Supplier Scorecards
“You can’t improve what you can’t measure.”
Dr. Michael Hammer, Re-Engineering the
Corporation
November 17, 2011
1
Agenda
Why use a supplier scorecard?
Aligning corporate goals with supplier
performance
Should all suppliers be measured by a
scorecard?
Characteristics of good metrics
Success factors
Examples…
2
Why use Supplier
Scorecards?
1.
2.
3.
4.
5.
6.
Understand their suppliers and their capabilities
Gain better insights into their suppliers’ performance
Build mutually beneficial relationships with suppliers
Identify, prevent and mitigate supply risk
Set criteria for new supplier on-boarding and an approved supplier list
Put realistic SLAs (Service Level Agreements) into supplier contracts that are based on
performance information gained from SPM
7. Rationalize suppliers based upon performance information
8. Disengage with low performers and high-risk suppliers
9. Give more business to high performers
10. Identify supplier continuous improvement opportunities
11. Gain insights that help suppliers improve their performance and reduce costs and risks
12. Work on product or service development projects with suppliers
13. Create preferred or certification programs
3
Process?
4
Aligning corporate goals with
supplier performance
Corporate
Goal
Improve customer satisfaction by 10%
Corporate
Strategy
Firm eliminates customer complaint
causes
Procurement
Strategy
Firm reduces supplier linked quality
leaks
Supplier
Performance
Expectations
Supplier deploys proactive quality plans
Measures
Supplier deploys root-cause analysis
plans
KPMs
Metric # of quality defects
5
Metric # of supplier items bypassing
inspection
Should all suppliers be
measured by a scorecard?
• Divide suppliers into strategic,
collaborative, custom and commodity
quadrants
• Concentrate on strategic suppliers
who are integrated business partners
as well as core suppliers, who
require integration and development
• Plus other suppliers that may supply
a high-cost or high-risk item.
In terms of performance
management:
• a simple approach is to review
suppliers who represent the top 1020% of spend.
• Divide them into direct and indirect.
• Then rank them based on the factors
established (see example)
• Use a simple scoring methodology
such as "Low=1," "Medium=2," and
"High=5."
6
Characteristics of good
metrics
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6 Success Factors
1. Management buy-in and support.
Demonstrate to senior management not only cost savings and risk avoidance, but also the value that
high-performing suppliers can bring. 2. Alignment of SPM with company and
organizational goals and objectives. Without alignment, value is more difficult to
demonstrate to senior management. As discussed, don't create SPM in a vacuum. 3. A good
process in place. SPM is a business process, not a scorecard. SPM requires a good, closed-loop
business process in place in order to add value and to succeed. 4. Communications: with
suppliers and with the stakeholders in your firm. Don't keep SPM a secret between Procurement and
suppliers. Communicate performance expectations with suppliers. They will appreciate it. Communicate
the results with suppliers. Raise SPM visibility and broadcast success. Otherwise, SPM may die on the
vine because only Procurement can see the benefits. 5. Actions. SPM without actions,
improvements, and follow-up is futile. Go beyond collecting data for the sake of data. Deliver improved
supplier performance, reduced costs and increased supplier value. 6. Measurable results. An
SPM system is about results. When properly deployed and fully adopted, SPM can create both top line
and bottom line value. Capture the value and communicate it to management.
8
Examples
9
Q&A
10
Thank you for the opportunity to be here tonight
How to reach me:
Meri M. Stockwell, MBA, CEP
Owner / President
Meri M. Stockwell, LLC.
Procurement Consulting, Training & Recruitment
meri@procurementexpertise.com
www.procurementexpertise.com
727.260.2085
Twitter @MeriMStockwell
Affiliated with…
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