The cornerstone of supplier performance management is monitoring a provider’s adherence to contractual service levels.
Although every organization monitors key performance indicators (KPIs) to some extent, there is rarely a correlation between this information and key risk indicators (KRIs). Primarily, they are measured separately. Now is the ideal time to change this approach in such a way that they are more productive toward ensuring supplier risk management is carried out effectively.
KPIs gauge how well people, processes, and technological operations like sourcing, delivery, and payments are working.
KRIs, on the other hand, quantify the level of risk (or uncertainty) a company would experience if a KPI were not achieved.
With regard to maintaining a supplier relationship, each department will have its own set of KPIs and KRIs to track.
When employing manual methods, negotiating, evaluating, and administering supplier contracts can be a time-consuming and laborious task.
Even worse, a manual approach puts the business at risk because contracting teams might only sometimes be aware when a new service is being contracted.
Business managers may better understand the connection between risk and performance by linking KRIs to KPIs. They can also see how relevant KRIs are to the goals and risk tolerance of the organization. This facilitates cross-functional cooperation and the incorporation of risk factors into business decisions.