December 8

5 Best Practices for Supplier Scorecards

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Sliced bread, move over! For VMOs (Vendor Management Offices), strategic sourcing, and procurement teams, we’ve found something better: scorecards. By implementing a vendor/supplier scorecarding program, you’ll have better insights into the actual efficacy of your vendors. The value of this data flows into multiple strategic and tactical aspects of your job, whether that involves putting suppliers into corrective action plans, going out to bid to replace an existing supplier, or assessing the health of your supply base.

In the paragraphs to come, we’re going to explore five best practices for your scorecarding program. Unsurprisingly, organizations that apply these guidelines have higher compliance and more valuable scorecard data than those that don’t. Enough beating around the bush.... Let’s learn about how you get the most out of your supplier scorecards!

1. Standardize your scorecards

A surprising number of organizations create custom surveys for each of their vendors. On the one hand, this might feel right because each of your suppliers may be delivering a different set of products or services. However, this customization comes at a cost: it’s not really fair to compare suppliers against each other when they are evaluated on different criteria. As the saying goes, you want an “apples-to-apples” comparison. This means that you’ll want the questions to be somewhat generic, e.g. “Does the supplier deliver the goods or services in a timely manner?” Don't worry about losing specificity though. As the context is established when the supplier scorecard survey is issued, the evaluator will be doing the evaluation specifically, not generically.

Although standardization is hugely helpful, there are occasions where it might not make sense to have a globally applicable survey. For example, you might ask your IT vendors about uptime and your direct materials vendors about defect rate. It wouldn’t make any sense to an evaluator to rate the uptime of the company that providers leather, for example. In that case, you might consider category-specific surveys.  However, even those would be standardized per category so you can compare Vendor 1 against Vendor 2 against Vendor 3 if they are all in the same category.

Takeaway: Have a well-defined number of survey templates that you use for scorecards. If possible, use the templates consistently across all your suppliers in particular categories.

2. Use a common rating scale

Have you ever read movie reviews and been surprised that a pretty good movie was rated a three? Only after doing a bit of digging did you find out that it was on the traditional “four star” sale. We’ve seen movies reviewed on a one to ten scale, zero to four star scale, zero to five star scale, and even a report card-inspired “A through F” scale.

For a scorecard to be maximally effective, a person needs to be able to look at it and immediately understand the rating. The most common rating system for evaluating suppliers is probably the “one to five” scale, where five is the best score and one is the worst. This maps fairly cleanly onto the most common letter grading system: A, B, C, D, F. However, you might decide that this is insufficiently granular and want to expand the number of options. Or you might decide to shrink the number of options to something like this: fails to meet expectations, meets expectations, exceeds expectations. Ultimately, you’ll have to decide what works best. But once you decide, make sure that you use it globally. After all, there’s a big different between 4/4 and 4/10.

Takeaway: Employ a consistent rating system so everyone knows – unambiguously – what constitutes a good score and what constitutes a bas one.

3. Keep the length manageable

A scorecard is only generated if surveys are completed. So it is strongly in your interest to maximize participation. It’s been said that “brevity is the soul of wit.” It is also a characteristic of surveys that are more likely to be completed. When people are invited to complete surveys – any kind of surveys, not just vendor evaluations – if they see the survey is too long, they are quite likely to just close the browser tab and move onto something else.

Bearing this in mind, you should take pains to keep your survey compact and to the point. Beyond that, you want to minimize the cognitive load of the respondent as much as possible. The other best practices will help with this too. Having surveys and scoring ranges that are consistent allows people to get comfortable and focus on answering rather than deciphering what is being asked.

Takeaway: Shorter surveys are far more likely to be completed than longer ones. Aim to build surveys where the scoring can be done in around a minute and you’ll see higher compliance and get more meaningful data.

4. Invite the right people

There is a temptation, which is particularly understandable if you’ve cobbled together a scorecarding program using Microsoft Excel and email, to just invite everyone to fill out every scorecard and trust the invitees to evaluate only those vendors with whom they are engaged. You can imagine, however, that this approach leads to a poor completion rate. Consider this: you’re creating a lot of additional work for people who now have to spend time opting out of something that was never relevant to them in the first place.

In an ideal world, not only would you solicit the feedback of those stakeholders who are engaged with particular suppliers, but you would further target the surveys so the sections of the surveys would apply to specific subsets of stakeholders. For example, imagine you have a contract with a software vendor. There are 15 people at your organization who regularly use the software, but your contract stipulates that only two of them interface directly with customer support. You would certainly want all 15 stakeholders to fill out the survey, but 13 of them will have no opinion to render on the quality or responsiveness of customer support. Targeting the sections of a survey means that you can get the best quality data by focusing certain areas on specific subsets of the survey respondents.

Takeaway: Sending surveys to everyone in your organization and expecting them to figure out which ones to complete is a recipe for poor and/or incomplete scorecard data. Target the right people for the right suppliers and sub-target further if you can.

5. Run them regularly

Several years ago, we were talking to a company that, in order to be receptive to an auditing process, needed to have a comprehensive Scorecarding program. The company had roughly as many vendors as employees with a small, but highly-motivated vendor management team. We asked how often they conducted surveys to evaluate their supply base and were told that it happened just once per year. The process, which was manual, was extremely onerous and took roughly six months for a two-person team to orchestrate.

Each year, some percentage of their vendors would end up in Corrective Action Plans. However, since the data needed to identify vendors as problematic would only surface at the tail end of the year, the company was effectively accepting nine or ten months of substandard performance, SLA failures, and the like. The impact of this was increased risk, reduced output, and compromised ROI.

An annual cadence may well make sense for non-strategic suppliers. However, you should consider issuing surveys and generating scorecards more regularly for strategic or other high-impact vendors. And while a monthly roundup may make sense in some cases, it can potentially be cumbersome to stakeholders. For many, a quarterly cadence is a happy medium that provides good insight into supplier performance without being onerous to the evaluators.

Takeaway: When it comes to supplier performance management, annual scorecards may be appropriate for low-risk vendors, but you should compile data more regularly for your strategic providers.

Wrapping Up

If you’re considering implementing – or improving – a supplier scorecarding program, you’re ahead of the game. And if you apply the five best practices described above, you’re going to collect actionable data to strengthen your strategic sourcing initiatives. Check out Vendorful’s scorecarding module and learn how you can automate the entire process.

To see how Vendorful streamlines and automates the scorecarding process, schedule a demo.