For procurement professionals, the job isn’t over when the contract is signed. In fact, it’s really just begun. Building vendor relationships is a key skill and managing vendor performance is crucial. The supplier scorecard provides a way to bring organization and objectivity to your vendor evaluation. Then, you can leverage the results to increase vendor value, improve performance and optimize your procurement strategy.
Supplier scorecards enable businesses to quantify, track and manage a vendor’s performance. However, if you’re looking for information on how to compare vendors and score RFx documents, check out this guide: The complete RFP scoring guide.
In this blog post, we’ll explore everything you need to know about supplier scorecards. First, we’ll establish the definition, purpose and use of supplier scorecards. Then, you’ll discover a step-by-step guide as well as supplier scorecard templates to help you create your own. Finally, I’ll offer a few quick tips and vendor scorecard best practices.
Table of Contents
What is a supplier scorecard?
A supplier scorecard is a strategic tool used by businesses to assess and track the performance of their vendors based on predefined metrics. It evaluates key aspects such as product quality, delivery timeliness, cost efficiency, and customer service, offering a comprehensive overview of a vendor’s effectiveness. This performance evaluation framework enables organizations to make informed decisions, foster continuous improvement, and strengthen supplier relationships.
What is the purpose of a supplier scorecard?
While there are a number of benefits associated with using supplier scorecards, the primary goal is to monitor and manage vendor performance. Consequently, using scorecards is a crucial element of the vendor evaluation process and vendor relationship management.
Scorecards are a key tool for vendor management. The data gathered from the document enables organizations to maximize return on investment (ROI) and minimize risk. Further, tracking vendor performance improves outcomes by enabling businesses to:
- Communicate expectations
- Ensure buyers and vendors are working to achieve the same goals
- Calculate total procurement cost of a product or service
- Identify any gaps or supply chain risks that can be mitigated proactively
- Increase vendor evaluation consistency across categories
When is a supplier scorecard used in the procurement process?
After the request for proposal (RFP) process, final vendor selection and contracting, the procurement team onboards the new vendor. Ideally, the onboarding agenda includes an overview of the vendor evaluation process.
It’s a good idea to establish and agree upon vendor performance metrics early in your relationship. Ideally, you can define these vendor KPIs while the details of your vendor negotiations and contract are still fresh in mind.
Vendor performance evaluation cadence
After onboarding, most businesses conduct vendor evaluations on a quarterly basis. This generally includes the basic supplier scorecard and due diligence questionnaire (DDQ).
Then, more detailed annual review compiles and explores data to find any insights or opportunities to optimize the relationship. Naturally, this process is just one element of a well-rounded communication and collaboration approach.
Who uses the scorecard?
Generally, strategic sourcing managers and procurement managers are the primary administrators of the supplier scorecard. However, stakeholders from other areas of the business may contribute to the process. For instance, you may ask a department head to provide feedback and scores for a software service their team uses.
In addition, the scorecards are used to report vendor value, measure procurement KPIs and monitor overall supply chain health. As such, executives within the business may use them as well.
How to create a supplier scorecard
The construction of your supplier scorecard will depend on the type of engagement. However, it’s important to make sure that your scorecard template format is versatile enough to be used for most vendors. That way, you can compare performance across multiple categories and avoid keeping track of dozens of different templates.
Throughout the process, keep it as simple as possible. Remember, each scorecard represents an investment of time and effort, both for you and your stakeholders. Ideally, you want to find the perfect balance so the scorecard is easy and quick to complete but also gives an accurate picture of the supplier performance. For most, the scorecard is a way to optimize the relationship, not overhaul it completely.
3 steps to creating your own vendor scorecard
1. Gather guiding documents
First, collect your original RFP discovery documents, the vendor’s RFP response and the contract. Put the research that went into these documents to good use in guiding your evaluation.
If you used weighted scoring for your RFP, look at which factors were given the most importance. Then, explore the contract to see if it establishes any service level agreements (SLAs). Make a list of these items as you find them.
2. Determine performance categories and priorities
Using the list you’ve just created, consider which factors determine the success of your project. For each item, ask yourself: If the vendor doesn’t perform this function well, will it cause problems? Does this impact the larger business? Is there a process that might mitigate this risk?
After answering these questions, select the most important factors and group them together by category. Generally, a supplier scorecard includes at least three categories: quality, delivery and service. Within each of these groupings, try to limit your evaluation template to three measurable items to keep things simple.
3. Apply your grading scale
Now that you know what you’re going to track, you have to decide how to grade. If you’re just starting with vendor evaluations, you may consider focusing on yes or no questions. Were deliveries on time? Were they accurate? Is the quality acceptable?
Sometimes, questions are more nuanced. For instance, were interactions with the vendor professional and courteous? In this case, a scale from one to five may be a more accurate reflection of the relationship.
Regardless of how you choose to score vendors, it’s important to define what constitutes a good score and what would earn a bad score. These definitions help to ensure that each reviewer rates their interactions using the same criteria.
Supplier scorecard templates and examples
Procurement publication Supply Chain Quarterly’s article on supplier scorecards provides examples of categories and metrics. In addition, the publication provides a helpful vendor scorecard example that focuses on how vendors align with business goals.
This presentation from the University of California explores sourcing analytics, including how to create and use vendor scorecards. In addition, the document offers definitions, guidelines and examples.
Northrop Grumman uses a highly sophisticated supplier scorecard. Consequently, they provide a helpful guide with everything a vendor or evaluator needs to know. This guide provides a rubric for scoring for each evaluated category and sub-category.
Vendor scorecard best practices
Start simple and develop your scorecard over time
I’ve mentioned it before in this article, but it bears repeating: if you are implementing a new vendor evaluation process, keep simple. Certainly, it’s easy to get overwhelmed by the amount of data that could be collected and analyzed. However, it’s better to start small and build rather than taking on too much early and alienating participants from the process.
Be transparent with your vendor contacts
Vendor management is much more than simply tracking metrics, it should be about growing a partnership and building a relationship. So, be as clear as possible with your vendors. Make sure they understand how they are being graded. Further, explain what steps you will take if your expectations aren’t met.
Scale according to the vendor’s importance
Don’t make extra work for yourself. The supplier who provides the office coffee doesn’t need to be measured by the same standards as the one who delivers a key component to your product. Certainly both are important, but a supplier scorecard probably isn’t necessary for all of your contacts.
Ensure data accuracy
Unfortunately, supplier scorecards are only as reliable as the data that’s entered into them. As procurement continues to undergo digital transformation, the adoption of tools like vendor management systems, RFP software and e-procurement grows. These systems integrate with one another and deliver real-time vendor data and insights. While there is no doubt that this technology will change the way procurement operates in the future, most businesses aren’t quite there yet.
To prepare for the future, explore insights and advice from procurement experts in the Future of RFPs ebook.
Data entry in your supplier scorecards should be done regularly. If only performed quarterly, immediately before the report is due, the results will rely on memory. Therefore, it will likely be less accurate and subsequently less useful.
Engage internal stakeholders
Often, you the buyer or procurement professional, aren’t the person within the business that engages with the vendor most frequently. An article from Supply Chain Management Review puts it this way:
“Scorecards should not ignore the voices of internal customers. Accordingly, you may not have an accurate picture of how a vendor is performing. Managers at manufacturing plants, warehouses, distribution centers, and logistics hubs are often perfectly positioned to evaluate suppliers’ day-to-day performance.”
Indeed, department heads, system users and other internal stakeholders regularly interact with vendors. So, it makes sense to bring them into the process and engage to contribute to supplier scorecards.
Make room for more info
Supplier relationships have a natural eb and flow. For example, if a vendor review cycle immediately follows a software enhancement release or conversely an outage, the scores may inaccurately represent the overall vendor experience.
While it’s important to provide a candid review, context for a score is crucial. Accordingly, it can helpful to include an area for notes and comments from stakeholders that offer additional insights to guide conversations with the vendor.
Seek feedback and collaboration
Once you’ve completed your vendor scorecard, schedule a conversation with your contact. Admittedly, it’s time consuming to meet with each supplier, but for the exercise to be truly useful, it must be collaborative.
A quick 15-minute meeting will enable you to distill the results including highlights and opportunities for improvement. They’ll likely have some questions — which is where those stakeholder comments come in handy.
It’s also important to be open to feedback from the vendor. Would they be able to improve their performance if they had more information? Are they often waiting on input from your business? Or, are they routinely asked to perform last-minute changes or reprioritize? Take this time to identify improvements your team can make as well.
In short, like any relationship, communication is key.