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This is concerned with ensuring that the actual service provided by the supplier meets the agreed standards and prices. The ability to measure the performance of the supplier and to provide feedback is critical to successful contract management and supplier development.

Performance measures should be set out in the contract documentation to ensure suppliers are fully aware of both the measures and the measurement methodology.

It is important that the performance measures selected provide clear and demonstrable evidence of the success (or otherwise) of the relationship and, in principle, issues such as the following should be covered:

• Cost and value obtained;
• Performance and customer satisfaction;
• Delivery improvement and added value;
• Delivery capability;
• Benefits realised;
• Relationship strength and responsiveness.

It is important to ensure that the actual metrics selected are not over-specified, and, as far as possible, readily obtained from the direct performance of the contract.

Remember that there are costs attached to the production and maintenance of metrics by the supplier who will seek to pass them on in the form of higher prices or charges.

Performance measures should not be seen as a method of control, but as a proactive means of improving the performance of a supplier.

There are a number of themes which could be used to measure supplier performance:

• Product quality Mean Time Between Failure (MTBF), Mean Time to Repair (MTTR), percentage of delivery rejects, warranty claims;
• Service quality using SLAs call-out time, customer service response time, performance against agreed delivery;
• Relationship management accessibility and responsiveness of supplier management;
• Commercial costs are maintained or reduced, service improved.

There are three aspects to performance measurement:

• Gathering factual, objective information from the supplier, usually obtained from IT systems;
• Gathering feedback from users about the service received, typically through questionnaires, surveys, telephone or face-to-face enquiry;
• Understanding the supplier’s own experience of dealing with the organisation through communication and open dialogue.

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