Vendor Performance Management: Key Metrics and Best Practices

Vendor performance management is a critical framework for aligning supplier outcomes with business strategy. By setting measurable targets, organizations can optimize cost, service, risk, and compliance while maintaining operational clarity.

The process hinges on four Core metrics: total landed cost reduction, service reliability (OTIF, lead times), risk mitigation (supply continuity, financial health, cybersecurity), and adherence to contractual and regulatory standards. Cross-functional ownership ensures accountability—procurement handles commercial levers, quality oversees nonconformance, operations monitors service levels, and finance validates P&L impact.

Effective implementation requires granular visibility, particularly for tier-1 and strategic tier-2 suppliers. Site-level data often reveals operational truths obscured by aggregated reports. Modern vendor management software provides the necessary audit trails and documentation to streamline reviews.