How To Create A Supplier Scorecard
We’ve previously covered supplier evaluation - why and how you should evaluate your suppliers regularly. Now, we’ll get more in-depth and show you how you can create a supplier scorecard.
Your suppliers’ performance has a direct impact on your business. Poor performance can create damages, and selecting the wrong supplier for the job can result in money loss and changes later. This is why you should evaluate and score your suppliers.
Supplier scoring means objectively evaluating your suppliers against predetermined criteria (the vendor scorecard). The more criteria a supplier meets, the higher their score will be.
Some of the most common supplier evaluation criteria include quality, pricing, delivery time, capability, and ethical sourcing.
Supplier scoring is closely related to supplier segmentation and can be used to select suppliers to participate in RFQs, RFPs, RFIs, or Reverse Auctions. Here’s how you can put together a supplier scorecard:
How to create a supplier scorecard in 8 easy steps
Step 1: Define the appropriate KPIs for your business
Each organization is unique, so there’s no standard set of criteria that can apply to everyone. You need to analyze your business and write down what’s most important to you.
Keep in mind that, as your business is growing, your priorities will change as well. So you should update your selected KPIs frequently to make sure they reflex your current needs.
Step 2: Ask for feedback from your suppliers
Once you’ve drafted your KPI list, send it to your suppliers and ask for their opinion. Use their experience to make sure you have realistic expectations.
Step 3: Get the data sources to match your requirements
Your company’s data might spread throughout multiple systems, applications, spreadsheets, or even paper. To get the whole picture, you need to centralize your data and analyze it.
Step 4: Choose the right approach towards calculating the scorecard
There are many mathematical models that can potentially help aggregate a final score. You need to make sure you find the appropriate multi-criteria decision model, and allocate enough time to making sure the end-result properly reflects the current situation. If not, your effort is wasted, and your decisions could put your business at risk.
Step 5: Frequently share results throughout your supplier base
Developing strong relationships with suppliers goes a long way towards your business’ success. So share your scorecard frequently (even weekly or monthly, if possible). This way, you can gain valuable feedback from your suppliers, and you also help them correct various issues and improve their services.
Step 6: Frequently update your database
Analyzing the data you gathered from within your company can only provide a snapshot of the moment in which you queried it. To maintain clear and valid information, your need to update the information regularly.
Step 7: Always keep your final goal in mind
You might be tempted to make multiple and frequent changes to your evaluation strategy. Although agility is important, make sure changes are aligned with your primary objective.
Step 8: Use Prokuria
Prokuria can help you assess your suppliers’ performance by providing you with all the tools you need:
customizable evaluation criteria;
centralized, normalized, and consistent data;
a friendly weighting mechanism for customizing the importance of your KPIs;
a framework for constantly improving your scoring approach.
The weighting is especially helpful because not every criterion is equally important. For example, the quality of the products you’re sourcing could be more important to you than their price.
At the same time, under a general umbrella such as pricing, you could also look at payment terms, how the price changes over time, how much notice you’re given before the price is changed, etc.
Evaluate your current suppliers
Supplier scorecard template
Although your final scorecard should be custom-tailored to your specific needs, here’s a supplier scorecard example you can use:
How to rate and evaluate your suppliers
Best-in-class organizations embrace their suppliers and vendors, viewing them as partners in helping to grow the business. Making sure that this partnership is mutually beneficial has a significant impact on the price you’re negotiating and the quality of service you’re getting.
A common mistake organizations make is to have a combative relationship with their suppliers. They hire people with the sole purpose of getting the smallest prices or best terms. But often, this also means a low quality of work. Instead of the price, focus on your relationship with your suppliers.
Here are 7 tips and tools to effectively rate your suppliers and track their performance:
1. Establish performance indicators
Determine what characteristics a supplier needs to have, demonstrate, or maintain to continue doing business with you;
Create specific performance criteria for tracking and evaluating your suppliers regularly. A few things you should look at are the size of the company, the number of certifications they have, complaint history, and financial stability.
2. Classify multiple suppliers
If you have hundreds or thousands of suppliers, applying the same survey to each of them is cumbersome. Instead, separate them into tiers based on how critical they are for your business.
By dividing your suppliers into categories such as critical and non-critical or primary and secondary, you can devote more time to measuring the performance of your critical suppliers.
3. Create an evaluation model
There are multiple ways you can rate a supplier’s performance: evaluation forms, surveys, system metrics, and software applications. You can also monitor suppliers by doing an audit periodically.
The main idea is that you need to generate reports at the onset of the purchase and throughout the course of the supplier relationship.
4. Determine who’s in charge
Once you establish the evaluation criteria, you need to choose who in your organization will review the data. Depending on how many resources you can dedicate to this task, you can have one person or one team.
For level 1 suppliers, the CFO or someone from the finance department, along with the president and representatives from purchasing, operations, engineering, or IT could be involved. For level 2 and 3 suppliers, a purchasing or procurement representative is enough.
5. Maintain good relationships with your suppliers
Treat your suppliers like they’re part of your team. Communicate often and openly and be transparent about any issues. Don’t overlook more personal interactions such as phone calls and face-to-face meetings, either.
6. Know when to issue a red flag
As you monitor your suppliers’ performance, know when you need to praise them, and when you need to issue a red flag. Although you can end a relationship with a supplier due to poor performance, don’t do so immediately. First give them an opportunity to improve.
7. Remove the week links in your supply chain
If the performance of the supplier doesn’t improve after you’ve given them multiple warnings, you need to let them go. You don’t need to tolerate bad service, and every partnership should be a win-win for both companies involved.
Remember that we are humans and humans are biased. That’s why creating a supplier scorecard will help you ensure that you’re judging your suppliers’ performance objectively. And remember to update that scorecard frequently.