Supplier Scorecards are an overlooked but critical component of a comprehensive Strategic Sourcing and Vendor Management practic. 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, identifying opportunities to consolidate purchasing and save money, or flagging supply chain risks before they become critical.
Organizations that apply these guidelines have better completion rates, are able to assess more of their supply base, and the scorecard data they generate is better and more actionable. Follow these tips to improve your own organization’s scorecards and get more out of the supplier performance evaluation process!
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 do 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 found that a pretty good movie was surprisingly 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
You only get a scorecard if stakeholders complete their evaluations. So it is strongly in your interest to maximize participation. They say that “brevity is the soul of wit.” It is also a characteristic of surveys with higher completion rates. When you invite people 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 have higher completion rates than longer ones. Aim to build surveys where the response takes around a minute and you’ll see higher compliance and get more meaningful data.
4. Collect the right data
The ideal scorecard blends qualitative and quantitative data into a combined view of overall supplier performance.
On the qualitative side, there is a temptation to just invite everyone to fill out every scorecard and trust the invitees to evaluate only those vendors with whom they engage. Usually this leads to a poor completion rate. It can be overwhelming to complete a lot of evaluations, especially when most of the survey content isn’t relevant to you.
In an ideal world, not only would you solicit the feedback of those stakeholders who engage 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.
On the quantitative side, bring in the data that is relevant to the particular category in question. For direct materials it will probably be some combination of delivery performance and material quality, either as separate metrics or a combined OTIF measure. Indirect data and metrics will vary by category. For example, within IT it might be system uptime for infrastructure, user adoption metrics for productivity software, etc. Regardless of the measure, the crucial thing is to incorporate it! Oftentimes our own impressions of performance don’t match the data, in both directions.
Takeaway: Collect the right data on your suppliers, both in terms of qualitative feedback and quantitative performance metrics.
5. Run them regularly
Several years ago one of our customers was running a comprehensive Scorecarding program, but doing it entirely by hand over email. 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 found that it happened just once per year. The process was extremely onerous and took roughly six months for a two-person team to orchestrate.
Every 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. This 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.
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.