How can you evaluate vendor performance when they are also strategic partners?

1 Define clear and measurable objectives

The first step to evaluate vendor performance is to define clear and measurable objectives that align with your strategic goals and expectations. These objectives should be based on the scope, quality, cost, and time of the deliverables or services that your vendor provides. You should also consider the value-added benefits that your vendor offers, such as innovation, collaboration, and risk mitigation. You can use tools such as SMART (Specific, Measurable, Achievable, Relevant, and Time-bound) criteria or KPIs (Key Performance Indicators) to set and track your objectives.

2 Establish regular and transparent communication

The second step to evaluate vendor performance is to establish regular and transparent communication with your vendor. Communication is essential for building trust, resolving issues, and exchanging feedback. You should communicate with your vendor at different levels and stages of the project or contract, such as planning, execution, monitoring, and review. You should also use various channels and methods of communication, such as email, phone, video conference, face-to-face meeting, or online portal. You should ensure that your communication is clear, consistent, and constructive.

3 Use a balanced scorecard approach

The third step to evaluate vendor performance is to use a balanced scorecard approach that covers multiple dimensions of the vendor relationship. A balanced scorecard is a strategic management tool that helps you measure and improve your performance across four perspectives: financial, customer, internal process, and learning and growth. You can apply this tool to your vendor performance evaluation by identifying the metrics and targets that reflect your desired outcomes and impacts in each perspective. For example, you can measure your vendor's financial performance by looking at the cost savings, return on investment, or profitability; you can measure your vendor's customer performance by looking at the customer satisfaction, retention, or loyalty; you can measure your vendor's internal process performance by looking at the quality, efficiency, or reliability; and you can measure your vendor's learning and growth performance by looking at the innovation, collaboration, or improvement.

4 Involve multiple stakeholders

The fourth step to evaluate vendor performance is to involve multiple stakeholders who have different roles and perspectives on the vendor relationship. Stakeholders can include your internal teams, such as procurement, finance, legal, or operations; your external customers, such as end-users, distributors, or regulators; and your vendor's teams, such as project managers, account managers, or technical experts. You should solicit feedback from your stakeholders through surveys, interviews, focus groups, or reviews. You should also share your findings and recommendations with your stakeholders and seek their input and buy-in.

5 Implement a continuous improvement cycle

The fifth step to evaluate vendor performance is to implement a continuous improvement cycle that enables you to monitor, review, and improve your vendor relationship. A continuous improvement cycle is a process that consists of four stages: plan, do, check, and act. You can apply this process to your vendor performance evaluation by planning your objectives, expectations, and metrics; doing the activities and tasks that support your objectives; checking the results and outcomes of your activities and tasks; and acting on the gaps, issues, or opportunities that you identify. You should also document and communicate your progress and achievements with your vendor and stakeholders.

6 Recognize and reward vendor performance

The sixth step to evaluate vendor performance is to recognize and reward your vendor for their performance and contribution. Recognition and reward are important for motivating, engaging, and retaining your vendor as a strategic partner. You can recognize and reward your vendor in various ways, such as providing positive feedback, testimonials, or referrals; giving awards, certificates, or plaques; offering incentives, bonuses, or discounts; or extending or renewing the contract or scope. You should also celebrate your successes and milestones with your vendor and stakeholders.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?