How do you monitor performance of a procurement contract?

There are a number of key factors which can be used to assess supplier performance and which can be used as a yardstick for determining whether good practice is being achieved in specific situations. Some examples of these 'hard' issue key performance indicators (together with their sub-categories) are: • Product quality • MTBF (Mean Time Between Failure) • Percentage of incoming rejects (delivery accuracy) • Warranty claims • Service Quality (against agreed SLAs) • Call-out time • Customer service response time • On time delivery performance against agreed delivery lead times • Relationship/Account Management • Accessibility and responsiveness of account management • Costs are maintained or reduced * Payment terms

 

In performance based contracts, performance indicators developed in the contract are used. In some cases, the proposed supplier’s quality assurance plan may be used as a basis for monitoring the supplier’s performance.

 

Control points

 

Observing and collecting information should be directed at four general control points.  These include:

 

·         cost control

 

·         schedule control

 

·         compliance with specifications, terms of reference, statement of work (quality assurance and control)

 

·         compliance with terms and conditions, paperwork requirements, and administrative aspects of the performance.

 

·         Monitoring methods

 

·         There are two different monitoring methods: direct observation and indirect observation.

 

Direct observation

 

·         Direct observation means personal, physical observation.

 

Indirect observation

Indirect observation refers to testing, progress reports from many observers, technical reviews, performance indicators and audits.

Procurement contracts are generally monitored on the following points:

 1.      Cost control: The contract must be completed without any further cost to the organization

2.      Schedule control: The contractor must show progress as per accepted schedule

3.      Compliance with specifications, terms of reference, statement of work (quality assurance and control): The contractor must deliver the goods, services and works as stated in the contract

 4.     Compliance with terms and conditions  of contract: The contractor must follow the general and special conditions of contract and must send progress report as agreed to  the Engineer in Charge or Officer in charge 

Define key performance areas and then assign them weight as per your industry.For eg:

DeliveryQualityCostPremium Freight Incidences

 

Then we can define metrics to measure the performance in these areas.