When it comes to Vendor focussed Quality Management, much of attention is channeled into three core areas:
- Compliance – i.e., regulatory or standards based, audits, etc
- Quality – are the products they sell to the desired standard, progressing and resolving issues
- Performance – Does the supplier have the key enablers to meet requirements, and do they meet or exceed targets regularly.
When it comes to understanding these variables (and others), many organizations develop a vendor scorecard that is periodically updated (often monthly) and looks to capture a snapshot of a vendor’s performance.
This tool can then be used in broader assessments/analysis and communication.
Supply Chain and Vendor Scorecards
Supply Chain Management is a series of integrated processes, including:
- Supply Chain Planning
- Procurement
- Vendor Selection
- Vendor Management
- Production Control & Management
- Logistics
- Storage and warehousing
These management processes exist within most Quality Management Systems and most organizations.
Found in this group of processes is vendor management, and within that process usually sits the vendor scorecard.
The need for a Vendor Scorecard
Supply Chain data has critical value to your company and empowers both commercial and qualitative performance).
To get value from it, you first have to capture it and provide context to it.
Then, you can use it to drive improvement.
Designing and developing a vendor management scorecard should be seen as an essential ingredient of your Vendor Relationship Management process.
But where do you start?
The key principle in establishing control systems such as a Vendor Scorecards is to provide analysis on whether or not a supplier is meeting the business’s defined requirements.
But how should you go about defining what should be looked at and reported on?
What is included in a Vendor Scorecard
If you speak to the different functions within your organization, the chances are they’ll all have a different view on how to monitor and report on vendor performance.
Key attributes such as on-time delivery performance, Quality, and cost will vary in importance depending on which department you quiz.
Finance, for example, may prioritize cost, operations may prioritize on-time performance, etc.
There are likely to be a multitude of other indicators that your organization may wish to track.
It’s worth remembering that performance is a function of various elements, and an organization will need to hone down the list of items to be tracked to something that makes sense.
Usually, a vendor scorecard asks questions around whether the supplier is fulfilling its obligations against the procuring companies criteria, for example,
- Delivery
- Quality
- Regulatory requirements
- Documentation
- Non-conformances
The Vendor scorecard provides a status report against the vendor by comparing actual performance against desired requirements allowing for both a qualitative and quantitative assessment to be made.
For example, having a standard quantitative method for assessing delivery performance and following this process for all suppliers, you are then able to rank vendors based on performance by these criteria, enabling all vendors to be assessed with the same standard assessment.
How do I construct a Vendor Scorecard
Vendor scorecards are often created as a joint activity between key parts of the organization:
- Supply Chain
- Quality
- Finance
They should be structured in such a way that subjective evaluation is minimized.
Perceived performance (i.e., that based on personal perspective) should be replaced with data that accurately present performance.
Using data to drive the Vendor Scorecard is critical.
For many, this data may reside in multiple business systems, obtaining it and presenting it in such a way that drives value into the scorecard can be challenging but crucial.
Structuring a scorecard may differ from one organization to another, but they all typically target three key areas:
- Delivery
- Delivery performance
- Financial
- Value spent
- Cost of Quality
- Volume of orders
- Future Orderbook
- Accounting issues
- Quality
- Compliance to requirement
- Issues arising (i.e., Non-conformance reporting)
- Cost of rework/non-conformance
The segmenting of data in Vendor Scorecards can be a game-changer for many organizations, and it’s important to bear in mind how you might utilize your vendor performance data, for example, you could choose to segment your data and performance reports by:
- Supplier category (i.e., purchasing commodity or logical group like local vs. international)
- Buyer or function
- By date
- By criticality of materials purchased
Given some thought, there are various categories that you could utilize to segment supply chain data for your organization.
Finally, when it comes to data, and this may be an obvious one, the accuracy of the information is imperative. If your data is flawed, then so will your Vendor Scorecard.
While the scorecard will mostly rely on data, there is usually room for some element of a personal perspective—for example, communication, partnering, continuous improvement, etc.
It should go without saying that the vendor scorecard should be a simple tool that is simple to use. If the vendor scorecard is not intuitive, then it is unlikely to drive value.
Vendor Scorecard and Continuous Improvement
The Vendor Scorecard can facilitate further continuous improvement activities with your vendor and should encourage you to collaborate over data. You can utilize the results and assess trends, reviewing areas for improvement, and then devising change plans.
Where you have several vendors with the ability to supply the same components/commodities, you can then utilize your vendor scorecard and ranking system to help determine vendor selection for future procurement activity.
How often do you use the Vendor Scorecard?
The Vendor scorecard is a periodic process, and you’ll usually find it being used monthly.
Data is obtained during the period being analyzed, assessed then displayed within the scorecard.
Typically this data is contrasted with historical performance, i.e., performance in a given month and then compared with the last 12 months or year to date.
To drive real value, and it might seem obvious, but the vendor scorecard must be shared with the vendor.
Doing this not only provides an avenue for communication but forms a significant part of the continuous improvement loop.
Having a forum where the vendor scorecard is discussed provides a key opportunity to:
- Share performance data
- Discuss Performance data
- Discuss and agree on improvement actions that are required
- Monitor performance
Using Vendor Scorecards in Vendor Evaluation
Most organizations have some form of Quantitative and Qualitative approval process, allowing particular vendors to be utilized.
Such approval is usually based on their ability to deliver to requirements (typically as defined on a contract or Purchase Order).
Often this evaluation (be that desktop audit or physical audit taking place at the supplier’s facilities) is based on a set of parameters usually focussing on four key attributes:
- Compliance to an appropriate, industry-standard, Quality Management System (e.g., ISO9001)
- Possess financial robustness
- Demonstrated capability to the job and meet requirements
- Sufficient Capacity
At this stage, a Vendor Scorecard is unable to help much as it has not been established as part of the supplier monitoring process (because they haven’t been used yet).
Once a supplier has been approved to conduct business a periodic evaluation (or audit) is commonplace. These Supplier audits are commonly conducted annually, but some suppliers may require more frequent visits.
The Vendor Scorecard can absolutely support this stage, especially where the focus is required on elements like:
- Levels of risk
- Concerns over Quality
- Concerns over performance
Having an established measure of performance, such as a vendor scorecard, can offer critical advantages during this phase as it provides qualitative and quantitative data that can facilitate the appropriate conversations.
How to get the best out of your Vendor Scorecard
- Make it timely (i.e., if monthly issue the same time each month)
- Structure the report so that it makes logical sense and is reasonable
- Don’t generalize, use results that mean things.
- provide support where there are queries
- Provide a baseline against expected performance
- Provide focus on what needs improving
- Make it available to teams that will use it
Issues to watch out for
While we’ve been positive about vendor scorecards, Spendmatters has a great takedown of their use, and it’s useful to understand what can go wrong.
They cite four key issues
- They are too big and take too long to get to the point
- They are too infrequent – many organizations fail to keep up with the monthly drumbeat.
- Many organizations limit them and fail to get the best use out of them – focus can be on key areas that are not important to the business.
- They are not used – the time is taken to establish the process, produce the scorecard, but then they are not followed up.
That last point is key. There is zero point in pulling together a report if it sits on someone’s desk, failing to be either communicated or acted upon.
Summary
I hope you found this article useful; vendor scorecards can be a great enabler in most businesses. We’d be very interested to hear how far along in your journey you are in developing yours. We would love to hear from you utilizing either Twitter or the comments section below this article.