Vendor scorecards, sometimes referred to as supplier scorecards or supplier management scorecards, are used across all industries, especially with larger organizations. As part of a comprehensive vendor management strategy, vendor scorecards can help ensure that arrangements between an organization and its suppliers remain beneficial to both parties as well as provide insights when improvements need to be made.
In order to reduce risk and make sure the supply chain does not cause issues with daily operations and deliverables, many organizations utilize a strategy referred to as “multi-sourcing,” or outsource to multiple vendors/ suppliers. While these benefits are important, multi-sourcing can also lead to issues such as poor quality coding, insufficient documentation, and increased costs. In order to reduce these risks, the organization must oversee the suppliers.
Vendor Scorecard Definition: In order to determine how any given supplier is operating and whether they’re delivering as expected, specific metrics can be tracked. These ratings come together in a vendor scorecard to provide a comprehensive outlook. While small organizations often track metrics by hand, larger companies with multiple suppliers benefit more from a vendor management system (VMS), which digitally tracks important data.
Each organization will have a different approach to creating a supplier scorecard, but there are some general concepts included in most systems.
By themselves, scorecards are nothing more than data. It’s what a leader does with this data that makes a difference.
Contracts: Service-level agreements (SLAs) should be in place with each supplier. SLAs lay out the minimum requirements a supplier must meet in order to be in compliance with a contract. Scorecards can be used to track whether suppliers are meeting their SLAs.
Negotiations: Having easily-accessible data regarding all potential suppliers for a project makes it easier to negotiate with a provider, as they are likely to want to outdo their competitors.
Benchmarking: Assessing a supplier throughout a project and providing the supplier with the data gathered can help them stay on track with goals and SLAs. It’s worth noting that some SLAs include penalties assessed to the supplier when service-level objectives are not met, so follow-up throughout a project ensures the supplier meets expectations.
Penalties and Rewards
Organizations have different approaches to assessing penalties or offering rewards based on performance. SLAs do not need to include penalties, but it’s a good idea to have a plan in mind for dealing with unresolved performance issues, such as giving the supplier less work or dropping them from the supplier list. Equally, suppliers that consistently meet or exceed expectations should be recognized for their achievements.
Approaching a Supplier About a New Vendor Scorecard Program
When handled properly, vendor scorecards can improve relationships with suppliers. Reputable suppliers want to know how they’re doing and want to provide the best possible products for their clients. However, it’s important to introduce a new vendor scorecard program with suppliers tactfully.