A Supplier Scorecard is an evaluation tool used to assess the performance of suppliers, keep track of item quality, on-time deliveries, and overall responsiveness. Creating supplier scorecards and audits is an important part of building and maintaining strong supplier relationships and they’re an effective tool for organizations of any size across industries and every type of spend. When done effectively, they’ll drive supplier performance to levels that can substantially impact your company’s bottom line.
Although Supplier Scorecards have been used for decades, do you still ask yourself questions about how to improve them? Where are the frustrations coming from? Here are three tips we recommend for designing better supplier scorecards.
3 Tips for Better Supplier Scorecards
1. Use Differing Criteria for Segmented Suppliers
As we know, not all suppliers are created equal. For example, from Supply Chain 101, the Kraljic purchasing matrix (below) classifies suppliers as Leverage, Non-Critical, Bottleneck, or Strategic. Each segment represents different levels of profit impact, supply risk, and complexity for replacement. Each segment also requires different supplier management strategies, scoring and action plans.
Customizing your supplier scorecard by segment enables you to increase the value each segment can provide to your organization. For the Non-Critical items, which are low risk and have a low impact upon organizational profitability, your scorecard could focus on supplier efficiency and how they reduce your administrative burden. For Leverage items, where items have a high profitability, but a low risk factor, your scorecard may focus on price points or innovative potential of their supply base. Bottleneck items occur when the risk is high, but profitability is low. The main strategy for score-carding rests upon damage limitation to your organization: Quality, Defects, and On-time deliveries. Lastly, Strategic Items have the highest risk and highest profit impact of all items. The goal of the scorecard here would be to ensure an effective and predictable supplier relationship for the future of your company. Here you should be looking at the measure of innovation in both product and process, as well as collaboration metrics.
2. 360-Degree Feedback
The second mistake that companies make is that many scorecards are very biased and one-sided, with the buyer scoring the supplier and asking, “What is your side going to do to make this better?” The truth is that the buyer and supplier are interconnected, with each directly impacting the other’s performance in some manner. More and more companies are integrating a technique called 360-degree feedback into their review process which is helping to closely examine how their own processes and performance impact each of their suppliers. By having a 360-degree view, you eliminate several blind spots, as suppliers may provide better feedback if they know you’re attempting to make improvements to the process as well.
3. Too Much Qualitative, Not Enough Quantitative Data
One reliable way of assessing a scorecard quickly is to examine the individual metrics. How many are quantitative “cold, hard facts numbers” versus qualitative, which collects information that seeks to describe a topic more than measure it “yes/no, excellent/average/poor.” Quantitative data can help you see the 20,000 ft picture. Qualitative data adds the details and can also give your Supplier a voice to your survey results.
A good scorecard utilizes quantitative metrics with little partisanship. Using too many metrics that are based on personal opinions and judgments can lead to needless internal conflict and significant frustration.
Building a new supplier scorecard program can have a major impact on the costs and value of your procurement and purchasing functions. It’s important to carefully craft your scorecard to meet a few essential needs which will justify which suppliers to keep in your supplier base. A good scorecard should be easy to maintain, engaging to suppliers while giving them a voice, and rewarding to good performers based on objective data collection. If you can do these things, you should be able to quickly develop suppliers into better partners while discovering issues (internally & externally) to address in order to improve your organization’s bottom line.