Vendor Management Service-Level Agreement
It provides a set of metrics that tell you how well your vendors are working out for your organization, and things that can be done better.3 min read
A vendor management service-level agreement is important in any organization. It provides a set of metrics that tell you how well your vendors are working out for your organization, and things that can be done better. They also provide a way to determine whether or not a vendor is ultimately a good fit for your company.
SLA/Metric Definition Sheet
When negotiating a contract, it is not common to get involved into the regular business reviews. Vendors and supplier’s management teams will do this. However, if they are not there for whatever reason, and if you as a negotiator are not properly defining the SLAs and metrics so that other members in the business can manage them, it will have a negative impact on the organization.
The definition sheet describes the details of each metric:
- Why the metric was chosen
- How it is measured
- Who is collecting the data and the method of collection
- The interpretation method of the metric
The goal is to make sure that all parties involved can capture, analyze and utilize the metric cohesively. This way, the vendor manager can get the performance supplier to agree in bargaining sessions.
Service Levels, Performance Analysis and Improvement
Proper performance analysis and improving procedures can make sure that all performance standards are compliant when they are accurately reported and measured. Outsourced clients can also expect to get continual improvement with regard to services from their vendors. There must be a method for measuring improvement.
TPAs, or third-party administrators, arrangements, claims adjustments, and payment contractors have to have a level of service that will have a positive impact on vendor management.
Service can be defined as to the success or failure of a vendor while also creating expectations for vendor delivery. These are the basis for the quantitative management while establishing standards of performance.
A contract is the beginning point and will set the ground running with regard to proper performance reporting measurement.
The following describes an approach to defining service levels for vendor contracts:
- Establish the current service levels
- Identify any informal service levels
- Identify the industry level standards
- Identify the best practices
- Combine these to find out the target SLAs
- Find out the objectives of the service provider
- Provide definitions to obtain targets
All service levels should be defined in a crystal-clear way in order for clients and vendors to agree in a contract on the measurement, the desired standards, where the data will originate, the calculation of performance, and how often measurements will occur.
The performance metrics are typically available on an intranet regularly.
Key Reasons for Tracking Performance
There are multiple reasons to track performance:
- To identify any issues or problems that will need improvements while also tracking those improvements
- To identify any risks of service delivery and strategies to prevent those risks
- To identify the costs of programs
- To identify the strengths and weaknesses of vendors to help indicate whether or not they are appropriate for additional programs or projects
- To identify any trends of improvement or deterioration
- To ensure the service-level agreements are fulfilled
What is a Service-Level Agreement?
A Service Level Agreement will clearly outline the different levels of service that a vendor should maintain during the term of a contract. It is a very important part of good vendor management.
Part of the Service Levels can be critical to the mission of the business and need to have penalties associated with not meeting those standards. These penalties are generally weighted with regard to the importance of the issue and typically do not total the profit margin of the vendor on a monthly basis.
Not all businesses will need a SLA. If it is needed, most companies will have a set of performance standards and metrics to help measure the data against. This will help create a benchmark for gathering information. A company will often start with the vendor’s standards and make adjustments as necessary.
An SLA is a document that will name the rights and obligations in a contract for two or more parties. The point of an SLA is to write out all service levels that will be provided according to the contract.
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