Evaluating the effectiveness and efficiency of your suppliers is just as important to your business operation as conducting annual performance reviews of employees. Take this step to critically examine performance levels as they pertain to key elements of a supplier's responsibilities. This helps you determine whether the contractual agreement you have with your suppliers is being fulfilled to your expectations or needs tweaking to become more efficient.

Discuss Expectations

At the start of a supplier relationship, expectations should be outlined so both parties understand what the other is looking for in the terms of the agreement. Key elements to consider include timeliness of delivery, availability of product source supplies, friendliness, flexibility of the supplier and price-benefit ratio. Just as you might set goals and measurements with an employee, consider something similar for the supplier, such as a written a set of performance expectations you can measure and discuss at a future contract evaluation.

Track Performance

Create a spreadsheet with headings such as on-time delivery, quality of product or service, and relationship with others in your business, such as warehouse or delivery staffers or administrative personnel. Include categories related to how easy the supplier is to contact, how frequently mistakes happen, whether the supplier goes above and beyond to ensure he meets all of your expectations and whether any performance issues arise during the course of the contract that require addressing. Update the spreadsheet every time an order is placed or delivery is made to track performance.

Sit-Down Evaluation

When it's time to renew your supplier contract or renegotiate your agreement, ask for a personal meeting to sit down and discuss the particulars of your working relationship. Reference your performance evaluation sheet and bring up concerns, offer kudos or ask for adjustments where necessary. For example, “Three times last year we had shipments that resulted in overtime for our warehouse staff. Twice, orders were wrong and had to be returned, and a secretary often had to make numerous calls to reach you when we needed to make a last-minute change."

Discuss Future Changes

Depending on the feedback you get from your supplier, you may opt to continue your relationship with newly established expectations or you may decide to switch suppliers because the existing relationship is no longer a good fit. If the supplier is part of a larger organization, you might want to involve the supplier’s direct supervisor in the conversation as part of the process. You may be provided with a different individual to work with or the company may be willing to reduce costs, issue credit or otherwise make up for any poor performance issues. If you have stellar contractors working as suppliers, pass along positive commentary about their performance and the company's overall reliability.