6 Vendor Management KPIs You Must Track

Vendor management is critical for any organization that relies on external suppliers to deliver products or services. Tracking KPIs is essential to ensure vendors meet their contractual obligations and deliver value to the organization. Let's explore some essential vendor management KPIs and how to track and analyze them effectively.

Before we discuss the key metrics to consider for vendor management KPIs, let’s first understand the importance of KPIs for vendor management.

Zluri Recognized as a Leader in the 2024 Gartner® Magic Quadrant™ for SaaS Management Platforms. Download now!

Importance Of Vendor Management KPIs

Effective vendor management can help you improve the efficiency of your business operations and reduce costs by ensuring you are getting the best value for your money. In addition, by establishing clear expectations and metrics for vendor performance, you can monitor their progress and hold the vendors accountable for meeting your business needs.

At the heart of vendor management is tracking key performance indicators (KPIs) to measure vendor performance. By monitoring vendor management KPIs such as compliance rates, on time delivery, service quality, and more, you can evaluate your vendors objectively and make data-driven decisions about your vendor relationships.

In addition to providing a means to measure vendor performance, KPIs for vendor management can help businesses identify potential issues before they become major problems. For example, if a vendor consistently fails to meet delivery deadlines, this may indicate a problem with their supply chain that needs to be addressed.

By tracking this vendor management KPI, companies can take corrective action before the issue causes significant disruption to their operations.

Now that you have gained a better understanding of why vendor management KPIs are important to look into, let’s proceed further and understand 5 key indicators that you need to consider while evaluating vendor performance.

Top 5 Vendor Management KPIs To Consider

Below is the list of performance indicators that will help you track your vendor management. Moreover, you can also build a dashboard for monitoring performance against the vendor management KPIs that matter. Some of the major ones are:

1. Return on investment (ROI)

One of the most critical vendor management KPIs is the return on investment (ROI). ROI is a financial metric that measures the amount of money generated or saved due to a particular investment. In the context of vendor management, ROI can be used to measure the impact of software provided by a vendor against the cost of acquiring it.

To calculate ROI, you need to consider the cost of the software, the amount of money generated or saved from using it, and the time frame for the investment.

For example, if a company invests in a new software system that costs $10,000 and can save $50,000 in operating costs over a year, the ROI would be 400%.

Measuring ROI is a powerful way to assess the value of vendor management activities and identify areas where improvements can be made. With this KPI for vendor management, procurement teams can make data-driven decisions about vendor relationships and optimize their investments to achieve the best possible outcomes.

2. Compliance & contract performance

The procurement team can benefit greatly from using compliance and contract performance as key performance indicators (KPIs) in managing vendors efficiently. By tracking compliance rates, the team can ensure that vendors meet the requirements outlined in their contracts and SLAs (understand what SLAs are and the best practices here). This helps to measure the effectiveness of vendors and ensure that they meet their obligations.

This KPI for vendor management can also help the team identify potential compliance risks associated with vendor relationships and take corrective action to mitigate them. For example, suppose a vendor consistently fails to meet their contractual obligations. In that case, the team can use the compliance rate to determine if there is a need to renegotiate contracts with underperforming vendors.

Further, the team needs to identify specific contract clauses or SLAs critical to the vendor's performance to track the compliance rate effectively. By monitoring these specific clauses, the team can identify areas where vendors struggle to meet their obligations and take corrective action.

Also, monitoring contract performance is crucial for efficient vendor management. By regularly reviewing contracts and SLAs, the team can ensure that vendors meet their obligations and identify potential reputational risks before they become problems. This helps to maintain good relationships with vendors and avoid costly disputes.

3. Service delivery & quality

Service delivery and quality KPI measure how well SaaS vendors can deliver their service to customers with high quality and reliability. The following are some key metrics that can be used to assess service delivery and quality:

• Uptime: This metric measures the percentage of time that the service is available and operational for customers. This vendor management KPI is important as it helps businesses assess how reliable the vendor's service is and how well it meets their needs. By tracking uptime, businesses can identify potential issues or areas for improvement in the vendor's infrastructure or processes.
• Response time: This KPI for vendor management metric measures the time it takes for the vendor to respond to customer requests or issues. Response time is critical as it helps businesses assess how quickly the vendor can address any problems or concerns that may arise. By tracking response time, businesses can identify areas where vendors may need to improve their support processes or communication.
• Customer satisfaction: This vendor management metric measures how satisfied customers are with the vendor's service overall. Customer satisfaction is crucial as it helps businesses assess whether the vendor meets their needs and provides value. By tracking customer satisfaction, businesses can identify areas where the vendor may need to improve their service or make changes to meet customer expectations better.

The KPIs for vendor management service delivery and quality accuracy are essential for the IT procurement team in vendor management as they help assess the vendor's ability to meet the business's needs and expectations.

By monitoring these vendor management KPIs, the IT procurement team can identify vendors that consistently perform well and those that may need improvement, enabling them to make data-driven decisions about which vendors to continue working with or potentially replace.

4. Pricing & competitiveness

Your procurement teams can benefit from monitoring pricing and competitiveness metrics to make informed decisions when selecting vendors and negotiating prices. Here are some of the key ways this can help:

• Identify competitive vendors: By measuring how competitive a vendor's pricing is compared to the market, IT procurement teams can identify vendors that offer better value for money. This can help them make more informed decisions when selecting vendors and negotiating better prices and contract terms.
• Monitor price adjustments: By tracking how often vendors raise prices and how quickly they adjust to market pressure, IT procurement teams can identify vendors that are responsive to market conditions. This can help them avoid vendors not adjusting their prices quickly enough and ensure they get the best possible prices.
• Improve vendor management: By monitoring pricing and competitiveness metrics together, IT procurement teams can get a comprehensive view of vendor pricing and identify areas of improvement. This can help them manage their vendors better, negotiate better prices, and ensure they get the best possible value for money.
• Negotiate better prices: IT procurement teams can negotiate better prices with vendors by using pricing and competitiveness metrics as bargaining tools. For example, if a vendor is not competitive enough but quickly adjusts prices to market pressure, it could indicate that they will negotiate better prices with the business.

Overall, monitoring pricing and competitiveness metrics is essential for IT procurement teams. It can help them make more informed decisions when selecting vendors, negotiate better prices, and ensure they get the best possible value for money.

5. Customer support

It's important to note that not all vendors provide support, and this is where value-added resellers (VARs) can provide additional services like support. In addition, VARs can offer technical expertise and support services to help businesses manage their vendors more efficiently.

Using support as vendor management KPIs can help IT procurement teams to better manage vendors by measuring the quality and effectiveness of their customer support. By tracking support ticket resolution times, businesses can identify vendors that provide fast and efficient support and those that need improvement. This information can help IT procurement teams to make informed decisions when selecting vendors and negotiating contracts.

Furthermore, tracking support ticket resolution times can help businesses to identify patterns and trends in support requests. This can provide insights into potential issues with products or services that vendors need to address. By proactively addressing these issues, businesses can improve customer satisfaction and prevent future support tickets.

Overall, tracking customer support as a vendor management KPI is essential for vendor management. It helps businesses ensure that their vendors provide the level of support their customers need and can provide insights that can help improve the overall customer experience.

Now that you are aware of the vendor management KPIs, it's time to explore a tool to streamline your vendor management processes. Though various tools are available in the market, but the one that stands out the most is Zluri. What is Zluri? How does it help in vendor management? Here’s a quick guide.

How Zluri Helps Streamline Vendor Management

Vendor management can be a complex and time-consuming process involving many moving parts. From selecting the right vendors to negotiating contracts, tracking performance, and ensuring compliance, there's much to keep track of. And that's where Zluri comes in!

Zluri is a powerhouse of automation, taking care of everything from vendor onboarding to offboarding, ensuring your organization runs well. In addition, its automated inventory management system provides easy access to metadata, enabling you to view all your software licenses and usage data quickly.

With this information, you can optimize your software usage and cut unnecessary costs, thereby increasing your ROI.

• Not only that, Zluri helps streamline payment terms, ensuring timely payments to multiple vendors, so you never have to worry about missed payments or penalties. And managing vendor access is a breeze with Zluri's automated access management system that builds an inventory of vendors' access, and deprovisioning can be done easily.
• But what about data backup and transfer during vendor offboarding? Zluri has got that covered, too. It ensures there is no data loss in the organization by taking data backup or transfer, even removing or deleting the vendor profile to protect your company's sensitive information.
• Additionally, Zluri allots experts who work as an extension of your procurement teams and help negotiate for the best price while purchasing new SaaS applications with the SaaS vendors. They use two ways of negotiation, i.e., ZOPA (Zones of Possible Agreements) and BATNA (Best Alternative To a Negotiated Agreement).
  For example, let's say you have a $10,000 budget and want to buy a SaaS app from a vendor. You conduct market research and find vendors who offer the required app for between $5,000 and $15,000. In this case, the ZOPA is the difference between your spending limit and the vendor's price range of $5,000 to $15,000.
  Armed with this data, Zluri’s experts can confidently negotiate on your procurement team’s behalf to try and procure the SaaS app for a price closer to $5,000 while ensuring the vendor also earns his profit.
  Another case is that your team and a vendor are negotiating a new service agreement. Your preferred vendor is charging $15,000 per year for the service. However, your procurement team has received estimates for $12,000 and $10,000 annually from other vendors providing the same services. In this case, the best option is to go for one of the other vendors if your preferred vendor's price is out of your price range.
  With this knowledge, Zluri’s experts bargain with the preferred vendor to try and get the service for closer to $12,000 or $10,000 annually. Or else your procurement team can use BATNA and select the best alternative vendor if the preferred vendor comes to a negotiated price or matches your price range.
• So overall, implementing Zluri is the smart choice for any organization looking to streamline the vendor management process. With its automated vendor management system that manages the complete vendor lifecycle, you can focus on growing your business while Zluri takes care of the rest. So why not try Zluri and watch your organization's efficiency skyrocket? Book a demo now.

Also Read: If you understand the skills for managing vendors efficiently, kindly go through Vendor management skills and how to develop them