1. www.businessservicessupport.com
PROCUREMENT- CONTRACT
MANAGEMENT

2. COPYRIGHT© TO BUSINESS SERVICES SUPPORT LIMITED 2011
ELEMENT TWO: RATERS
 The next key element to decide upon is the raters – who are the
individuals who will participate in the evaluation of your suppliers?
 Obviously, your organisation’s purchasing and supply management staff
should participate because that staff is ultimately responsible for the
performance of your suppliers
 But do not stop there! It is extremely important to get the input of
other stakeholders in the organisation
 If you work in a production environment, be sure to involve your
engineers and quality staff
 These folks have a vested interest in the performance of your
company’s product or service and usually are more than happy to give
their opinions on how well suppliers support their goals
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WHY CONTRACT
MANAGEMENT?
Suppliers Raters Performance
Supplier
Rating
Program

3. COPYRIGHT© TO BUSINESS SERVICES SUPPORT LIMITED 2011
ELEMENT TWO: RATERS
 Working in a non-production environment, end users of the
products or services of the selected suppliers, would need to be
included
 Let’s consider copy paper as a commodity purchased from one
of your selected suppliers
 You, in purchasing, may not use copy paper as much as some of
your company’s end users and, therefore, may not be able to
comprehensively evaluate your paper supplier’s performance
 Meanwhile, your company’s biggest end user of paper may find
her copier jamming constantly because of poor quality paper
 You need that person’s opinion when rating your paper supplier.
Never ignore stakeholders or end users in the supplier
evaluation process
3
WHY CONTRACT
MANAGEMENT?
Suppliers Raters Performance
Supplier
Rating
Program

4. COPYRIGHT© TO BUSINESS SERVICES SUPPORT LIMITED 2011
ELEMENT THREE: PERFORMANCE MEASURES
 The third key element of a supplier rating program is the group of
performance measures that you select
 Performance measures are those important, specific facets of suppliers’
performance that you will rate
 Performance measures will differ from organisation to organisation based
on the needs of each particular organisation
 However, performance measures usually fall into one of four categories:
 Cost
 Delivery
 Service
 Quality
4
WHY CONTRACT
MANAGEMENT?
Suppliers Raters Performance
Supplier
Rating
Program

5. COPYRIGHT© TO BUSINESS SERVICES SUPPORT LIMITED 2011
ELEMENT THREE: PERFORMANCE MEASURES
 Cost performance measures relate to the direct financial impact
of a supplier’s performance and can include:
 Price, payment terms, shipping charges, savings from process
improvements, and so forth
 Delivery performance measures relate to a supplier’s ability to
support your scheduling requirements and can include:
 On-time delivery of goods, on-time completion of services, stock
availability, or anything related to the cycle time between order
and receipt
5
WHY CONTRACT
MANAGEMENT?
Suppliers Raters Performance
Supplier
Rating
Program

6. COPYRIGHT© TO BUSINESS SERVICES SUPPORT LIMITED 2011
ELEMENT THREE: PERFORMANCE MEASURES
 Service performance measures relate to the personal and electronic
interaction between the buyer and seller and can include:
 Responsiveness, resolution of problems, technology used to provide customer
service, and so forth
 Quality performance measures relate to the conformance of a product or
service to requirements and can include:
 Rejection rates, warranty claims, technology used to improve products and
services, and other metrics related to the durability, reliability, and consistency
of a product or service
 Each performance measure that you ultimately select should be specific
and measurable
 For example, on-time delivery is specific (a delivery is either made by a
certain date or it is not) and it is measurable (a delivery was 3 days late)
6
WHY CONTRACT
MANAGEMENT?
Suppliers Raters Performance
Supplier
Rating
Program

7. COPYRIGHT© TO BUSINESS SERVICES SUPPORT LIMITED 2011
FRAMEWORK FOR MANAGING
CONTRACTS (S.L.A’S)
7
Methods of Rating
Once you have made
your decisions
relative to the three
key elements of a
supplier ratings
program – suppliers,
raters, and
performance
measures – you
must decide how to
acquire information
about your
performance
measures
Be advised that the
performance
measures you
choose and your
method of acquiring
information have a
dependency on one
another
The performance
measures you
choose may drive
how you go about
acquiring the
information
Also, limitations with
regard to acquiring
information may
require that you
"tweak" the
performance
measures that you
have selected

8. COPYRIGHT© TO BUSINESS SERVICES SUPPORT LIMITED 2011
8
FRAMEWORK FOR MANAGING
CONTRACTS (S.L.A’S)
Methods of Rating (Cont)
The ideal situation is
one in which you
have the means of
acquiring the
information you
need to support your
selection of the best
performance
measures for your
company measures
The ideal situation is
one in which you
have the means of
acquiring the
information you
need to support your
selection of the best
performance
measures for your
company
Having such means
may or may not be
realistic in your
particular situation
While there are
many ways of
acquiring
information and then
converting that
information into
supplier ratings, we
will focus on three of
the most common:
Supplier scorecards
System metrics
Supply chain event
management (SCEM)
software

9. COPYRIGHT© TO BUSINESS SERVICES SUPPORT LIMITED 2011
SUPPLIER SCORECARD:
 Supplier scorecards are a common starting point for
organisations who wish to have some method of rating their
suppliers
 The supplier scorecard approach gained popularity in the 1980’s
 Each rater will receive one scorecard for each supplier being
evaluated
 Each scorecard represents a survey of the rater’s opinion of that
supplier’s proficiency for the selected performance measures
9
FRAMEWORK FOR MANAGING
CONTRACTS (K.P.I’S)

10. COPYRIGHT© TO BUSINESS SERVICES SUPPORT LIMITED 2011
SUPPLIER SCORECARD (CONTINUED):
 The scores for each performance measure are usually
based on a scale where low scores indicate poor
performance and high scores indicate good
performance
 For example, a performance measure may be
"Adheres to delivery schedules" and the rater may
assign a score of 1 to 10 where 1 indicates that the
supplier never adheres to the delivery schedule and
10 indicates that the supplier always adheres to the
delivery schedule
 Scores for each performance measure are then added
to produce a total. Suppliers can be ranked from best
to worst by creating a list of your suppliers and their
total scores, then sorting it from highest score to
lowest score
10
FRAMEWORK FOR MANAGING
CONTRACTS (K.P.I’S)

11. COPYRIGHT© TO BUSINESS SERVICES SUPPORT LIMITED 2011
CASE STUDY?
11
IT’S TIME FOR A
CASE STUDY