A couple weeks ago, I did an interview with Robert Lerose, who writes for the Bank of America blog. His article was posted this week, and it has some great advice for small business supply chains.
Check it out here:
A couple weeks ago, I did an interview with Robert Lerose, who writes for the Bank of America blog. His article was posted this week, and it has some great advice for small business supply chains.
Check it out here:
Vendor scorecards measure and track supplier performance on various dimensions that are important to your organization. At first, I was reluctant to start a scorecard program because I thought our company was too small and too busy. However, after eventually beginning our program, I saw powerful results that freed up time and helped the company grow.
Vendor scorecards strengthen supply chain relationships and help focus your suppliers on what matters most to you. Scorecards set goals for your vendors to reach for so they can become your vendor of choice. You can clearly see where each vendor ranks against each other, which helps you decide which supplier to work with on complex projects. This article outlines the four steps I took in building our company’s vendor scorecard program. I have attached a Excel Vendor Scorecard Template that I put together as a starting place for your own scorecard.
The first step in creating a vendor scorecard program is to define what your ideal vendor would look like. For me, it would be someone that communicated clearly 100% of the time, shipped quality products for free, and had a lead time of 15 minutes. Although those requests are a bit ridiculous in my industry, it does highlight what matters to me in my vendors: communication, quality, pricing, and lead-time. Together with my team, we took my brainstorm farther and came up with four categories that matter most to us with our vendors:
Essentially, if our vendors could continually improve on these four points each year, our organization would benefit immensely.
Having defined the broad categories, we now have to build the nitty-gritty of the scorecard. You need to build specific, measurable metrics for each category. Specifically, what exactly will you measure, and more importantly, how? For example, a pricing metric could be a comparison of costs between all capable vendors. A quality metric might be the percentage of orders with quality defects.
Good scorecard metrics should clearly define what is good, acceptable, and bad performance in each dimension. Your metrics should be a score for how your vendors are doing in aspects that matter most to you. They should be easy to understand, and if possible, easy to calculate. Unfortunately, building the perfect metrics often takes some deep thought to get them right.
Many metrics were much more complicated to fully define than I thought they would be. For example, lead time is an excellent metric that I use. Tracking the time from when you place an order to when it gets delivered is a great way to compare vendors and encourage reductions in lead time. However, measuring this can be tricky when you get into the details. Should you track the time until delivery at to your location or delivery at port? If you ask a vendor to delay a shipment, will their lead-time artificially inflate?
For most quantitative metrics, your accounting system should have the records you need. However, based on the specific things you want to measure you also might need to start tracking new events or information. For both of the above lead-time questions, I had to change our receipt processes to account for how we wanted to measure that metric. Despite the added work, tracking more data allowed us to trust our metrics and better compare our vendors apples to apples.
When hard data is unavailable or impossible, use a subjective grade. For example, “This Vendor is Flexible in Requests to Alter Production” is a difficult metric to track in our ERP system. Instead, at the end of each quarter, our supply chain team fills out a survey for each vendor that rates them on several dimensions such as flexibility. Rating vendors on a scale is the best way to get a good score from a soft metric. Even better is when the survey has an example for a top, middle, and bottom score for the metric so that scoring is more consistent across teammates. Recording everything in a free Google Form that you send out to your team is even better.
Once you have the metrics you want to measure (I have 4-6 in each category), it’s time to weight them. Start by rating the overall categories. The pricing category may be 25% of the total score, quality 40%. When your categories equal 100%, weight the individual components of each category. For example, if the quality category is weighted at 20% and has three metrics, then those three metrics could be 5%, 12%, and 3%, which adds up to 20%. The Vendor Scorecard Template shows my weighting.
Maybe it’s from the report cards I received every semester in public school, but the A through F scale carries a lot of significance to me. That’s why I like to use that scale for each of my metrics. Some can only receive an A or F, or A, C, or F, but they all have the same percentage score. Based on their grade, vendors receive a percentage of that metrics weight as follows:
Color-coding the scale adds the final touch of understanding so that it translates well and conveys the message clearly.
Finally, once you’ve figured out your categories, metrics, and weighting, put it all together in a spreadsheet scorecard. You can use my template as a starting point to build your own.
Once your scorecard is complete, implementation is your next bull to lasso. You’ll need to devise a plan to clearly communicate what, why, and how you are measuring your vendors. Depending on your suppliers, your experience could be much different, but here’s what I did.
First, I put together a presentation with one or more slides explaining the following. It was detailed and thorough so that our vendors could clearly understand each score. Specifically, the document had the following:
Armed with a document that clearly defined the program, our CEO emailed the presentation and the scorecard spreadsheet to the leadership of our key suppliers. He asked them to review it and then meet with us in a video conference discussing the program. During the meetings with our six key suppliers, the CEO expressed support of the program and our supply chain team explained the details. Most vendors appreciate being measured on more than just price, and so all of our vendors were excited about the program as a chance to prove their holistic value to our company.
We designated the first month as a trial period where we would track performance, iron out issues, and report scores but not take action based on their results. After meeting at the end of the first month to discuss the trial run, we began the program in earnest.
What will make your vendor scorecard program truly succeed is your diligence after implementation. I strive to send out scorecards on-time at the end of every quarter. My team schedules meetings via Skype or in person to review the scorecard each quarter and discuss ways to improve. The communication is two-way – we want all our vendors to reach perfect scores. That is why we council openly about what each of us can change to improve the metrics.
Another big decision to make is what you’ll do because of the scores. Will vendors with consistently high scores obtain a preferred status? Will quality checks or audits happen less frequently? Will you distance yourself from vendors who are very cheap, but fail in every other category? Will you reward contracts based on scores?
If you find yourself rewarding higher scores with more business, then your weighting is probably correct. However, if more and more business is still going to vendors with lower scores, then consider revising your scorecard to better reflect your company’s true priorities.
A great and relatively inexpensive way to encourage scorecard improvement is a vendor of the year program. This could involve a personal meeting, dinner with the CEO, and a plaque for the winning company. When I watch the “Walmart Vendor of the Year” award go to one of my competitors, I find new motivation to improve. Your suppliers may feel the same.
If your vendor scorecard program is chugging along, then consider asking your vendors to score you. Sending a quarterly feedback survey to your vendors to discuss at the same time as their scorecard can bring insights into how you can be a better customer. Some questions could be:
If you make it clear they won’t be penalized for honesty, then you may be lucky enough to get great feedback on how to truly improve. Becoming a better customer can help your vendors better service you. In addition, you may pick up some best practices from their other customers or resolve root causes of your own deep problems. Address these issues in the scorecard review meetings and make commitments to improve when possible. We received a lot best practice tips from our vendors when we said, “we’re really bad at forecasting, so we’ve brought on staff with forecasting experience and invested in the software we needed.” They detailed how their other customers forecast and recommended we try the same.
As I talked about in my article on supply chain gamification, games have a way of bringing out our passion and motivation. A vendor scorecard brings the power of game mentality to supplier relations. “Just keep everything green and keep out reds” becomes the goal of your vendors. “Work with the highest scoring vendors” becomes your vendor selection shortcut. Measuring progress brings improvement that both your vendor and you will enjoy.
From the success I’ve seen from the program, I wish I had started it years ago. This quickly brought to mind the mantra of a friend of mine in process improvement. “There’s two good times to plant a tree: twenty years ago and now.”
If you haven’t started a program yet, begin today. If you have one already, take a look at how you can improve. Either way, share your experience in a comment below.
In our podcast interview with Mark Kosiba (former VP of Operations at Skullcandy), Mark talks about vendor scorecards and their effect on his company. The above model was based on his help, so it definitely applies to anyone wanting to implement a vendor scorecard program similar to the above.
Check out the podcast to learn more: How Skullcandy Rocked S&OP (and Vendor Scorecards)
This past Wednesday, I was presented with a problem. “Alex, your team needs to unpackage, relabel, and repackaged 10,000 of these items by noon Friday.” The product needed a warning label that we just barely learned was required by law. Running on our smallest possible staff, my team suddenly had a mountainous challenge before us that years ago would have kept me up at night worrying. However, I slept just fine because I knew we could handle the challenge with one of my three secret weapons. In fact, I’ve learned that I can solve nearly any supply chain fire with one or more of three things:
I initially put together this list as a joke. Executives would approach me with a problem, to which I would reply, “it’s nothing air freight, temps, or a rotary drill can’t solve,” and suddenly the stress of the problem decreased. I still don’t completely rely on these three silver bullets as the solution to any problem. However, with these three tools, my team has conquered surprisingly large amounts of fires that our small supply chain faces.
Perhaps more importantly than taking the stress out of emergencies, these three silver bullets also serve as a signal that our processes have room for improvement. Throwing money at a fire through expedited freight and increased payroll is a sign of deeper problems. Nevertheless, when 10,000 items need to relabeled in the next 36 hours, I need to solve the immediate blaze with whatever I can before backing up to prevent future sparks.
Air freight is a needed miracle in modern supply chains. When problems arise, switching to faster shipping can save the day by cutting lead times from distant suppliers significantly. Those precious extra days can help capture last minute sales opportunities and help avoid expensive stock outs. Recently my company learned that one of our products was scheduled to ship to twice as many retail stores than originally planned. We had purchased inventory according to the original forecast, which would be insufficient to meet the new demand. However, by air freighting in product that was just finishing production in China, we were able to fulfill the order and capture the extra revenue. The higher shipping costs took some margin, but the ability to prevent three or four weeks of stock outs was well worth the cost. Realizing that I have an expedited restocking option has helped me reduce my safety stock and keep my company’s inventory investments smaller.
Another problem I often face is large customers needing product before we have it. We’ll tell customers that the launch date for a product is May 15, but then the customer will send a purchase order for an April 25 delivery. We often push back, but sometimes the customer will simply cancel the order if we cannot meet the date. Enter air freight again to save the day.
Although air freight can help your company get through a variety of tight spots, it’s not a good habit to constantly use it. Each time we’re forced to use air freight, it’s an expensive red flag telling us that we need to improve our systems, vendor performance, or customer relations. Nevertheless, expedited freight is an excellent tool to combat supply chain uncertainty.
When emergencies blaze out of control, we instinctively call in reinforcements. Dealing in consumer products, I’ve had countless experiences of relabeling, repackaging, and reworking product days or hours before it needs to ship. Often the rework could have been easily avoided months ago from simple communication or error proofing. However, problems slip through insufficient safety nets, and suddenly I’m flying to an offsite warehouse to oversee emergency rework for an urgent order.
Some time back, we had a large promotion ready to ship to one of our top customers. It was in our offsite warehouse prepared to ship the next day. As I reviewed the pictures of the product to confirm everything was good to go, I noticed some unfamiliar labels on the carton. I inquired for more detail and found that although the outside carton labels were correct, the inside product had incorrect barcodes. Over 70,000 products needed new barcode stickers put on them – and they still needed to ship within the next day or two. I jumped on the next flight and assembled a team of 18 temporary workers to help. We quickly created a system to move through the pallets and relabel the products. It was August, and the heat made me sweat almost as much as our looming deadline. However, thanks to my 18 new friends and my assistant who made sure I ate and took breaks, we were able to complete the project in less than 24 hours and ship the entire order on time.
Using temporary workers for unexpected fires is a clear red flag that upstream processes need help. However, as stated at the beginning of this article, knowing that calling in a few extra people can easily solve the problem takes much of the stress out of supply chain firefighting. Using temporary workers consistently may also be a sign that you may need more permanent additions to your staff.
Originally not part of the silver bullet arsenal, a rotary drill in the right hands can solve major problems or inefficiencies in just minutes. It’s my weapon of choice with hands-on problem solving because of its versatility. With a rotary drill (and other tools), my team has built holders, pegs, product paths, and jigs that have often quadrupled production speed. Rather than accepting a process as just slow, a few minutes or hours of building additional tools, holders, or aids can skyrocket efficiency.
For example, as we manufactured one of our products, we needed somewhere to put the small raw materials before they were processed. Laying them next to the worker often resulted in a slight breeze blowing the very light material off the table. Additionally, the worker spent more time aligning the pieces on the machine than actually using the machine. Enter the rotary tool.
By creating a board with nails to put each piece on, we could drastically reduce the time it took to align the raw material on the machine. Putting it on a nail would allow it to stay aligned the entire time. The problem was that the nails were rough and would often snag the materials to create defects. Rather than complain and brainstorm different solutions, we just grabbed the rotary tool and smoothed down the nails. Suddenly, the entire operation was running smoothly, and much quicker than before.. Building small, creative tools – even if they’re not perfect at first – can save loads of dollars and hours.
As you remove the spent cartridges from your silver bullet six shooter, think about what could have prevented you from pulling the trigger. Every good Western movie needs a shootout, but the best supply chain cowboys I know avoid pulling the trigger altogether. Each time you resort to air freight or temporary workers think about how you could have solved the problem further upstream. The rotary tool may not raise the same number of red flags since it often helps create better processes, but sometimes I also use it as a last-resort solution that could have been solved earlier on.
A good way to improve is to hold a quick meeting each time you fire a silver bullet solutions. Five minutes addressing three questions could prevent future shots:
A quick meeting with answers to these questions, combined with action items, will improve your processes and help you build up fire prevention measures.
|Year||Date of Chinese New year|
|2013||Sunday, February 10|
|2014||Friday, January 31|
|2015||Thursday, February 19|
|2016||Monday, February 8|
|2017||Saturday, January 28|
|2018||Friday, February 16|
|2019||Tuesday, February 5|
|2020||Saturday, January 25|
The December holidays’ spike in consumer purchases often stretches the operations of small and large businesses. However, just a month afterward, Chinese New Year has a mammoth impact on Asian suppliers and customers. Consequently, any supply chain that involves Asian links, especially Chinese links, should prepare for the disruption in supply and the possible increase in demand.
Beginning on the first day of the traditional Chinese Lunar calendar, Chinese New Year (CNY) usually lands between January 22 and February 19. However, in order to give employees time to return home to their families, most Chinese companies close one to two weeks prior to the actual date. In addition to closing early, they often remain closed for an additional two weeks after the specific CNY date. Even after they open, factories rarely have enough employees return in time to produce at full capacity. Sometimes factories resume production with as much as two-thirds of the workforce not yet returned. Depending on the labor market, some of those employees may never return to their former job.
For employees, CNY is a welcome vacation that tops those offered by most US companies. The entire country begins to shut down one to two weeks before the big day. Travelling home can be quite difficult, often taking 3 to 7 days by train to arrive at hometowns with waiting families. Fortunately, many factories pay their workers an addition month’s pay as a bonus right before the holiday. This benefit is why some Chinese companies will ask for payment of all upcoming invoices before the CNY holiday. The managers and business owners usually do not need to return to a distant home, since their families often live nearby. Nevertheless, they will often take at least a week away from work, which essentially means email silence for at least a week, if not more, with your Chinese associates.
Imagine an abandoned airport with FedEx and Cargo planes scattered around the tarmac. Pilots have shut down, locked up, and exited their planes. They join their crews and head home for CNY. In a week or two, the pilots and support staff will return, and the planes will simply turn back on and continue with their deliveries. No matter how much you beg, freight simply cannot move for the week around CNY. FedEx, UPS, and DHL usually post the expected delays on their websites, so be sure to utilize that information.
In addition to airfreight delays, sea freight can get even more congested if you don’t plan well in advance. Shipments must be at port at least 10 days before CNY to ensure shipment before the break starts. Shipments must also be booked at least two weeks in advance because space will quickly fill up. If you ship a large amount around that time, then congestion will likely bump at least one of your shipments to a later ship date, often a week after CNY. Most ports open again for normal shipping about one week after CNY. Check with your freight forwarder on what advice it has to minimize disruptions and plan for the delays.
Unfortunately, if you rely solely on Chinese vendors for your inventory, you will likely need to increase your inventory for the CNY season. This is the least desirable option, but often the one most companies take. Instead of shipping a huge amount of product right before CNY, consider increasing stocks slightly, and have your factory prepare a shipment to leave immediately after CNY. This can smooth out the bump and minimize the needed investment.
Instead of buying additional inventory, look at other possible suppliers to help bridge the gap. Dual sourcing in different geographic locations, as previously covered in an article on how to avoid supply chain disruptions, is the benchmark for a robust sourcing strategy. Whether you develop a domestic vendor, or just a non-Asian option, switching to your second source for the month China shuts down may help prepare your supply chain for additional future disruptions.
Depending on your market, you may be able to minimize disruptions from CNY by creatively approaching the problem. Later January and Early February are not traditional peak seasons for most industries. Accordingly, you may be able to offer incentives to clear out older inventory, or focus on another aspect of the business, to help mitigate CNY’s impact.
As the Chinese market expands to imports, CNY may actually come to be a boost, rather than a burden, to your business. While most traditional gifts are food items, CNY spending is similar to the holiday spending in the US, and thus presents opportunities to grow sales of your product. China Daily reported that luxury import purchases in 2012 reached $7.2 billion, a number expected to grow significantly in the future. Getting your products into the Chinese market in time for CNY shipping may be just what’s needed to boost your company’s first quarter sales.