Let us define Supplier Agreement Management
What does supplier agreement management mean, and why is it important for the implementation of projects? What are the capabilities maturity levels, and what is the benefit of a RACI matrix? How do you assess, visualize, and implement? Please read it here!
Definition
What is supplier agreement management?
Supplier Agreement Management is the process by which an organization enters into and manages formal agreements with external suppliers to obtain products or services that contribute to the project or organizational objectives, within agreed-upon time, cost, and quality parameters.
The purpose of supplier agreement management is to ensure proper supplier selection, draft clear and complete agreements or contracts, and ensure the management and oversight of suppliers during implementation.
Effective supplier management is essential because it ensures that external contributions don't become a weak link in the project. It prevents unforeseen delays, disputes about responsibilities, insufficient quality, or unclear delivery.
Supplier agreement management, therefore, supports stable collaboration, especially in complex or risky environments.
Symbol
In Dragon1, the symbol for supplier agreement management is represented by an approval icon.
Key Components of Supplier Agreement Management
An Example: A software company is developing a new platform for a client. For a specific module (e.g., an AI component), the company outsources the development to an external supplier.
1. Supplier Selection
Activities:
- The project manager and procurement team create a shortlist of potential suppliers.
- Selection criteria are defined:
- Technical expertise in AI.
- Reliability in delivery (timeliness and quality).
- Previous experience and client references.
- Quotations are requested, evaluated, and one supplier is selected.
Result:
- Selected supplier: 'AI Solutions BV'
- Document: Supplier Evaluation Report
2. Agreement Definition
Agreement Content:
- Scope: Delivery of a functional AI-based text analysis module.
- Specifications: Accuracy rate of at least 90%, integration with existing platform.
- Deadline: 3 months from contract signature.
- Acceptance Criteria: Clear test cases and performance benchmarks.
- Ownership & IP: Intellectual property rights and licensing terms defined.
- Management Provisions: Reporting frequency, communication channels, escalation process.
Result:
- Signed contract with clearly defined deliverables and quality criteria
3. Execution Management
During the Project:
- Monthly progress reports are submitted by the supplier and reviewed by the project team.
- Technical review sessions are held at the end of each sprint.
- Risks are tracked (e.g., delayed API integration is recorded in the risk log).
- Acceptance tests are performed in collaboration with QA at each milestone delivery.
Result:
- Supplier meets planning and quality expectations
- All communications and reviews are documented in the project record
4. Completion & Evaluation
After Delivery:
- The delivered module is accepted according to the agreed-upon test criteria.
- A supplier evaluation form is completed with the following results:
- Quality: 4.5/5
- Timeliness: 5/5
- Collaboration: 4/5
Result:
- Module successfully integrated into the platform
- Supplier added to the preferred vendor list for future projects
Typical Documentation
- Supplier Selection Report
- Contract / Agreement
- Deliverables and Acceptance Criteria
- Risk and Issue Log (including supplier-related risks)
- Supplier Progress Reports
- Final Supplier Evaluation
RACI Matrix – Supplier Agreement Management
Roles and Responsibilities | Activity | Project Manager | Procurement | Supplier | Legal |
| Supplier Selection | R | A | C | C |
| Contract Drafting | A | C | C | R |
| Progress Monitoring | R | C | A | – |
| Evaluation & Closure | R | C | A | C |
Legend
- R = Responsible (does the work)
- A = Accountable (owns the outcome)
- C = Consulted (provides input)
- I = Informed (kept up to date)
Capability Maturity Levels and KPIs for Supplier Agreement Management
The CMMI (Capability Maturity Model Integration) model is a process improvement framework that helps organizations evaluate and improve their processes. It consists of 5 maturity levels with 22+ process areas, grouped by maturity level.
| Level 5 | Optimize | Continuous Improvement |
| Level 4 | Controlled | Measurements & Trends |
| Level 3 | Defined | Standardized Process |
| Level 2 | Repeatable | Basic Process |
| Level 1 | Initial | Ad-hoc Workflow |
Example KPIs
- Delivery Reliability
The percentage of deliveries made on or before the agreed date. This KPI assesses the supplier’s predictability and scheduling capabilities.
Example: ≥ 95% of deliveries on time. - Quality of Delivered Products or Services
Measured by the number or percentage of defects, deviations, or rework compared to specifications.
Example: Maximum 2% defect rate on first delivery. - Responsiveness
Average response time to queries, incident reports, or change requests. Critical for suppliers actively involved in development phases.
Example: First response within 1 business day; resolution within 3 business days. - Compliance with Service Level Agreements (SLAs)
Measures how well agreed service levels are met, such as system uptime, support turnaround times, or availability of support personnel.
Example: ≥ 99.5% system uptime per month.
To effectively oversee suppliers and measure their contribution to project or organizational goals, the use of Key Performance Indicators (KPIs) is essential. These metrics provide a foundation for monitoring, evaluation, and adjustment throughout the collaboration lifecycle.
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