For companies in the manufacturing industry, a good relationship with your suppliers is essential. If you lack communication or transparency, it’s easy to fall victim to late or cancelled orders and delayed production. This is where a supplier scorecard comes in. With a supplier scorecard, you can easily monitor this supplier relationship and administer feedback to ensure your manufacturing process runs smoothly. In this article we’ll be discussing what a supplier scorecard consists of, how it can help your company, and the best way to create one.
What is a Supplier Scorecard?
A supplier scorecard, also referred to as a vendor scorecard, is an internal document that organizations use to rate their suppliers on their performance. This scorecard typically includes the vendor's performance based on several factors over time including product quality, delivery timeliness, and communication. Generally, these factors are split up into larger categories that help a company determine if a vendor is meeting their agreed upon expectations. The primary purpose of a scorecard system is to help your company measure overall vendor performance, negotiate improvements, and create better vendor relationships using real data.
How Can a Scorecard Benefit Your Company?
Better overseeing your supplier relationships can increase your company’s efficiency and produce a multitude of business benefits. Here are a few:
- Reduced supply chain costs: The primary benefit of adopting a supplier scorecard system is a reduction of total costs. By tracking when suppliers fall short, you can measure the total amount they’re costing your company and find a new vendor who can deliver the same items on time to save you those late costs and help improve business efficiency.
- Protect brand reputation: Often the production delays and the manufacturing mistakes that cause slow time-to-market are caused by supplier errors. And if your company falls victim to slip ups like these consistently, you can damage your reputation and lose customers. With a supplier scorecard, you can keep up with late orders and supplier errors by enacting corrective actions early, maintaining your strong reputation in the eyes of your customers and partners.
- Increased vendor communication: Creating a vendor scorecard is a helpful method to initiate important conversations with your suppliers about their performance and your expectations. You’ll be able to easily communicate what’s important to your organization, demonstrate to their suppliers how they measure up to those factors, and determine the ways they can improve. Building an open line of communication with vendors gives your business the opportunity to create firm expectations while holding suppliers accountable for meeting those expectations. Additionally, instead of working on these issues as two separate units, you can create solutions
How to Create a Supplier Scorecard
Now that we understand what a supplier scorecard is and how it can benefit your company, it’s time to delve into the most effective way to craft one. There are the three main steps:
1. Identify your key performance indicators (KPIs)
The first step to creating your scorecard is deciding what categories you’ll measure performance on. To start, companies should aim to keep track of two to three key metrics to get a well-rounded idea of their vendor performance. Generally, these metrics fall within this list:
- Product quality
- On-time delivery
- Errors or missed deadlines
- Delivery accuracy
In the beginning of your scorecard experience, trying to manage more than three KPIs can often lead to frustration. So, keep this as simple as possible when you’re first starting.
In addition to KPIs, your company needs to determine what type of scoring approach you’ll use. The grading scale you choose will provide a visual representation of the vendor’s overall performance. Some companies choose the classic letter grading system, with "A" meaning excellent and "F" being substandard. You also could choose to use a number scale, like a simple 1 to 10. Once you’ve decided how you want to score your suppliers, determine what each grade means. For example, if you choose to use the number scale, a score of “10” might mean you want to maintain a long-term relationship with the vendor while a “1” might mean you discontinue your business agreement.
2. Gather the proper data
Once your KPIs and grading scales are established, it’s time to gather any data you may need. This can include supplier agreements or contracts (anything that demonstrates your agreed upon relationship between your company and each vendor) as well as quantitative information you have stored, such as monetary deals and shipment numbers.
With this information at hand, you can begin using the agreed upon terms to rate each vendor as you move forward in business. For example, if one of your supplier contract states that they will deliver 25,000 units at $2 per unit every 3 months, you can use these to weigh their performance. If they deliver outside of the 3-month period, supply you with less than 25,000 units, or charge you more than $2 per unit, you have reason to deduct points on their scorecard and consider a new supplier.
3. Keep supplier communication open
An important factor to consider after your scorecard has been implemented is continued communication. Just rating each supplier and moving ahead with business won’t secure you the full benefits of the scorecard process. For this process to be truly effective, it can’t be one-sided. Transparent communication gives suppliers them the opportunity to give their own feedback about the process. So, make it a priority to communicate with your vendors and tell them how they’re falling short or about any supply chain issues you may be facing. Host monthly or quarterly check-ins or even give your vendors 24/7 access to their scorecard through a supplier portal so you can fix issues in real time, instead of weeks or months after the fact.
When handling supplier-manufacturer relationships, open communication is everything. Luckily, the supplier scorecard can be a great tool to jumpstart a transparent communication technique. Now that you know what these scorecards consists of and how they can benefit your business, follow the three steps we outlined today to improve your company’s supply chain efficiency.
If you’re looking for a Document Management System (DMS) to help you keep track of the important metrics that make up a supplier relationship, ENSUR can help. By streamlining the way you store, update, verify, and otherwise manage all of your supplier and vendor documentation and information, ENSUR gives your company the power to make quicker, smarter decisions. To find out more about how our ENSUR DMS can help you manage all your supply chain relationships more intelligently, request a demo today.