It is crucial to set these KPIs before you sign the contract with your supplier and not put them in retroactively. This helps:
- Protect your organization by setting out work and compliance expectations early. If the vendor falls short, you have a clear agreement that you can use to hold them accountable.
- Protect the vendor against biased reviews, subjective demands, or poor ratings based on personality clashes with your manager.
If you want to understand how KPIs fit within a full vendor management system, read: 👉 What Is a Vendor Management System?
Which Vendor Performance KPIs Should You Track?
What metrics or KPIs you use will ultimately depend on your needs and the type of talent supplier you engage. But here are some useful KPIs you can measure.
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Talent Vendor Management KPIs
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KPI
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What it involves
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How to measure it
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Service Level Agreement (SLA) compliance
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At the contract signing stage, you defined what your vendors are to deliver. Now, measure how they performed against those expectations.
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The SLA requirements delivered /
Total SLA requirements expected
For example: If they had to deliver 20 professionals for 30 hours a week, you should have received 600 hours of expert work. How much did you actually receive?
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Defect rate
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In any engagement, some delivery issues are to be expected. But this KPI tracks if those issues are happening too often for it to be an issue.
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Defects or issues experienced/
Total volume of work delivered
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On-time delivery
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This measures the time the vendor is taking to fulfil a demand – and tracking whether it is within the timelines you agreed upon initially.
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On-time deliveries /
Total volume of work delivered
For example: If the vendor talent delayed on 3 out of 10 deliverables, that’s a 30% delay rate! You may want to flag it early.
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Innovation initiatives
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Track whether the vendor delivered the number of innovations they had to – or if they fell short. Also consider whether they went above and beyond to offer any extra innovations.
For example, if the vendor talent helped you put processes in place that made your operations scalable or if they helped you identify gaps that you had not known before – those are huge positives.
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Innovations delivered /
Innovations agreed upon
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Return On Investment (ROI)
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This shows you the monetary value the vendor is bringing to the table. If they are meeting the SLAs but are generating too many financial liabilities, you may want to reconsider the engagement.
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Net profits or financial value generated by the vendor/
Cost of investment
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Cost savings versus spend baseline
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Spend baseline is the amount you spent before bringing the vendor on board. Measuring your current spends against this will show you whether the spends have gone down with the vendor coming in, and by how much.
Note: This will apply only to vendors offering cost saving services.
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Current spend /
Baseline spend
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Risk indicators
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This tracks whether the way a vendor team functions puts your organization at risk. This includes tracking whether they are maintaining updated certifications, upholding security protocols and operating in ethical ways.
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This should be measured in absolutes – whether the requirements are met 100% or not.
For example: If you find even one vendor talent operating professionally without the necessary licences, that is a gross infraction. This calls for immediate action.
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If you're still in the process of selecting the right vendors, you may find this useful: 👉 Vendor Selection Best Practices
How Do You Establish KPIs With Vendors?
We’ve discussed why these KPIs should be set before signing the contract. The key to doing that fairly, transparently and efficiently is to involve all stakeholders in the process.
Step 1: Ensure internal alignment to solidify your strategic business objectives and finalize which vendor KPIs will get you there.
For example, if you are engaging an external sales team, you probably want them to meet a certain target. Here, the number of leads generated and successfully converted is a better KPI to measure – rather than tracking the number of outreach emails the team is sending!
Step 2: Discuss your KPIs with your shortlisted vendor to ascertain whether what you have in mind is actually realistic. Getting a major flagship tech project up and running in 2 weeks may not be feasible – no matter how much manpower you throw at it. A good talent supplier will discuss this transparently with you.
Step 3: Negotiate with your vendor about what’s possible and what’s not, and arrive upon terms that both parties agree are suitable.
Step 4: Update your contract so that it reflects all the KPIs in a quantifiable way. This formalizes the agreement and holds both parties accountable – the talent supplier cannot get away with providing less than what the contract stipulates, while you cannot withhold approvals or payments if those terms are met.
Step 5: Ensure measurability and transparency by tracking the vendor company’s performance from day one. Have ongoing mechanisms in place so that everyone involved can notice gaps and take due measures to bridge them.
You can also explore how a dedicated VMS platform handles this process: 👉 How Vendor Management Works in TalentDesk
What Are the Best Practices for Monitoring Vendor Performance?
These vendor performance best practices let you factor in long-term outcomes rather than hyperfocussing on what the vendor may have delivered or missed just this week!
If contracts, KPI documents, renewal notices and vendor certificates are scattered across isolated inboxes, it becomes tougher to notice what’s getting missed out. You may have had a certain manager in charge when the vendor was being onboarded, who has since left and been replaced. Now during the audits, your new manager may have no idea what was actually agreed upon!
This is why it is so important to store all the relevant agreements and paperwork in one place, making them accessible to whoever is in charge. This also makes it easy to track renewal dates, re-certification requirements and more.
- Automate performance indicators
You may conduct your performance reviews quarterly or annually, but KPI monitoring should happen on an ongoing basis. An automation tool helps you track data against contracted KPIs, generates scorecards, sends alerts or red flags – making it easy for you to tackle issues consistently.
- Schedule structured reviews
Have structured vendor performance review processes decided at the contract stage – establishing what will be measured and how often. The frequency of these reviews should depend on vendor criticality – if a certain supplier is offering more business critical services, step up on how often you review them.
- Track spends
Vendor performance is not the only KPI that matters – weigh their delivered services against the costs they generate. This cost data should be linked to KPIs so you can track budget overshoots or high spends early on. If these happen on a recurring basis, it tells you that that engagement is not sustainable.
- Assess KPIs against real-world factors
Don’t forget to account for factors that may have contributed to KPI shortfalls. A scope change at your end may have prompted the vendor to reprioritize and focus on a different set of goals – thus no longer meeting their original KPIs. Similarly, natural disasters or geopolitical issues could have interrupted services for reasons out of their control. Accounting for these lets you be fair in your vendor assessments.
- Optimize vendor relationships with data
The point of tracking vendor performance indicators is not to micromanage or assign blame – it is to generate insights that actually let you manage vendor contracts well.
For instance, repeated unjustifiable shortfalls from the same vendor tell you that it’s time to terminate that engagement. For other vendors, transparent metrics let you offer guidance on how to improve, which they are sure to appreciate.
Performance data also lets you see where effort may be getting duplicated, which contracts can be consolidated, and which vendors are outperforming and deserve recognition. All of this lets you build long-term, mutually beneficial relationships that result in great work done!
Want a more complete overview of VMS best practices? 👉 See More VMS Best Practices
What Challenges Can Undermine Vendor Performance Management?
- Imperfect vendor performance review processes are a big challenge when it comes to measuring vendor performance. Infrequent reviews may pose a huge risk, especially when it comes to vendors performing critical functions – it means you don’t spot issues until it is too late.
Biased reviews are just as bad. It makes the process too subjective, or doesn’t take legitimate factors into account, putting good vendor relationships at risk.
- Lack of action or consequences also undermines the process. If no steps are taken to correct a shortfall, there’s no guarantee it won’t happen again.
This is often the case when there’s no accountability at the vendor’s end. This is why escalation processes should also be discussed and included in the contract. It should outline who will be answerable, how issues will be addressed and how promptly you can expect a resolution.
But issues can also occur if there is a lack of internal alignment in your team. When no one knows who is in charge, that makes it difficult to take decisions or enforce consequences for missed deliverables – making the engagement overall quite inefficient.
- While not tracking vendor KPIs is bad for business, it is equally unhelpful to do it all manually, putting the burden of it on your lean teams. For managers, having to manually update data at each step can be extremely cumbersome – just adding to their workload and preventing them from focusing on their core responsibilities. This negates the value you get from your vendors.
How Can Automation Improve Vendor Management?
Automation is the answer! It can help simplify your vendor performance tracking process and make each step more agile and lightweight. Here’s how automated vendor KPI tracking software and tools help.
- They come with dashboards that give you full visibility – from document and certification tracking to project updates. This means you can spot gaps immediately.
- They streamline workflows, auto-updating scorecards, tracking ongoing work, and measuring them against contracted KPIs. Any KPI shortfalls are immediately flagged so remediation steps can be taken.
- They send out real-time alerts notifying you about upcoming review schedules, contract renewal dates and so on. This removes the burden of having to ‘stay-on-top-of-it-all-or-else’!
- They integrate data, linking performance with compliance and contract systems, giving you the full picture and letting you make informed decisions. For example, a minor delay one time may not be a big deal – but a compliance breach or tax default? That’s a bigger issue that needs immediate attention.
How Does TalentDesk Simplify Vendor Performance Management?
TalentDesk is an easy tool for small procurement teams and large. It offers a unified platform for all your vendor management needs – so it has performance tracking tools and mechanisms built right in. Some of its features that reduce manual work in reporting vendor KPIs are:
- Unified dashboard: This gives you full visibility of everything assigned to your talent vendor teams – from what they are handling to how their performance is measuring up, what deadlines are coming up, and more.
- Spend tracking: It tracks your spends against your project budgets. But instead of a broad overview, TalentDesk stands out by giving you a granular breakdown of your spends – letting you track exactly what you are spending on each contractor or talent vendor. It also generates downloadable reports, making it easy to have a quick view of whether you are overspending, put together your feedback and have necessary discussions with your vendor.
- Automated contract management: This feature lets you generate contracts, making it incredibly easy to incorporate your vendor KPIs and update them as negotiations progress. Once the KPIs are finalized, the tool then creates the final contract and lets you formalize it through the e-signing feature.
- Real-time reminders: Since the tracked KPIs are measured against your vendor contract, it lets you spot breaches early on. What’s more, it sends out timely notifications about when a vendor certificate might be expiring, when a license needs to be updated and when a review or contract renewal date is coming up. This lets you send out the necessary requests and streamline the process – all without manual dependencies.
- Embedded workflows for collaborative reviews and performance-based renewals: Ensuring accountability becomes easy with the tool’s collaborative review feature. All the managers and stakeholders involved in a particular workflow can assess a vendor’s performance and leave internal and public reviews that you can use to look back at later. The advanced reporting feature makes it easy to track each contractor’s productivity based on the deliverables they are working on. All of this means neither good performance nor careless oversights gets forgotten months down the line, when you are making renewal decisions.
With the right KPI tracking processes in place and the right tools at your disposal, improving vendor performance and building strong supplier relationships become easy.