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The monitoring of supplier performance is emerging as one of the most critical aspects of the materials management function. Measurement, of course, is only the first step.
Stephen Bauld
Stephen Bauld

Procurement Perspectives | Stephen Bauld

The monitoring of supplier performance is emerging as one of the most critical aspects of the materials management function. Measurement, of course, is only the first step.

The results obtained must then be properly factored into procurement decisions. Here again, however, we can see certain risks in excessive reliance on a competitive bidding process that focuses entirely on sticker price.

One-off purchase orders, short-term contracts and a consistent emphasis on competitive bidding tend to foster an adversarial relationship between supplier and customer. Such a relationship may jeopardize the highest levels of supplier performance. Accordingly, a supplier performance monitoring program is most likely to be of value where there is an enduring (i.e., medium or long-term ) supply relationship in place.

Profit maximizing suppliers will deliver above average performance when such performance influences the chance of contract renewal. In the case of a purchaser who places no or little value on past performance, when deciding upon a choice of supplier, there is no incentive to invest time or resources in providing top-level customer support.

It also follows that in order to improve service levels, municipalities must signal to their suppliers that the quality of service matters.

This can only be done by making prior service quality a relevant factor in the award of the municipal contract. In broad terms, the process of supplier evaluation can be compared to the annual appraisal process for employees.

Such appraisal is best when carried out in a fair and systematic manner, with clear direction being given to the employee, the same can be said for ongoing supplier appraisal.

The better that the municipality monitors its supplier performance, and works with the supplier with a view to improving that performance, the better that the municipality will be able to serve the needs of its residents.

As suppliers come to realize that the quality of their performance will influence the duration of their supply relationship with a municipality, they will place increasing emphasis on satisfying the municipality’s quality demands. Enhanced efficiency saves time and money and the resources saved can be devoted away from procurement administration towards other municipal initiatives.

There are certainly models that may be referred to as to how to take the quality of supply and support into account in public contracting.

The overall approach has been extensively developed in the private sector. Many private sector companies spend a great deal of time and money measuring different types of data to help evaluate the supply process.

Within the private sector environment, buyers are free to negotiate the best possible price. Negotiating enhanced levels of service is often one of the main aspects of those negotiations. Even where a contract is awarded purely on a competitive bid, where similar offers are made to a customer, often the tie-breaker will be the comparative performance of alternative suppliers.

In addition, supplier performance is likely to be factored into a comparison of price offers.

While such negotiated freedom is limited in the municipal sector, municipal contracts should still be evaluated on an ongoing basis to ensure that suppliers are performing to a proper standard.

The supplier should be advised as to the municipality’s performance expectations and told when those expectations are not being met.

Initially, performance standards should be set out in the purchase order or contract.

By so doing, future problems can be avoided. During the life of the contract, the purchasing department should systematically review and confirm that the specified standards are being met.

Contract performance will benefit both the municipalities and the contractors in the long run.

Stephen Bauld is Canada's leading expert on government procurement. He can be reached at stephenbauld@bell.blackberry.net.

by Journal Of Commerce

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