Organizations have attempted to measure supplier performance in a number of ways as a part of their quality management program, based on customer requests, or as part of the effort to manage supply chain risk. However, most companies in different industries are less than satisfied with their systems in organizations to measure and analyze suppliers’ performance. Even organizations that boast about mature systems of supplier metrics need to realize that continuous improvement in suppliers’ performance is an ongoing challenge. They need to have a supplier performance system in place to obtain the desired level of improvements and value from suppliers. This article addresses the best practices involved in the creation and management of supplier scorecards with the goal of further improving suppliers’ performance.
What are Supplier Scorecards?
Supplier scorecards are performance assessment tools that companies use to measure and evaluate their suppliers’ performance. They encompass key performance indicators (KPIs) and metrics related to various aspects such as quality, delivery, cost, and reliability. The primary objectives of supplier scorecards are to assess supplier performance, ensure product or service quality, mitigate risks within the supply chain, manage costs effectively, and nurture positive supplier relationships.
By utilizing these scorecards, businesses can make data-driven decisions, identify areas for improvement, and maintain transparent and cooperative relationships with their suppliers, ultimately contributing to enhanced supply chain efficiency and overall organizational success.
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Supplier Scorecard Best Practices for Organizations
Supplier scorecard best practices #1: Align KPIs with business goals
Quality is one of the most important aspect when it comes to performance metrics and key performance indicators. The best supplier scorecards align KPIs with business objectives to discover additional value from suppliers.
Companies need to understand the importance of supplier performance to support overall business goals. They must identify hidden cost drivers and risks and find performance improvement opportunities while reducing supplier cost at the same time. Product-based companies can adopt Monthly DPMO (defective parts per million opportunities) and a rolling three-month DPMO to track trending to shortlist suppliers on the basis of their performance.
Supplier scorecard best practices #2: Set up a process to dissociate with underperforming suppliers
Supplier scorecard is created to improve supplier performance. Once the right metrics have been set up into the scorecard, create a specific business process to communicate with underperforming suppliers. CPOs need to establish a process to recognize and reward suppliers for good performance. While doing so, they should have a proper process to disengage with an underperforming supplier.
While product-based companies can rely on monthly on-time delivery and a rolling three-month on-time delivery to track trending, service companies can rely on internal stakeholder surveys to measure performance data.
Supplier scorecard best practices #3: Keep communication lines with suppliers open
With metrics in place for quality and performance, it is critical to share scorecard results with each supplier and the improvement actions that are taken. CPOs and managers need to keep the communication line with suppliers open right from initial service level agreements (SLAs) to contract re-negotiations. The dialogues between both parties can provide the scope for improvement of both groups and yield better business outcomes. Supplier management solutions can further be leveraged to access, share and analyze data and implement supplier scorecard best practices.
Inability to communicate with suppliers can lead to poor service level agreements (SLAs) and contract re-negotiations. Stay a step ahead by requesting a free demo of our procurement platform to gain exclusive insights to identify supplier scorecard metrics.
Supplier scorecard best practices #4: Make information visible internally
As supplier performance affects the entire business., it is imperative to make complete information visible internally. A product manager from the different department should be able to determine the next product iteration with accuracy. They should know the suppliers to be evaluated for collaborative product development.
To mitigate risk, it is advisable to share supplier scorecard information throughout the entire organization. CFOs should have clear insights of how susceptible the supply base is to unforeseen supplier bankruptcies. Supplier scorecard must enable companies to predict supplier risks and take timely action.