The top 10 vendor metrics to use for productive performance reviews

According to a survey of 200 legal departments from 21 countries, just 27% of legal operations teams officially analyse vendor performance. However, over half of the teams polled expressed an interest in doing so. It’s difficult to tell which suppliers are worth working with—and which are costing you more than necessary—without a dependable vendor performance management plan in place.

Any good vendor management approach is built on your ability to track vendor performance data. These key performance indicators (KPIs) help you and outside counsel develop an agreed, objective definition of success that you can use to evaluate their work and optimise cost.

In this post, we’ll look at the most important vendor performance measures for constructive assessments, as well as advice for ensuring a smooth process when sharing these reports with outside counsel.

Activity of matter

When you look at the overall number of open, closed, and pending items across your suppliers, you can get a better picture of their workload and productivity. You’ll also learn about the distribution of labour across practise areas. This vendor statistic assists you in identifying prospective possibilities to consolidate business to firms with many strong practise areas, hence benefiting your bottom line.

Adherence to billing guidelines

Billing guidelines, also known as outside counsel guidelines, establish the foundation for an efficient working relationship with vendors. Tracking vendor adherence to these crucial instructions has been identified as one of the most important performance indicators for 2021 since compliance (or lack thereof) has a significant influence on legal operations productivity.

For example, if a vendor fails to fulfil your expectations on tasks such as staffing charges or invoice formatting, this adds to your workload since you must contact the vendor to rectify the difficulties. When dealing with several vendors, this may rapidly add up to hours of back-and-forth. Furthermore, the more suppliers that do not follow your requirements, the simpler it is for costly issues like erroneous timekeeper rates to sneak through the cracks.

Lifecycle time per closed matter on average

Working with suppliers is similar to working with contractors in that you (and your budget) will be pleased if they don’t drag out the process for far longer than you anticipated. Examine how long it takes suppliers to finish a case to create an acceptable benchmark for how soon high-quality work may be completed. This is especially useful when you have vendors working on comparable topics or practise areas, since it allows you to establish who is costing you more.

Hourly rate on average

This vendor performance statistic allows you to compare your suppliers’ hourly rates across timekeeper levels. Tracking and comparing the average hourly rates of your suppliers, similar to typical cycle durations, can quickly highlight any businesses charging much more than others providing the same amount of work. If you believe that the cost is not justified by the quality, you may use the vendor comparisons as objective support to negotiate a lower charge.

  1. Earnings

Unbilled vendor estimates help you predict spend, so inaccurate or missing accruals can quickly throw your budget off track. If you keep track of vendor accruals vs actuals, you may calculate the difference in connection to the average 26 percent difference between the two types of bills. It’s also a good idea to check at their submission rates and how long it takes for them to reply to accrual requests.

Other fee agreements (AFAs)

More legal manoeuvrings Teams are asking suppliers for alternative fee arrangements (AFAs) because they provide more control over legal cost than typical hourly pricing. Keep track of which vendors have AFAs with you and analyse the cost benefits of the various ones supplied by vendors. According to a 2020 Altman Weil research, 62 percent of questioned organisations employ AFAs, thus it’s appropriate to talk with hesitant vendors about why they won’t.

Vendor concessions

Who doesn’t like a bargain, especially when it comes to hefty legal fees? Throughout COVID-19, suppliers focused on retaining business, which resulted in an increase in outside counsel discounts. Consider the cost savings from vendor arrangements such as volume discounts when evaluating this vendor performance indicator. It’s also worth noting who has provided discounts as a show of goodwill following mistakes such as overbilling or a protracted matter cycle.

Diverse vendor staffing

According to a McKinsey & Company analysis, the more varied the workforce, the higher the overall job performance. However, progress in this sector has been gradual in the legal business, with just 18.5 percent of full-time Am Law 200 and National Law Journal 250 attorneys being minority attorneys in 2020.

You may demonstrate your commitment to diversity and inclusion by partnering with vendors that share your values. Request that contractors complete the ABA Model Diversity Survey to confirm that the timekeepers and personnel allocated to your issues support your diversity, equality, and inclusion efforts.

You might be hesitant to use diversity as a performance metric, but it’s increasingly becoming the norm: big-name corporations like Facebook have threatened to cut vendor payments or change firms if their vendors’ legal staffing isn’t more diverse in terms of race and gender. According to Lauren Hauber, Facebook’s legal operations manager, “using buying power to press for change will oftentimes start to shift the needle.” You can be a force for good while also ensuring you have the most effective team imaginable.

Expense totals

Obviously, one of the most essential KPIs to consider when evaluating vendor performance is the cost of each vendor. Examine cost-effectiveness in terms of total spend as well as spend by matter, practise area, timekeeper, and month. When you combine these data with the prior vendor performance indicators, you’ll have a clear picture of what your suppliers are doing as well as places for cost savings and overall improvement.

degree of satisfaction

Aside from quantitative data, it’s also crucial to consider characteristics that speak to the overall quality of your vendor partnerships, such as friendliness, collaboration, and openness to criticism. You don’t want to be stuck in a partnership that drains your team, so consider why employees appreciate (or dislike) working with specific vendors.

5 methods for having the most fruitful vendor talks

Aside from vendor performance indicators, communication is an important component of any vendor management programme. Remember that your vendors are your partners, and they are people, too. So, rather than condemning your outside counsel, utilise these criteria to enable continual development and mutual understanding.

Make these open interactions less intimidating by implementing the following strategic actions:

Establish and keep to a review schedule: Setting up a consistent assessment plan holds both you and your vendors accountable. This fosters trust while also demonstrating your commitment to continually improving your connection.

Before you meet with the vendor, provide your vendor scorecard: If you must provide critical feedback, give your suppliers time to process it rather than dumping it on them shortly before a meeting. This promotes a calm, sensible dialogue rather than a reactive one.

Discuss the positive aspects as well as the negative: Even if you decide to transfer vendors, be sure to emphasise what a vendor has done successfully. A small amount of positive reinforcement may go a long way.

Clearly clarify your expectations for the future: You want to leave suppliers with practical takeaways rather than simply a pile of statistics. Explain what specific targets need to be accomplished for suppliers to improve after examining where their metrics fall short.

In order to receive feedback on your performance, you should do the following: Relationships are a two-way street, so offer your suppliers the opportunity to share their ideas on how you can become a greater partner as well.

Begin your formal vendor management programme.

Now that you’ve learned more about the components of a successful vendor management programme, it’s time to get your own up and going. Check out our whitepaper for the 5 critical actions you need to take to establish your programme and manage outside counsel more efficiently.

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