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How Do I Evaluate Vendor Performance?

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  • Written By: Terry Masters
  • Edited By: Allegra J. Lingo
  • Last Modified Date: 30 November 2016
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    Conjecture Corporation
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Overall vendor performance can be evaluated by rating the vendor in terms of quality, price, delivery, and service. In larger organizations, the purchasing department might distribute a questionnaire to any employee who uses an approved outside vendor, asking the employee to comment on the experience. The feedback is typically entered into the vendor management system and forms the basis for periodic vendor review and quality control. Smaller companies might use a written survey or an informal system of checks and balances. Either way, a vendor is generally subject to periodic evaluation in much the same way as an employee to ensure continued work to standards.

Vendor management happens on a continuum that starts with an agreement regarding deliverables, which includes a clear conveyance of guidelines and standards. Before you implement a formal vendor performance review, make sure you have committed your guidelines to writing and that your vendors are aware of your expectations. If you have employees that deal directly with vendors and will participate in the evaluation process, make sure they are also aware of the guidelines. Setting a performance standard upfront enables more consistent evaluation at the back end and takes some of the subjectivity out of the process that can unfairly skew the results.

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An evaluation tool should be drafted. This can be a written survey or a questionnaire, or a series of questions asked through an oral interview. Part of the design of the tool is the determination of how it will be administered. Vendor performance feedback can be collected after every contact or collected periodically. A questionnaire that is presented after every contact can be shorter, while one that looks to an employee’s experience with a vendor over a longer length of time might need more detail.

The evaluation tool should solicit feedback in quality, price, delivery, and service. Quality should address the evaluator’s satisfaction with the vendor’s goods or services. Price should address the total cost of goods or services as compared to inherent value and as compared to the cost of using other vendors. Delivery should account for availability, turnaround time, and reliability. Service should rate the vendor’s responsiveness, professionalism, customer service, and adherence to standards.

Perhaps the most important part of the vendor performance evaluation process is establishing a system to collect, summarize, and retain the data from the evaluation tool. Whether you solicit feedback on vendor interactions from two employees or two hundred, the results have to be synthesized and distilled down to some sort of grade or rating on a scale of acceptable to unacceptable performance. There are software packages and Internet-based content systems that can facilitate the entire process of vendor management, but you can also do the work by hand by establishing a file for the vendor, collecting the surveys, reviewing the results, and assigning a rating that will determine whether or not the vendor remains on your approved vendor list.

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