Benefits of Using a Vendor Scorecard (With Steps to Create One)

Vendor scorecards are used to track and measure vendor performance. They can vary from simple to complex and can contain as much or as little criteria as deemed effective to accomplishing an organization’s goals.

For a supply chain to function effectively in procurement, a transparent buyer-supplier relationship is essential. Orders may arrive late or not at all if there is a lack of communication and transparency between the two parties. This is where a strong supplier scorecard comes in. Buyers and suppliers can keep track of their relationship using a tool known as a supplier scorecard or vendor scorecard.

The metrics or categories on scorecards will be used by buyers to evaluate their suppliers. The majority of scorecards measure quality, on-time delivery, and responsiveness, though these can vary from business to business. In conclusion, a scorecard system can assist you in evaluating vendor performance, promoting improvements, improving vendor relationships, selecting which suppliers to keep in your supplier base, and rewarding specific suppliers based on hard, cold data.

Surprisingly, many businesses lack a simple supplier scorecarding procedure. The main obstacle is that scorecarding is frequently a manual process, which leaves room for errors and confusion. If you belong to that group, don’t wait any longer to implement supplier scorecards. 2020 has taught businesses the value of predictable supplier behavior, if nothing else. A crucial step in reducing your supply chain risk is using supplier scorecards, which are thankfully no longer strictly manual processes.

Vendor Scorecard

Benefits of using a vendor scorecard

Companies can use a scorecard in a variety of ways:

Articulate expectations

A scorecard systematically communicates company expectations to the vendor or supplier. The scorecard can include categories for the business’s top priorities, and it can then assess how the vendor is performing in those areas. The scorecard provides vendors with a clear path to success that they can use for themselves and their staff.

Provide perspective

The business can consult the scorecard over time to check for performance trending. The scorecard can track how frequently deliveries matched your purchase order if accuracy of delivery is a KPI. You can check the scorecard to see if the delivery accuracy rate has improved in the past year or if that KPI has experienced persistent problems.

Find areas for improvement

The scorecard can be used by a business to assess vendor performance and look for opportunities for improvement where they are needed. For instance, let’s say a vendor performs satisfactorily overall, but the scorecard reveals that there is one area where the vendor consistently falls short of its objectives. So that performance meets expectations for all KPIs, the scorecard can pinpoint performance issues and identify areas for improvement.

Identify problems not related to the vendor

If the scorecard indicates a low score, the vendor may not be the issue. If the problem is investigated further, it may become clear that the supply chain problem, not a person, is to blame. Company representatives risk making assumptions about a vendor’s performance without context from the scorecard and failing to identify the root of the issue.

Estimate costs

A scorecard can assist a business in comprehending cost issues with the vendor or supplier. You might find that many of the KPIs you use for the scorecard are related to the cost of doing business. Based on the data and categories included in the scorecard, the scorecard can provide insight into how frequently expected vendor costs match budget expectations and why costs go over or under budget. Your employer can operate more effectively and make more money if they have a better understanding of costs.

What is a vendor scorecard?

A vendor scorecard is a tool for assessing a supplier’s or vendor’s performance. You can rate the key performance indicators (KPIs) on the scorecard using a scale from 1 to 5. On-time delivery may be a vendor’s key performance indicator (KPI) if you depend on them to deliver certain production-related supplies. Utilizing a scorecard can improve relationships with vendors and guarantee that performance meets your employer’s standards.

How to create a vendor scorecard

To create a vendor scorecard, follow these steps:

1. Decide on KPIs

Examine the contract you have with the vendor, as well as, if one exists, your initial request for proposal. You can use these documents to determine the appropriate KPIs for the vendor. The key service or item that the vendor offers will be the focus of the best KPIs. Some examples of KPIs include:

2. Define and weight the metrics

Concentrate on determining how to measure success or failure and what metrics to use once you have determined the KPIs. How quickly the vendor responds to emails or completes change orders, for instance, could be a metric if responsiveness is a key performance indicator. After developing the metrics, weight the KPIs according to their significance to your business. For instance, one scorecard category might account for 60% of the evaluation score while the other two might each account for 20% of the score. Not all KPI metrics are created equal, so ranking the most crucial variables can be a step in the scorecard process.

3. Use data

If your company has a large number of employees, collecting the data needed for the scorecard can be difficult. One tactic is to involve the company’s pertinent stakeholders. For instance, the loading dock manager could provide information to the scorecard and assist you in understanding its significance if a component of the scorecard involves on-time delivery.

For the scorecard, some information, like costs, might be more easily accessible. A new method of data collection and reporting may be necessary for other information, such as on-time delivery. You could automate the data in this case by installing a censor that recognizes when a shipment arrives and is unloaded before entering the data into a spreadsheet. In other cases, someone might need to keep track of and manually enter the data into a spreadsheet.

4. Create timelines

The scorecard may pertain to a particular time frame, such as a week, month, or fiscal quarter. The timelines can contribute to the establishment of structure and raise the bar for expectations. When vendors see how much time they have left in the reporting period to raise a KPI that may currently be below target, it can inspire them to work harder.

Vendor scorecard example

Here is an illustration of how a scorecard might appear:

RatingBreakdownScore (0-5)On-time delivery (60%)

4Schedule met350%
Delivery rushed when needed550%
Product quality (20%)

4.5Standards met450%
Flaws corrected550%
Cost (20%)

5On budget5100%

FAQ

How do you evaluate vendor performance?

3 steps to creating your own vendor scorecard
  1. Gather guiding documents. Gather your original RFP discovery materials first, followed by the vendor’s RFP response and the contract.
  2. Determine performance categories and priorities. …
  3. Apply your grading scale.

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