Measuring Vendor Performance

Firms can measure vendor quality, service, availability, and overall reliability to determine future engagement with the vendor.

Learning Objective

Describe the different tactics B2B companies use to search for and evaluate products and supplier performance

Key Points

Supply managers evaluate suppliers utilizing the tools of value assessment and the fundamental value equation. They estimate the benefits and total costs paid to each vendor.
Vendors play a role in two steps of the business buying decision process. Steps 3 and 5 both require researching new and current vendors and analyzing various factors to determine if they should be used again.
Vendor analysis is a formal, systematic evaluation of current and potential vendors. This focuses on price, quality, service, availability and overall reliability.

Term

fundamental value equation
Customer Perceived value of a product is the difference between the prospective customer's evaluation of all the benefits and all the cost of an offering and the perceived alternatives. Formally, it may be conceptualized as the relationship between the consumer's perceived benefits in relation to the perceived costs of receiving these benefits. It is often expressed as the equation : Value = Benefits / Cost.

Full Text

Introduction

Decision makers complete five steps when making a business buying decision:

Recognize the problem
Develop product specifications to solve the problem
Search for and evaluate possible products and suppliers
Select product and supplier and order product
Evaluate product and supplier performance

Vendor performance measurement plays a role in Steps 3 and 5.

Step 3: Search for and Evaluate Possible Products and Suppliers

Step 3 requires searching for and evaluating possible products and suppliers. This can be done in several ways:

Looking in company files and trade directories, contacting suppliers for information, soliciting proposals from known vendors, and examining websites, catalogs and trade publications.
Performing a value analysis (an evaluation of each component of a potential purchase). This examines the quality, design, and materials, with the intention of finding cost savings opportunities.
Performing a vendor analysis (a formal, systematic evaluation of current and potential vendors). This focuses on price, quality, service, availability, and overall reliability.

Step 5: Evaluate Product and Supplier Performance

Step 5 of the business buying decision process involves evaluating product and supplier performance.

Firms need to compare products with specifications. The results become feedback for other stages in future business purchasing decisions. If a firm has any negative issues with a vendor, it is likely they will look for another one.

Business Feedback loop

Supplier performance evaluation teams are used to monitor activity and performance data, and to rate vendors. But supplier performance evaluation teams are just one of the many teams companies deploy to address tactical issues.

Supplier certification teams help selected suppliers reach desired levels of quality, reduce costs, and improve service. Specification teams select and write functional, technical, and process requirements for goods and services to be acquired.

Supply managers evaluate suppliers utilizing the tools of value assessment and the fundamental value equation. They estimate the benefits and total costs paid to each vendor. Consistent with supply management orientation, these evaluations can be complemented with the firm's customer feedback. In this way, supply managers can better focus or redirect the efforts of the entire supply network toward the delivery of superior value to end-users.

[ edit ]

Prev Concept

Stages of Business Buying

Influences on Business Buying

Next Concept