Giving your vendors feedback through a supplier scorecard is one of the best ways to improve their performance. When you take factors beyond price into consideration, your total cost of ownership decreases, your customers are happier, and you improve relationships along your entire supply chain.
But is your scorecard missing key metrics?
The goal of a supplier scorecard is to measure things that are important to you and your customer. By measuring and keeping score, you can encourage your suppliers to improve.
If you don’t have a supplier scorecard system yet, then check out my guide on Building an Awesome Vendor Scorecard Program in 4 Easy Steps. It includes a free Excel template that you can modify to match exactly what metrics you want to measure.
While some of these metrics might not apply to your business model, there’s definitely a few to add if they measure something important to you and your customers.
Whether it’s email response time, conversation clarity, or even language skills, bad communication can be a huge drain on a relationship. Ask everyone who interacts with the supplier to rank communication on a ten-point scale and average the scores. Give specific feedback to your supplier on which aspect of communication would most improve the score: Do their emails need to provide more details? Should they look into hiring some translation help? Could they email less often?
- Lead Times
Keep a running average of the lead times from order to receipt for each supplier. Compare against other suppliers or a standard you’re working to reach. Be sure not to penalize or reward suppliers based on your choice of shipping method. Overall lead times will of course go down if you start using express shipping. However, if the supplier chooses the shipping method, then including it might be a good idea.
- Payment Terms
How long your supplier gives you interest-free loans can be very important, especially when cash is tight. Letting suppliers know what the ideal would be, or the most generous terms you have from another supplier could encourage them to upgrade your credit.
- Missed Shipments
Dropping the ball on an order or stocking out can have big consequences to you and your customers. Measuring rare but high-impact failures helps both you and your vendor work on ways to avoid future problems.
- Financial Health
Walmart periodically checks in on the Dun & Bradstreet credit scores of its suppliers. A supplier in poor financial health could disrupt your supply chain by entering bankruptcy. Measuring this can sometimes be tricky – but it may justify the extra effort.
- Number of Other Customers
Similar to financial health, a diversified customer based is a sign of supplier strength. Walmart hopes its suppliers have other customers besides Walmart. In fact, many big-box retailers are uncomfortable being more than 30% of a supplier’s revenue base. On the flip side, you may not want some suppliers serving other customers.
- Ease of Doing Business
Similar to communication, some suppliers are just easier to deal with. Being difficult can take up your team’s precious time, and those suppliers could benefit from knowing that they are a hassle. Of course, you’ll want to be courteous and professional with your feedback, but being open and honest with this metric can go a long way to solving problems between you.
- Audit Standards
Many large companies such as Disney and Target have audits that every party in the supply chain must pass. Even if you don’t work with these companies, holding your suppliers to these standards can be a good idea. It usually involves bans on child or forced labor, a maximum of 60-hour workweeks, and basic safety standards. Putting this metric on your scorecard can show your vendors how important those standards are to you.
- Cost Reduction Suggestions
The best vendors I’ve worked with have come to me with ideas on how to reduce costs. For example, if we tweaked a part slightly, then the supplier could offer me a lower price. I want to encourage this behavior, so my suppliers get a scorecard bonus when they make a plausible suggestion.
- Product Suggestions
I constantly worked with my suppliers to come up with great new products my customers wanted. Most of them pushed products at me, but only a handful of vendors presented good ideas. The difference was that those vendors spent time researching end users and gathered insights they could pass along to me. In your scorecard, you can rate the quality of product ideas (can you take what they offer and sell it to your customer right away), or the quantity ideas if they’re shy about presenting options to you.
- Relative Price
Price likely factors heavily into your decision, but do your vendors know where they stand compared to others. While you may not want to tell any of your vendors, “you’re our cheapest option,” because they might raise prices, you may want everyone else knowing they’re more expensive. A qualitative gauge similar to, “you are more expensive than average on most products,” can help more expensive suppliers know where they stand and encourage them to quote lower prices in the future.
- Specific Quality Metrics
Most vendor scorecards have “Quality” as a category, but do you have specific subcategories? What exactly are you looking for? Here are some possible options:
Identifying exactly what your customer is considering as she evaluates the product’s quality will help you decide exactly what specific quality metrics to include.
When demand is high, does your supplier have the capacity to fill your orders? Letting vendors know where they stand in their ability to fulfill your peak ordering could encourage them to make more investment and increase capacity.
- Minimum Order Quantities (MOQs)
On the other side, do vendors make you order more than you really need. If so, let them know. Most of my vendors wouldn’t budge on letting me order less than 2,000 units until I made the ‘A’ score under 500.
- Signed and Following Manufacturing Agreement
This is usually a yes-no metric, but it rewards them for abiding by the terms of our agreement. Without including this on the scorecard, some vendors forget you ever signed anything – especially after staff turnover.
- Transportation Time and Cost
A freight forwarder really impressed me when they set up a meeting to review a scorecard they built for me – which graded them. It showed the average time it took them to deliver containers and other data points 0—0-[telling me how they were doing. Most interesting was that it showed they weren’t perfect – but that they were trying. Consider tracking similar metrics with logistics providers.
- In-stock Percentage
This one may be more unusual, but it’s the key metric of retailers. Essentially, the supplier is responsible for how often its products are in stock for its customer. For me as a supplier to Walmart, it measured how often my products were on shelves. If I saw it was below their target, then it was my responsibility to talk with them and come up with a solution. If your supplier has a similar responsibility to keep you in stock, or they provide products on consignment, then consider letting them know how they’re doing and ask them to step in when it’s below standard.
- Your Sell-through, Sales, and Margin on Their Product
Similar to above, if your suppliers have a stake in your sales, then let them know how sales are doing. Be sure not to share anything confidential that may help them go straight to your customer if that’s a possibility.
- Inventory Levels
Letting your suppliers know how much of their product you have sitting in your warehouse can help them know when to suggest further orders or delay orders to keep you inventory at target levels.
- Reliability of Service or Uptime
If you deal with service providers, especially web-based, then uptime can be a key component to measure and discuss.
- After Sales Support and Warranties
When your suppliers ship your order, is that the end of their responsibility? If not, how well do they handle after-sales support? Are they easy to work with and accept returns no questions asked? Or, are they so difficult that you don’t even bring the issues up?
What other metrics do you measure your vendors on? Leave a comment below, and please be sure to check my full guide on how to Build an Awesome Vendor Scorecard Program in 4 Easy Steps. Finally, here’s a quote that always gets me excited about doing more with metrics:
“When performance is measured, performance improves. When performance is measured and reported, the rate of improvement accelerates.”
-Thomas S. Monson