Performance Management has an essential role in setting targets and controlling the supplier performance. It creates a quantitative scale for measuring and verifying the agreed and targeted performance of the suppliers. Performance Management is needed in the following six phases of the sourcing cycle:
Sourcing cooperates with Service Management when determining accurate and unambiguous Key Performance Indicators (KPIs) to measure the performance levels in operations. Measurement needs are agreed together with the business taking into account business process requirements and corresponding cost impacts.
The required performance levels and the corresponding set of metrics should be determined before contract negotiation to ensure accurate enough and measurable Service Level Agreements (SLAs). It is important to consider the selected metrics carefully because they will steer the suppliers’ performance in practice in the spirit of: “You will get what you measure”. Well-defined metrics can form the measurable ground for penalties in the contract.
Additionally, sourcing should keep track on available services, quality standards and service pricing on the market place to enable comparability and fair benchmarking of sourced services. Furthermore, it is justified to reserve rights to carry out an audit of suppliers’ service processes in order to ensure the required quality and performance.