Communication between buyers and suppliers is critical to ensuring high-functioning and transparent relationships. A Supplier Performance Scorecard is a convenient tool allowing suppliers and buyers to regularly monitor their relationships.
A Supplier Performance Scorecard system:
- Provides a consistent means to measure and evaluate supplier performance.
- Documents and points out areas for improvement.
- Fosters better relationships.
- Helps the buyer decide which suppliers to keep or replace.
- Provides the buyer with a data-based system to reward suppliers who consistently deliver exceptional service.
Scorecards focus on metrics that buyers can use to evaluate their suppliers. While the measures may differ between companies, they usually target just a few categories:
- Price variance.
- On-time delivery.
The factors may be weighted differently, depending on the company’s priorities, and some elements may be quantitative while others are qualitative. A balanced scorecard includes a healthy mix of both types of data.
Qualitative data may be anecdotal, which can be more difficult to substantiate, even when it provides insight into process execution.
Quantitative data does a much better job of evaluating the big picture and allows objective comparisons of current and past performance. Quantitative data also makes it easier to reward improvement based on observable trends.
The critical first step is identifying a few Key Performance Indicators, also known as KPIs. Regular review of the KPIs can help buyers decide whether results indicate necessary action.
Once the KPIs are known, the next step is determining how to collect data. While some manual tracking may be necessary, automating essential data collection and presentation facilitates communication and response time.
Scorecards can help guide regular check-in meetings and allow both the supplier and the buyer to review the partnership and investigate areas for improvement.
Ideally, scorecard metrics are available on a 24/7 basis so that both parties can observe ongoing trends and address performance dips immediately instead of waiting for a meeting that could be weeks or months away.
Buyers and suppliers must agree on how KPIs are measured, and many questions are part of the discussion.
- What defines the standard of “quality?”
- How is a “perfect” order defined (e.g., on-time delivery of the full order without issues or damages), and what percentage of deliveries must meet that definition of perfection?
- What factors would allow exceptions to the standard?
- Is “on-time” defined as hitting a requested date (based on a purchase order), hitting a date window with allowances based on advance communication, or some other method?
- What communication process is used when suppliers can’t achieve the on-time commitment?
- How are order changes tracked that may affect this metric?
- Which aspects of responsiveness are measured (e.g., time to respond to questions, acknowledge new orders, review/implement change order requests)?
- How do response time expectations take into account timezone or geographical differences?
- Is the variance threshold defined on a per-part basis, a line item basis, or by total invoice amounts?
- What is the balance between reviewing aggregate data vs. individual incidents?
Scorecards must be regularly maintained with full transparency so buyers and suppliers can see all of the data, past and present. When the measurement data is made available to suppliers, they can take corrective actions before the buyer requests them.
Thurman Co. is uniquely positioned to assist organizations in various aspects of Supplier Management, including developing Supplier Performance Scorecard systems and conducting supplier assessments.
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