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How to Build a Better Supplier Scorecard

There are too many articles about supplier scorecards. If you want to read a few dozen, just type “supplier scorecard” into your Internet browser.

So what’s better about this scorecard?

  1. This scorecard is simple.
  2. This scorecard requires fewer resources.
  3. This scorecard does not require an expensive software solution.
  4. This scorecard will help you continuously improve supplier quality.

When I audit supplier quality, I frequently see a supplier evaluation procedure and a fancy, color-coded supplier scorecard. Unfortunately, I rarely see a company that is following their procedure or keeping their scorecards up-to-date. If this is your problem, you probably made your process more complex than it needs to be.

Most scorecards have numerous metrics that are tracked for each supplier, and each of these metrics has a weighting that results in a composite score for that supplier. Usually these metrics fall into four major categories, and each major category may consist of two to five minor metrics:

  1. Quality
  2. Delivery
  3. Pricing
  4. Customer Service

Your supplier scorecard has a two-fold purpose. First, it’s intended to be an objective rating system to identify suppliers that are not performing well so that corrective action can be taken. Supplier scorecards also provide feedback to suppliers with the hope that those with poor performance will make an effort to improve. The second purpose for a supplier scorecard is to provide objective evidence to auditors and inspectors that your company is evaluating supplier quality.

In order to achieve the above goals of identifying suppliers that are not performing well, and for providing records of supplier evaluation, there is no need to include pricing in your supplier scorecard metrics. In fact, it sends the wrong message to auditors and inspectors. Do you really want to reward a supplier with poor quality and good pricing? The other problem with the word “pricing” is that there is no guarantee of a correlation between the pricing and the profit margins the supplier is making, or even the supplier’s competitiveness. If you have a sole-source supplier, does it really matter what their pricing is?

How Long do Scorecards Take?
If you are going to create a scorecard, limit yourself to objective metrics whenever possible. Also, when you create a composite score, limit the number of metrics to a very small number of critical metrics. Sometimes more information is just more—not better.

When you and your supplier quality team are building a scorecard, you should think carefully about how long it will take to create a scorecard for each supplier. If you have 400 suppliers, and only two people generating scorecards, you can’t afford to spend two days to create each scorecard. These two people have other work that is equally or more important that creating scorecards. Even if each supplier scorecard takes one day to create, there is no point in taking action on a quality problem that occurred in January if you are creating your scorecard in December.