Supply Chain Solutions No.36 – Supplier Scorecard
Been able to effectively manage suppliers in a matrix environment can be complicated as departments and individuals will have a different opinion of which supplier is right for their organisation and business needs. To truly take the lead of Supplier Management a tool is required to benchmark the supplier across all key areas of the business to gain a ranking of the supplier’s overall value.
A supplier scorecard is a great resource to benchmark your supplier’s performance based on reportable and transparent KPIs. Each core area of the business that has a role to play in the supplier must contribute to the score card which will then be weighted to form a total score out of 100. Scorecards should be managed monthly or quarterly; preference is quarterly as it will allow for fluctuations in the business cycle between development and delivery of product.
Supplier Scorecard Format
Below is an indicative scorecard that will be simple to management, Supplier Manager must be responsible for the scorecard completion and corresponding performance and improvement reviews with those suppliers;
- Development; percentage product sampling / engineering completion on time (Key), and or product sampling engineering failure rate (Secondary)
- Quality; percentage finished goods per purchase order approval rating on first time final inspection. If there are self-accredited suppliers conducting quality audits, it will not be feasible to use audits as a KPI; it would be better to use return goods from store or percentage claims.
- Delivery; on-time delivery to the terms described in the purchase order.
- Service or Value; price is one part of the value given by the vendor and can be measured by purchase price variance or margin contribution, both of which can be influenced by factors other than the supplier. I have seen service used as an arbitrary non-benchmarkable score where development/engineering, procurement and quality each give a supplier a rating out of 10 which is then averaged to formulate the score which generally gives a fair assessment.
From the four key areas above, 25 points can be contributed to form a score out of 100 points. The score can be weighted in any way preferred to suit your business needs
By performing the benchmarking, all suppliers will be ranked with a score out of 100, which will then form a ranking list. From the scorecard score supplier management can draft a corrective action plan for each supplier, responsibility and due completion. Scorecards and corrective action plans need to be discussed with suppliers periodically as defined by scorecard update frequency.
Supply Chain should use the scorecard in conjunction with the supplier matrix to determine the buy plan, capacity available versus allocation and supplier succession. To have a functional supplier matrix, you need an excellent tool to benchmark suppliers.
Read more about the Supplier Scorecard; http://wp.me/p7z4o2-15
In more sophisticated supplier managed environments the scorecard can be used to level suppliers to denote risk; e.g.,. Level 5 maybe probationary with a warning, level 4 trialling, level 3 standard, level 2 semi self-accredited and level 1 fully self-accredited.
ID Global Concepts are experts in supply chain management. We add value to your supply chain through consultancy or management contract to ensure the business has the best practice systems that are the right fit for your business, customer and meet your value expectations.