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5 Best Practice Tips for Supplier Scorecards

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.

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.

Failing Report Card

Introduction to Supplier Scorecarding

From the beginning to the end of a student’s formal education, there is constant evaluation. Each year, quizzes, tests, and papers are graded throughout the semester and these scores are ultimately compiled into a report card. These report cards are then used to help the student, the student’s parents/guardians, and the school faculty evaluate the student’s progress. For many, this is the stuff of nightmares. But if we let go of the emotional baggage and focus solely on the numbers, we can see how this is a useful approach to understand performance over time.

Let’s think about it graphically. On the y-axis, we would place grades, which could be broken up by subject, or aggregated to form a grade point average (GPA). On the x-axis, we would track time. So our graph would look something like this:

GPA Chart

Almost anyone can look at this graph and immediately understand the data. This was a student who started out just below a C+ average and improved to an A average for the final semester. You can see that there were bumps along the way, i.e., the trend wasn’t purely linear. But the graph – and therefore the data – tell a story, a story of pretty considerable and consistent improvement over time

You may have had a wonderful academic experience, or you might have struggled through school. In either case however, whether you were a stellar student or a mediocre one, your grades told you – and your teachers – exactly where you stood. If you’re like me, those sorts of granular performance metrics all but disappeared once you finished your academic career.

The Gap Between Buyer and User

Ask most strategic sourcing professionals about where they invest their time and you’ll hear a familiar answer: “Identifying possible strategic suppliers and including them in strategic sourcing events like RFPs.” Here’s the question that’s not getting asked enough: “What is the state of your current supply base?” Or put more colloquially, “What’s the story with your vendors?”

It’s not surprising to find out that many will tell you that they simply don’t know. They source the vendors and then pass them off to the stakeholders who are the ultimate users of the product or service. If you are tasked with the responsibility of finding a CRM for your organization’s sales team, you can run a really tight process, gather all the requirements, leverage stakeholder expertise, and select what everyone is convinced is the best CRM provider for your needs. Once that process is complete, you have to move on to sourcing the next product or service. The vendor relationship is handed off to a colleague who manages sales operations, and as is often the case, the status moves from out of sight to out of mind.

So when that contract comes up for renewal, what do you do? You plan to renew of course. But in the days leading up to the renewal, you just happen to find out that the sales team is miserable with the CRM. By now, however, it’s too late; you have no choice but to lock yourself in to another year with the provider.

The above example underscores a significant problem – the growing disconnect between the people who are tasked with purchasing products and services and the people who ultimately use them. In some respects, it makes all the sense in the world. Your sales team should be focused on selling; your marketing team on marketing; your HR team on…HRing; and your strategic sourcing team on sourcing. Maintaining open lines of communication around hundreds, thousands, or tens of thousands of suppliers is not simply onerous, it’s impossible. But while this might make logical sense, accepting a data black hole as inevitable is folly. Fortunately, there exists a deus ex machina – the supplier performance scorecard.

What are Supplier Scorecards?

Imagine you could have, with the touch of a button (or click of a mouse), real insights into the performance of your vendor pool. Now close your eyes, metaphorically at least because it’s going to be really hard to read with your eyes closed, and envision a world where these performance metrics were gathered by some combination of hard data, e.g. defect rates, on-time delivery frequency, etc., and by more qualitative analysis by the stakeholders who are most engaged. By implementing a scorecarding program, your wildest dreams can turn into reality.

The key to a strong scorecarding program is effective data collection. As mentioned above, quantitative data may well be pulled from other systems like ERPs or accounting software. The qualitative data, which is often where the rubber meets the road, is gathered via surveys. How to build a survey is beyond the scope of this introductory article, but the premise is simple: you create a list of questions that can be used to assess the vendor’s performance. These questions are typically grouped into sections – think “Customer Service,” “Product Quality,” etc. – and distributed to stakeholders who are regularly engaged with the vendors that are being evaluated.

Completed surveys are collected and the data is aggregated, ultimately generated a score. This score is, for all intents and purposes, the GPA of the vendor. And you, the buyer, can watch how different vendors’ GPAs change over time.

The Benefits of a Scorecarding Program

Here’s the unfortunate truth about working in strategic sourcing – you will almost always find yourself at an information disadvantage. You’re an IT category manager and have an expertise in IT? Great. But the person who is selling you Managed DNS only has to master that one subject. Good salespeople will always know more about the product they’re selling than the buyer does. But when you have supplier performance scorecards, you are empowered by data. You can proactively put suppliers into corrective action plans. (The academic equivalent is an ad hoc parent-teacher conference!) You might decide to put a contract for a product or service back out to bid. And when the data looks really good, you might negotiate a multi-year or larger scale agreement to leverage volume discounting while investing in the relationship.

Another significant benefit is giving stakeholders the ability to be heard without overwhelming the recipients of the feedback. Structuring the surveys in a smart way enables stakeholders to share their opinions while providing vendor managers and strategic sourcing team members actionable insights.

Wrapping Up

We live in a world where organizations are increasingly dependent on a litany of providers who are employed somewhere else. Renowned entrepreneur, Auren Hoffman, writes, “99% of companies and organizations have more vendors than employees…. Stitching together the right vendors is really, really hard. Researching vendors and getting them to work together is really hard. Figuring out the right ones is hard. Getting the most out of them is hard. Getting a great return on your investment is hard.”

Want to make things easier on yourself and better for your organization? Set up a supplier performance scorecard and put the data to work.

(And if you’re interested in taking a deeper dive, we invite you to check out Vendorful’s Essential Guide to Vendor / Supplier Scorecards.)