The supplier is a third-party vendor that provides goods, materials, and services to your organization. It seems obvious to choose the suppliers that are cost-efficient and easy to work with – however, with the growth of technology and global economies of scale, organizations are spoiled by having so many suppliers available in the market. It can be hard to choose the best supplier to fit your needs, and at the same time, one supplier may not always fit the bill.

While supplier relationship management aims to plan and manage your relations with your supplier, tracking the performance of the supplier against a set of key performance indicators and metrics helps to measure their performance and keep only the best suppliers in your supplier base. A supplier scorecard can help you achieve these objectives in a clean manner.

What is a supplier scorecard?

A supplier scorecard is the result of an analysis of the performance of the supplier based on a set of key performance indicators and metrics.

Steps for building a supplier scorecard

To build an ideal supplier scorecard, you need to first focus on the purpose of the scorecard by recognizing and determining the right measures and metrics. Once you decide on these measures, the next step is to identify the right data sources. Another critical step is to update the data frequently because interactions and transactions with the supplier change often.

Metrics for supplier performance analysis

Let’s take a look at some of the key categories and associated metrics that can be used to assess supplier performance.

Quality

This is an important category as it is used to determine the quality of goods and services provided by the supplier, as well as the supplier’s delivery performance and accuracy. Some key metrics for this category can include non-conformance and invoice errors.

• Non-conformance – This occurs when the product or the service does not meet the requirements or specifications. This can also happen when the wrong product is supplied, when an order is missing a packing slip, or when the order is delivered to the wrong location.
• Invoice errors – This refers to errors during the invoicing process. Some of the most common invoice errors are when the supplier tries to charge the wrong item price, bills for the wrong quantity, or charges freight which is not contractually allowed. It could also be an incorrect purchase order, shipping number, billing address, date, and so on.

Cost and pricing

These are significant aspects of supplier performance. As an organization, we always want to associate with a supplier who provides the lowest cost for goods. Some of the metrics for this category are:

• Purchase price variance – This is the difference between the actual purchase price of an item and the standard purchase price of the same item.
• Cost savings & substitution suggestions – The supplier can suggest alternate lower priced goods which meet the same purpose.
• Competitive comparison – How many bids has the supplier won when competing against suppliers in the same category?
• Continuous improvement suggestions – The continuous improvement suggestions from the supplier are another indicator of their willingness to provide goods at a reasonable price.

Delivery

This is another quantitative category to assess the delivery time and thereby the service of the supplier.

• Lead time – The lead time is the time it takes to deliver a good or service, and can be obtained from the item setup within procure to pay.
• On-time delivery – This is the ratio of customer orders shipped on or before the promised lead time or the requested delivery date vs. the total orders.

Service

The service level provided by the supplier decides the future of the relationship with the supplier.

• Response time – This is the time taken by the supplier to respond to a request for quote or an urgent purchase order.
• Invoice timeliness – This is the time taken for invoicing to be completed by the supplier. Stock levels – This is rated by the supplier’s ability to stock product to reduce lead times.

Supplier relationship

This is a qualitative category to assess the relationship of the internal staff of the organization with the supplier. Some factors affecting this category include good pricing, quality products, and fast turnaround times.

• Internal feedback – Based on the interactions of the internal staff of the organization and the supplier, a feedback survey can be solicited from the employees about the supplier.

Supplier risk assessment

This is a qualitative category to assess the financial health and any legal/bankruptcy claims of the supplier. It is important to know the risk associated with the supplier as it can affect delivery of critical goods and services if the supplier runs into financial difficulties.

Compliance and certifications

The suppliers are expected to be regulatory compliant and also up-to-date with their certifications. An organization should associate with suppliers that are compliant and also certified for the business.

Corporate social responsibility and diversity

The last category to assess the supplier performance is to gauge the corporate social responsibility and diversity goals of the supplier.

This is by no means an exhaustive list of what you can include on your supplier scorecard. The list above are just recommendations that we have found to be helpful and beneficial when analyzing supplier performance. A few other valuable items you could analyze could also be the lowest cost provided by the supplier, their wins in request for quotes, and cost reduction suggestions from the supplier. As mentioned earlier, when building your supplier scorecard, you need to determine and select the KPIs that are most important to your organization.

A supplier scorecard is a great way to assess the performance of the supplier. Here at Xeeva, we have a defined set of KPIs and metrics that we believe best evaluate the performance of a supplier. The use of a supplier scorecard is a beneficial way to find and retain the best suppliers in your supplier base. It also helps to reward good suppliers and maintain long-term strategic relationships with them.

To learn more about Xeeva’s supplier scorecard and the KPIs and metrics that our solutions can surface, check out Xeeva Spend Analytics.