Creating an Effective Supplier Scorecard

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Creating an Effective Supplier Scorecard

Today the world is a huge marketplace, the borders have blurred, and countries depend on each other for everyday products. China has made a name for itself as being the world’s largest exporter. Therefore global trading options are increasing each day. With growing demand, you need to have a balanced system; otherwise it could be challenging to manage a global supply chain. Hence, the supplier performance must be regularly evaluated and calculated to maintain efficiency. Russia isn’t too far behind; it has made a remarkable footprint in the free market like China, which has drastically affected the supplier management and supplier performance. All these happenings have changed a lot as organizations no longer look at their suppliers as a mere cost. In fact, suppliers now signify a strategic representation of their bottom line. That is why a creating an efficient supplier scorecard is mandatory, but what should an effective scorecard include?

Over the years I have seen many scorecards all with varying formats, some were very detailed while others were short. Some were on spreadsheets others had letters in it. Every supplier scorecard differed from the other, but regardless of the form, the most effective supplier scorecards had 3 primary things common to them.

  1. Clear Goals
  2. Clear Statements
  3. Part of something huge

Don’t worry; I will be explaining all 3 of them below.

Clear Goals for Your Supplier Scorecard

When you start a project with clear goals, it gives you a strong start and an easy route to success. Most people make a mistake in arranging their priorities. But, when you set your goals right at the very beginning then it can help you prioritize and manage the metrics from most important to least important. When clear objectives are on the table, you have the area to ask broader questions which can assist you in regulating the content visible on the scorecard. Questions can be like:

  • What is my organization trying to achieve?
  • Based on scorecard results, what actions am I willing to take?
  • What are our key objectives?
  • Does my department fit into the overall painting?
  • Do managing supplier dealings really help?
  • What am I expecting to achieve with this scorecard?
  • What actions should the supplier take based on the data?

Clear Statements

So you’ve set your goals and think you’re done? You’re far from done! With clear goals, you need to have clear statements. Your supplier scorecard criteria should be clear and well defined. Try to keep things as simple and upfront as you can. Many companies have varying meanings which are associated with the same sentence. A good example of this is “On-time delivery.” It could mean 0 days late, 0 days early, 2 days late to 2 days early. Dealing with different standards requires a bit more effort, but suppliers can do so as long as they understand what customers are demanding. You need to define the acceptable area of performance for the criteria with countable data like quality incidents and on-time delivery. All of this makes the supplier scorecard more usable and effective.

You might be thinking that scorecards are only good for quantitative purposes, but that’s not the case as scorecards can assist in incorporating qualitative statements as well. A rating system is used to evaluate such statements for example 3 or 5 point rating scale; Always, frequently, never, sometimes, excellent, good, very good, poor or neutral. Mostly service statements are measured in this way. Below I have given a few examples of actionable and clear statements that can be acted upon by your concerned supplier.

  • Supplier meets expectations for solving quality matters rapidly.
  • Supplier energetically contributes to continuous improvement with the customer.
  • Supplier enthusiastically communicates about orders and day-to-day supply chain concerns.

Part of a Bigger Picture

Lastly, an effective supplier scorecard is one that can be used as a tool which can link itself to a much more significant conversation about continuous development. You can engage your supplier in the process by sharing the scorecard and then discuss it in a special meeting or a formal quarterly review.

The best way to view scorecards is to investigate their differences, dive into data and examine the score for each criterion. A Dialogue on performance is required especially on qualitative metrics when the supplier may need some assistance on how to upgrade and improve. It sets the stage for significant improvement to the supplier-customer partnership.