Four Best Practices to Improve Supplier Performance Scorecarding
I recently read this Software Advice blog by Michael Koploy and was reminded of a real world example emulating these 4 practices that he outlines.
A large manufacturing company had very special needs for scorecarding the delivery and quality performance of their key suppliers. What they wanted to do, and what we established for them through our Spend Management software, was as follows:
They wanted to identify their top suppliers, based on Spend dollars and cost factors, for material deliveries. They identified approximately 50 suppliers with which they wanted to track specific and consistent data regarding delivery performance, including on time delivery, backorders, material defects, and quality measurements. Specific performance criteria and ratings for these factors were established, as well as the reliable and timely sources of the necessary data, integrated with ongoing Spend dollars. On a monthly basis, they would run specific reports supplier-by-supplier, and provide those reports to the buyer responsible for each specific supplier. 24 hours later, the supplier performance report would be created and automatically sent via email to the supplier. This 24 hour period gave the buyer time to review the information, in preparation for a phone call or discussion from the supplier, as they reviewed their own statistics and ratings. The program was immensely successful, as all the components were automated, and key business needs were consistently measured and improved month-to-month.
How does this line up with the 4 best practices mentioned in Michael’s blog article?
1. Build Scorecards Around Business Goals
A detailed Spend Analysis was done regarding preferred and critical suppliers, and what was important to improve the business performance that needed to be measured and communicated back to the suppliers.
2. Establish Processes to Evaluate Performance
Detailed metrics were built around available source data that would drive meaningful ratings. What did it mean to be 1 day late with a shipment? How much on backorder would be harmful to the business? How did that impact a suppliers rating. This needed to be consistent and meaningful to the business.
3. Communicate Information to Suppliers and Take Action
The automatic mailing of the reports to the buyer, and then to the supplier 24 hours later, was a major breakthrough regarding the manpower needed to complete the program. Buyers could focus on quality and supplier communications, versus spending hours and days trying to assimilate the data. And reports were automatically generated like clockwork month-by-month, with each Spend refresh for the organization.
4. Share Information Internally
Aligning buyers to manage specific suppliers was a key factor to coordinate the entire program, and provide specific points of contact with the suppliers. All buyers were getting the same reports for their suppliers, and the information for all suppliers was readily available for all buyers. Spend visibility, as well as supplier performance data, were all easily available with the comprehensive Spend management system in place, with monthly data refreshes.
Improving the Supplier Base with Performance Management
All the controls mentioned above were well thought out, and tweaked as months went by to become more and more meaningful. The consistency of the communications, across meaningful performance criteria, greatly improved the supplier performance and quality.
Rod True, COO, Spend Radar