6 Key Metrics to Evaluate Supplier Performance Using Purchase Orders

Nov 23, 2021 | Supplier management

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Nov 23, 20213 min read

Evaluating supplier performance through purchase orders is a crucial aspect of supply chain management. Monitoring delivery times, order fulfillment rates, quality, communication, price competitiveness, and payment terms allows companies to make informed decisions about their suppliers and improve their performance. Regular supplier performance evaluations help companies get the best value, maintain high-quality standards, and build long-lasting relationships.

In order for businesses to maximize their profits and ensure that customers get the best quality products and services, it is critical to evaluate the performance of suppliers. The purchase order is an important tool that can be used to assess supplier performance and the quality of goods and services they provide. In this article, we will explore the benefits of evaluating supplier performance through purchase orders, how to measure supplier performance with purchase orders, using purchase orders to analyze suppliers' performance, and the impact of evaluating supplier performance with purchase orders. 

Understanding the Benefits of Evaluating Supplier Performance 

Knowing which suppliers are reliable and which are not can help save money in the long run and prevent costly mistakes. Additionally, evaluating supplier performance can help ensure that businesses are getting the best quality products and services from their suppliers. 

Evaluating supplier performance helps businesses stay up to date on the latest industry trends and practices, allowing them to plan more effectively for the future. Furthermore, it allows businesses to identify and resolve potential issues before they become major problems. By evaluating supplier performance, businesses can also identify and address areas of improvement, leading to increased customer satisfaction. 

Evaluating supplier performance also helps businesses to build strong relationships with their suppliers. By understanding the performance of their suppliers, businesses can better understand their needs and expectations, and work together to create mutually beneficial partnerships. This can lead to improved communication, better customer service, and more efficient operations. 

FactWise offers holistic supplier performance analytics across key supplier metrics like price, on-time delivery, quality, and so on, to empower organizations to always make data-driven decisions. 

Measuring Supplier Performance with Purchase Orders 

Here are some examples to illustrate the metrics for evaluating supplier performance based on purchase orders: 

  • Delivery time: Let's say a company orders a large shipment of raw materials from a supplier and the agreed delivery date is in 10 days. If the supplier delivers the materials in 9 days, they are performing well in terms of delivery time. On the other hand, if they consistently miss the delivery dates, the company may need to reassess the supplier's performance. 
  • Order fulfillment rate: For example, a company places an order for 100 items from a supplier, and the supplier delivers only 95 items. The order fulfillment rate in this case would be 95%, which may not be acceptable to the company, especially if the missing items are critical components. 
  • Quality of goods or services: A company may receive customer complaints about a product supplied by a particular supplier. This could indicate a problem with the quality of the goods or services provided by the supplier. The company could also perform regular product inspections or monitor return rates to assess the quality of the supplier's offerings. 
  • Communication: If a supplier is slow to respond to inquiries or resolve issues, this can lead to delays and inefficiencies in the company's operations. On the other hand, a supplier that is prompt, responsive, and proactive in communication can enhance the company's operations and build trust. 
  • Price competitiveness: A company may evaluate the prices of similar products or services offered by different suppliers to determine which one provides the best value. The company may choose to work with the supplier offering the most competitive prices while still ensuring that the quality and delivery time are acceptable. 
  • Payment terms: For example, a supplier may offer a discount for early payment, which could benefit the company if it has the resources to pay upfront. On the other hand, a supplier with strict payment terms and penalties for late payment may not be the best choice for a company that is experiencing cash flow problems. 

 Using Purchase Orders to Analyze Supplier Performance 

When analyzing supplier performance using purchase orders, businesses should consider the following factors: pricing, delivery times, quality of goods and services, and customer service. Additionally, businesses should consider any additional fees or charges associated with working with a particular supplier, such as payment processing fees or handling charges. 

By evaluating these factors over time, businesses can get a clear picture of how their suppliers are performing. This helps businesses make informed decisions about which suppliers to use in the future and which to avoid. Additionally, analyzing supplier performance with purchase orders can help businesses identify areas of improvement for their current suppliers, allowing them to improve their relationship with those suppliers. 

FactWise uses RfX data and historical data to offer robust, accurate supplier performance analytics so that procurement teams do not have to rely on tedious, repetitive data entry and Excel-based analyses to obtain supplier analytics. 

In conclusion, evaluating the performance of suppliers based on purchase orders is a critical aspect of supply chain management. By monitoring and assessing various metrics such as delivery time, order fulfillment rate, quality of goods or services, communication, price competitiveness, and payment terms, companies can make informed decisions about their suppliers and work with them to improve their performance. Regular evaluation of supplier performance can help companies ensure that they are getting the best value and support from their suppliers, maintain high-quality standards, and build long-lasting relationships. It is important to develop a comprehensive evaluation process and consistently monitor supplier performance to ensure that the company's supply chain operations run smoothly and efficiently. 

About the Author

Stawan is the founder and CEO of FactWise. Before founding FactWise, Stawan was the NA TMT-Procurement Leader at McKinsey. Passionate about procurement, Stawan has 15 years’ experience in enabling clients of all sizes to achieve business impact via procurement.


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