Collaborative development and meaningful metrics can unlock the potential of supplier scorecards.
There always seems to be an audience for new statistics, however trivial they seem to be. To keep up with how suppliers are performing, many manufacturers have started using "scorecards" to record statistics of their own. However, relatively few have done so in a way that actually generates much useful information, according to Sherry Gordon, president of the Value Chain Group, a supply management and performance excellence consultancy.
"In many cases, the reason scorecards don't end up working very well is because companies choose metrics that others use or that have been used in the past -- rather than relating them to what their own company really needs," says Gordon, who has written a book on the subject entitled Supplier Evaluation & Performance Excellence (J. Ross Publishing, 2008). "Everyone asks what KPIs should be on their scorecard, what everyone else is doing. But in reality, it comes down to what your company needs from the supply chain."
With the right goals in mind, Gordon says scorecards can help manufacturers understand supplier performance and make significant improvements to both sides of the relationship. But in order to develop scorecards that will actually result in meaningful and actionable statistics, she offers the following advice:
- Develop an evaluation strategy.
First, decide what kind of information you want from suppliers. Some of the basics are quality, cost metrics, on-time delivery, responsiveness, etc. Of course, not every company has the IT resources in place to gather this data, so how will the scorecard be populated -- by conducting site visits, having suppliers submit questionnaires, through e-mail, or via the company's existing ERP system? It could take new IT resources to get started, so decisions need to be made on how much information is really worth having.
- Use all of your resources.
It does purchasing no good to make these decisions in a vacuum, so get input from other areas of the company. When you're first designing a supplier scorecard, establish cross-functional participation from quality, engineering, production and any other department that can offer insight to which metrics are most critical to the entire organization. Decide as a team what's useful and what's not. If you keep the process a secret and don't share results, not only will the desired improvements not be there, but neither will management's support.
- Keep it simple.
It's easy for companies to get carried away, developing scorecards that are overly complicated with far too many metrics to be effective. Keep in mind that the information should be actionable, so make sure to only collect metrics that are important to understanding a supplier's performance. In fact, Gordon says supplier scorecards should remain as small as possible. This makes them more efficient and also reduces the amount of resources wasted on collecting metrics that cannot be acted upon.
- Tell suppliers in advance.
Communication is critical in this process. When companies spring scorecards on suppliers without telling them about it, people often get upset. Suppliers want to understand what to expect. What will the scorecards be used for? Will the scorecards determine if they are going to remain a supplier? Are they going to be rewarded or punished? Input from suppliers during the development process can be extremely useful.
- Start out small.
Once an approach is developed to populate your scorecard, the process can be deployed. But everything doesn't need to happen at once. Roll the program out slowly to a few suppliers and expand later. For most companies it's not worth the resources to implement scorecards for the entire supply base, so only do it for segments that are most important to measure. Only measure key suppliers -- or those that show the potential for risk in the future.
- Be disciplined and follow up.
Too many companies that develop supplier scorecards do little with them once they're complete, so it takes discipline to make them work. That means following up with suppliers to show them the scorecard actually means something. Make clear whatever consequences will be imposed for poor results, in addition to potential rewards for those that are exceptional -- whether in the form of special recognition or additional business. Without those steps, scorecards can become little more than an interesting tool to know where you stand, as opposed to a necessary part of a continuous improvement program.
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