How to Develop an Effective Supplier Scorecard

Supplier performance greatly affects the cost, quality, delivery, and responsiveness of a manufacturer’s business. For any manufacturer whose product quality relies in part on a supplier’s own product or service, the organization must be able to ensure or improve high supplier performance.

Supplier scorecards are a logical place to start. At the end of the process, the supplier receives a score that serves as a clear indicator of how they’re doing.

What Is a Supplier Scorecard?

A supplier scorecard or vendor scorecard is a tool for monitoring supplier performance. It tracks quantifiable metrics such as quality, vendor delivery, cost, and responsiveness of a supply partner, allowing a business to measure the performance and effectiveness of the vendor over time. As part of a supplier performance management system, the scorecard can help businesses minimize risk and communicate expectations to ensure both parties are working to achieve the same goals.

5 Considerations To Take When Creating a Supplier Scorecard 

Supplier scorecards are not one-size-fits-all, but supplier scorecard development often involves some common process considerations:

Determine performance categories and priorities. 

Identify aspects of supplier performance that will be measured. These measures should track directly to the organization’s overall business objectives. Group the most important aspects together by category, and try to limit the number of measures in each category to a manageable few.

Define measures.

Develop standard definitions of each measure. For a medical device supplier scorecard, for example, if measures include cost savings year over year, quality improvement, and responsiveness, then define and agree on definitions for those. Industry and quality standards can be used to develop the definitions.

Develop a scoring approach.

Once the measures are agreed upon, the supplier scorecard can be developed. A weighted scoring approach allows for prioritizing different elements based on importance to the business. Some metrics will be more critical than others, and how metrics are weighted depends on company objectives.

Develop performance targets.

Once definitions and weights are determined, the performance targets can be developed. There are numerous effective methods that can be used to decide on the best targets. These targets would then be reflected in the supplier scorecard with all elements described.

Apply the grading scale.

Once you know what you’re going to track, supplier performance data is entered on the supplier scorecard, and the difference against the planned target is noted. Results can be measured and feedback provided. Under certain conditions, corrective action is required.

It is generally advised to keep the scorecard development process as simple as possible throughout.

Conclusion

In the manufacturer-supplier relationship, direct communication between both parties helps deliver important changes or resolutions to issues. To that end, the supplier scorecard is an effective form of communication because it sets up a structured measurement of collaboration where the supplier always knows their score and how they’re trending. To ensure the success of their supplier scorecards, manufacturing organizations can actively help key suppliers develop an actionable plan for continuous improvement.