Most companies when asked if they had a supplier performance measurement system in place would answer "Of course we do!" After all, measuring supplier performance is part of a Quality Management System. You would most likely not get such an affirmative answer if you asked if that measurement system is delivering positive results. The problem with most supplier measurement systems is that they:
- They don't measure and assign weight based on what is important to the organization.
- They over rely on subjective rather than objective measurements.
- They frequently are frequently managed by departments outside of procurement and not responsible for managing the suppliers.
- The data is not cleaned or reviewed so that it is accurate and meaningful.
- Communication and corrective action loops are not robust enough to drive continuous improvement.
They don't measure and assign weight based on what is important to the organization.
The key to a successful scorecard program is to align the performance measures with those of your organization. For a manufacturing operation, there are generally four key areas to measure: Quality (usually DPM), On-Time Delivery, Cost Control / Reduction, and Service Level (which can encompass several smaller metrics important to the operation). Most organizations will automatically assign either an equal weight to all or a very high weight to quality. It is important to recognize the current state of performance and weight accordingly. For example, if the majority of suppliers are providing quality parts with a minimum of issues but are frequently missing scheduled deliveries, than OTD should be given a higher weight than quality. That will get all kinds of push back from the quality team, but the idea is to put a spotlight on what needs to be improved and recognize the suppliers that are meeting the goal. Quality will always maintain the ability to disqualify a supplier who is unable to make an acceptable part regardless of how well they perform on OTD or how much less expensively they can provide the part. Finally, the scoring criteria and assigned weights can and should be adjusted on an annual basis to reflect new goals or improved performance.
They over rely on subjective rather than objective measurements.
The use of objective measurements maintains a level playing field that prevents known or hidden biases from impacting the scorecard process. Suppliers value fairness. Should they feel that the process is unfair they are less likely to work with you to improve on their performance.
They frequently are frequently managed by departments outside of procurement and not responsible for managing the suppliers.
Many if not most scorecard processes are handled within the quality department. There is nothing inherently wrong with that, but the scorecard process should be viewed as a strategic process and therefore managed by Procurement in cooperation with quality. A good scorecard will contain 3 or more elements other than a direct quality measurement. Should the department that owns 1 of the measurements drive the process or should the one that owns 3 drive the process? The data is not cleaned or reviewed so that it is accurate and meaningful.
The data is not cleaned or reviewed so that it is accurate and meaningful.
This is generally a major issue for many companies. Many scorecards are automated processes generated from an ERP system. For example, if system due dates reflect a suppliers EX-Works ship date a supplier will never be on time if the posted receipt date is used to calculate OTD. Even if a window is put in to account for standard transport time, are suppliers from different regions given different levels of acceptable delivery tolerances? A company that is initiating a new scorecard process with suppliers should consider the first several periods "beta" periods. Acknowledging that process is raw and that feedback from suppliers is valued to help improve the process will help involve the suppliers and identify any systemic data issues.
Communication and corrective action loops are not robust enough to drive continuous improvement.
Ultimately, the level of success achieved in the scorecard process comes down to how the scorecards are provided to the suppliers and what actions come out of the process. A system generated email with no follow up will not get much attention from most suppliers. Regularly scheduled face-to-face business reviews where the scorecards are reviewed and corrective actions are captured will lead to the best results. A best practice is to schedule annual or semi-annual face-to-face reviews and supplement those with more frequent video conferences to best manage time and travel costs. The minimum expectation with a supplier should be that they show an acceptable level of improvement quarter over quarter with a plan to meet the defined goals. Disqualifying a supplier who is short of the goal but is making strong continuous improvement strides may exclude a supplier that can be a top performer in the future. The most valuable suppliers are often those who are willing to do what is necessary to meet your expectations.
Implementing and managing a robust supplier performance measurement system is one of the most important strategic initiatives a Procurement team can do. Quite often the supplier that can help you the most in the future is already part of your base. The effort to work with existing suppliers and improve their performance is often less than the effort to source and qualify new sources. At the very least it will better identify the areas where your Strategic Sourcing efforts can be best applied.
If you are having problems getting results from your scorecard program, contact me for information on implementing a program for you organization.
Email: rgoyette@riwgo.com
