Supplier Scorecards: Best Practices for Global Supply Chains
Perspectives
Supply chain data analytics is not only a fast-growing sector within the technology space, but also directly tied to supply chain visibility and optimization efforts. If you can’t collect and analyze supply chain data, then how are you going to understand the risks and opportunities ahead of you?
The problem though, as Michael Stonebraker of MIT put it, “Without clean data, or clean enough data, your data science is worthless.” For most companies large and small, the challenge of defining and collecting supplier data in low cost countries is a daunting one; and even once data is aggregated and preprocessed, one still needs to divine what that information means in a business context.
From fast growing startups to mature enterprises, companies still routinely misuse supplier scorecards resulting in reduced supply chain visibility and elevated management costs. So whether you are looking to create your first supplier scorecard or just taking a moment to refresh a long-standing supplier scorecard, consider some useful best practices to drive further improvement in your supply chain:
Use a Supplier Scorecard
This goes without saying but use a supplier scorecard. Note, that having a supplier scorecard is not using a supplier scorecard. Using a supplier scorecard entails refreshing data on regular intervals, analyzing trends, and most importantly- adjusting decision making based on key insights to improve or optimize supply chain performance. Simply having a supplier scorecard and not using it, is a waste of resources and a missed opportunity.
When properly constructed and well maintained, a supplier scorecard can serve as a single source of truth capable of identifying supply chain risk, operational bottlenecks, and cost drivers. In the world of global supply chain management, this tool has one of the highest ROI’s out there.
Use a Blend of Relevant Qualitative and Quantitative KPI’s
Creating a valuable supplier scorecard is a balancing act between capturing enough granular data to properly assess a supplier’s performance without exhausting resources or losing key insights to noise. From PPM to OTIF and Pricing Competitiveness to Responsiveness, be sure to include a mix of quantitative and qualitative inputs. And while qualitative feedback and anecdotal commentary from supply chain practitioners can play a role in a supplier scorecard, aim to have measurable, objective data as the backbone of your grading system to avoid undue personal influence on a supplier’s standing.
For those looking to develop their first scorecard, remember, that just getting started is a huge first step, and while there are many metrics to choose from, do not sacrifice the good for the perfect when rolling out your scorecard. Just like in software development, consider starting with a Minimum Viable Product (MVP) to get a better understanding of the data collection and analysis requirements, before building out a comprehensive scorecard. Choosing to walk before you run will still get you to your destination of a stronger supply chain.
But Keep it Simple
One of the biggest mistakes when it comes to supplier scorecards our firm runs into, are scorecards that are overly complex. In these instances, suppliers rarely understand the correlation between their performance and their classification, supply chain practitioners lose interest in refreshing data.
Instead of trying to capture every potential indicator of supplier performance, start with the most critical and impactful. A great scorecard will never include all the performance metrics tied to a supplier, but rather captures the essence of a supplier’s performance in a clear manner.
Be Clear and Communicate
A supplier scorecard should not be a black box within your organization or in the eyes of suppliers. If a company is using a supplier scorecard to set supply chain policy or dictate order flow, then suppliers need to fully comprehend the grading criteria and potential areas for improvement.
With clear scoring criteria and broader business implications, suppliers are able to better address weaknesses and become a stronger supplier often without importer intervention. But for every instance where an importer successfully engages in constructive communication around a supplier scorecard, there are ten companies who fail to properly convey the scoring and business implications with foreign suppliers. In these cases supplier scorecards can adversely impact supply chain performance by creating ambiguity between parties and failing to address areas for supplier improvement. Ultimately a supplier scorecard is a tool and should be used to frame a broader dialogue between importers and suppliers how various improvements can be mutually beneficial.
Combine Data Analysis with Broader Supply Chain Policy
At the end of the day, supplier scorecards are a tool to be used by businesses to drive improvements across a supply chain. These scorecards should be directly tied to broader supply chain policies and not just used for informative purposes alone.
Examples of scorecard grading and policy implications could be:
- Suppliers with a low quality score require larger sample sizes during inspection
- High scoring or low scoring suppliers receive increased or decreased order volumes
- Suppliers with high late delivery rate impact inventory levels
- Perpetually low scoring suppliers to be replaced with new vendors
Remember, supplier scorecards are not created to add more work or complexity to a supply chain, rather they are introduced to help gauge performance in a few key areas to drive improvement.