Supplier delays and quality issues can cause serious problems, impact the bottom line, and damage customer relationships. Vendor scorecards are one tool that can help address these challenges.
By tracking supplier performance and identifying potential risks, you can take proactive measures to mitigate them. In this article, we'll explain how vendor scorecards work, how to create them, and what key performance indicators (KPIs) you should track.
See how Factor can help you automate your supplier scorecards. Learn more.
What is a vendor scorecard?
A vendor or supplier scorecard is a tool used by organizations to assess the performance of their suppliers or vendors. It is a standardized set of metrics used to evaluate vendors against specific criteria, such as on-time delivery rates, vendor communication and response rates, product quality, pricing, etc.
A vendor scorecard typically includes both quantitative and qualitative measures designed to objectively measure vendor performance over time so businesses can make more data-driven vendor management decisions.
By monitoring the performance of vendors against predetermined metrics, organizations can identify areas where improvements are needed and work with vendors to make necessary changes. This can help reduce risk of line down events and customer fulfillment delays, improve product quality, reduce costs, and enhance the overall efficiency and predictability of your supply chain.
In addition, by regularly assessing vendor performance, providing feedback, and identifying opportunities for improvement, organizations can build stronger supplier relationships and ensure that they are meeting their business needs.
Why should you use vendor scorecards?
Manufacturers rely on their suppliers to deliver the necessary raw materials, components, and finished products in order to meet customer demands. To make informed decisions about their vendors and scheduling, manufacturers must collect and analyze data related to their vendor performance.
It’s hard to collect or synthesize supplier performance data at the last minute. If teams don’t regularly track vendor performance, purchasing teams end up making critical purchasing decisions based on recent vendor interactions or their gut feelings rather than data.
On the other hand, teams that regularly measure supplier performance will see benefits including:
Improved efficiency
By analyzing data related to vendor performance, manufacturers can identify areas where improvements can be made, such as delivery times, quality, and pricing. This can lead to more efficient supply chain operations and reduced costs.
Increased visibility
Data-driven decisions provide manufacturers with greater visibility into their supply chain performance, allowing them to track the progress of orders and identify potential bottlenecks.
Better risk management
Vendor scorecards help to reduce supply chain risks by providing manufacturers with real-time insights into supplier performance. With these insights, manufacturers can identify potential issues early and take corrective actions to prevent them from disrupting their operations.
Improved scheduling
Using vendor scorecard data like “average time to accept order” and “average days delayed” allows manufacturers to make more informed decisions about vendor selection and scheduling. By using data to guide these decisions, manufacturers can make more accurate predictions about when their orders will arrive and adjust their operations accordingly.
Supplier scorecards help teams make better decisions that optimize their supply chain operations and improve their overall performance. By collecting and analyzing data related to their vendors, manufacturers can identify areas for improvement, reduce costs, and enhance the overall efficiency of their operations.
What makes a good vendor a good vendor?
Supplier scorecards are an essential tool for measuring vendor performance, but what actually defines a good vendor? At Factor, we work with hundreds of manufacturer and suppliers, so we put the question to them. The key finding that emerged was that teams are trying to answer the essential question of “do my vendors do what they commit to?”
This can be answered both quantitatively and qualitatively. Slightly more specifically, customers are asking whether their vendors are “on time delivering a good quality product.” Customers went on to say there are a number of other aspects, or “soft skills,” that go into their vendor assessment, and we’ve consolidated many of the most essential metrics below.
What are the most essential vendor performance metrics?
A good vendor scorecard uses as much concrete data as possible to make objective, data-driven supplier evaluations. These include:
On-time delivery rate
Arguably the most essential metric, on-time delivery rate tells you how often a supplier actually meets their originally-quoted delivery date. Teams should use this metric to measure the overall performance of a supplier–i.e. For all products and orders, how often is the supplier on time–and to make measurements at the line-item level–i.e. How often is a supplier on time for a specific order line item.
This second level of detail is important because some specific line items are more complex to produce so may be exposed to additional risk, and it’s important to be able to make this distinction.
Average days delayed
While on-time delivery rate is the north star, average days delayed tells you the magnitude of a supplier’s typical delay.
While working with vendors with low on-time delivery rates can be very problematic, if purchasing teams can confidently measure and predict the average delay, then they can factor that into their purchasing schedules and place orders earlier. Some suppliers may perform so well on all other metrics that dealing with delays is worth it.
Average time to accept an order
While vendors typically quote a delivery lead time based on when they accept an order, it’s essential to incorporate the amount of time it takes for a vendor to accept an order from the day they receive it. While some suppliers accept orders nearly instantly, some may take days or even weeks to accept an order, which can have significant impacts on the final delivery date.
Communication response rates
Customers consistently want to work with suppliers that are communicative and quick to respond to questions and other messages. It’s important for customers to know that they’ll receive a quick, detailed response if they have to make any quick changes to an order or need to confirm any line item details.
Pricing
Pricing is clearly an essential part of choosing suppliers. Some customers use pricing to make decisions between suppliers when all other variables are equal, while others may be willing to make compromises on other dimensions in order to work with a vendor offering a lower price. Either way, it’s important to be able to see vendor pricing in the context of other supplier scorecard metrics.
Total spend by vendor
Zooming out from looking at an individual supplier, it’s essential for customers to be able to see how they’re allocating their spend across their entire supplier network. This is important for a couple of reasons.
First, so that customers can quickly identify which vendors they’re spending the most with so they can focus their time and resources on strengthening those relationships and improving other performance metrics.
Second, it lets customers see how much risk they are exposed to in terms of supplier diversification. In general, if a customer’s total spend is spread across a larger number of suppliers, they face less overall risk if a single supplier causes a disruption.
There are also a number of other dimensions for evaluating supplier performance that are more qualitative or focus on softer skills, including:
Product quality
Each team has their own QA process for inspecting the products they’ve received. It’s important to be able to connect this QA process back to the original purchase order and supplier scorecard so you can more confidently measure the typical product quality from a given vendor.
Communication
In addition to communication response rates, we’ve found our customers typically prefer working with vendors that are more open and proactive communicators.
A supplier that raises questions about orders to ensure they understand every specification, or even a supplier that offers design feedback on a part to reduce cost or production time, can be an incredibly valuable long-term partner. In addition, it’s a good sign when a supplier is more proactive about communicating potential order risks and delays.
Flexibility
Finally, it’s important to understand whether your vendors can be flexible when you have specific requirements or the unexpected occurs. Sometimes customers need to place rush orders, make quick changes to existing orders, or ask for more complex order scheduling like rushing just a part of an order. It’s important to know whether your suppliers can accommodate requests like this.
Why are vendor scorecards hard to make?
It’s one thing to list out all the important supplier KPIs you’d like to measure and another thing to actually collect and synthesize all of this data. The biggest barriers to making high-quality supplier scorecards we’ve heard from customers are:
Identifying data sources
Oftentimes, the data required for scorecarding is spread out across a number of different departments, e.g. purchasing, receiving, QA, and more.
Automating data collection
Once you’ve identified where all the data for your scorecards lives, you need to bring it into one place so you can make sense of it. Many teams that have taken this step still rely on manually adding data to spreadsheets which takes a lot of team time to maintain and ultimately isn’t very scalable for large operations.
Synthesizing data
Pulling all the supplier performance data into one place is a huge step, but you still need to turn that data into insights and make sure you have a scorecard dashboard that surfaces your KPIs. With this, you can finally incorporate your supplier scorecards into your decision making process.
How to get started with vendor scorecards
To get started with vendor scorecards, you’ll first need to identify the KPIs crucial for your business. The KPIs that matter most will vary depending on your industry but will likely include things like on-time delivery rate, average days delayed, quality and pricing.
Next, establish a system to collect and analyze data for tracking each vendor's performance. Develop a standardized process to gather data across your organization and schedule regular vendor performance reviews.
When assembling vendor scorecards, make sure you create a clear, organized layout that’s easy to understand. Include sections for each KPI and utilize visual aids like charts, graphs, and color-coding for easy comprehension. Provide a summary of each vendor's overall performance and comparisons to other vendors when applicable. Tools like Factor can help you automate both the collection and presentation of this data.
Establish a consistent schedule for updating the scorecards and make them accessible to relevant stakeholders. Regularly reviewing and sharing vendor scorecards facilitates data-driven decision-making and continuous improvement within your supply chain.
Use the data collected through the vendor scorecard system to make informed decisions about vendor partnerships, adjust procurement scheduling for on-time orders, and minimize supply chain risk. Continual monitoring and improvement of vendor performance ensures maximum value from your suppliers.
Conclusion
Vendor scorecards are a critical tool for minimizing supply chain risks and optimizing operations within manufacturing companies, enabling businesses to make data-driven purchasing decisions.
Want to make your vendor scorecard creation process more efficient? Factor can automate many of the tasks mentioned in this article, allowing you to focus on other important aspects of your business. Our platform automatically collects key metrics including update request response rates so you can easily identify your most engaged and responsive vendors. Click here to explore how Factor can help you automate vendor scorecard creation, purchase order tracking, and help your team collaborate with their suppliers in real-time.