09 Feb The Importance of Using Supplier Report Cards
Regularly tracking supplier performance is critical to the success of your business. One way of tracking is a supplier report card. When used effectively, supplier report cards can help maintain a healthy supply chain and help move the success needle for both you and your suppliers.
On the flip side, not putting a supplier report card in place can have adverse effects. An MIT study reports that 77% of companies surveyed say two out of the top three major procurement risk factors relate to suppliers: 1) depending too much on the supplier; and 2) supplier quality problems.
Report Card Benefits
Cost Avoidance: Lack of timely and accurate supplier information can have a huge impact on costs. Via your report card, you can track supplier performance on cost-related key performance indicators. And making supplier data available to all helps staff better interact with your suppliers and reduce costs.
Visibility: Your report card gives procurement visibility into your suppliers’ ability to meet your organization’s requirements. With performance data in hand, procurement can make data-based decisions regarding where to direct spend.
Communication/Collaboration: The data you collect and share helps start conversations and offers the supplier a view of what’s important to your business. The benefits are continuous improvement, the development of realistic contracts based on past performance, the formation of common goals, and the establishment of trust. Keep the relationship collaborative. Share the report card results on a regular basis as well as your business objectives and performance data. This can help suppliers adjust to meet your ever-changing business needs. Consider your suppliers as part of the team. Communicate often and openly, and not just via email. Pick up the phone or meet in person.
Employee Engagement: Send a survey asking employees to answer questions and rate suppliers. For instance, how many corrective actions have you had to issue a supplier? How many products did you have to scrap or return because the supplier failed to meet specifications? How many customer complaints have you received due to a bad part or service? This allows your staff to feel they’re part of the solution in building measurements and reports that help you maximize efficiency.
Puts a Mechanism in Place for Enacting Change: Once your supplier report card is up and running, you, of course, must evaluate the data collected to bring about change. This helps you think about who should be in charge of doing that (perhaps one person or a team, depending on resources) and create a workflow for acting upon good (and bad) results.
Protects Your Good Reputation: Some companies have had their reputations tarnished because of supplier actions. By properly utilizing your supplier report card, you can make corrective actions early and keep your reputation strong.
Tracking: With a good process in place for tracking important metrics, you get clear numbers that help you target and measure improvements and put measures in place to reduce or eliminate risk. You can track:
- Quality: Are there failures out of the box or returns from customers?
- Delivery: On-time delivery, missed shipments, and lead times.
- Costs: Are they in line with expectations?
- Support: Technical and order support.
- Inventory Management: Do they maintain some inventory on hand for you?
An Aberdeen study reported that “Companies with formal performance measurement programs were able to improve supplier performance by 26.6%, on average.” Those areas of improvement come from quality, on-time delivery, price, total cost, contract compliance, lead times, and overall responsiveness. And the improvements result in direct savings or better responsiveness and service to customers.
The relationship with your supplier is a business partnership, and if both players are working to make the partnership a success, it will certainly get there. Over the course of time, having a win-win relationship with your suppliers will offer you a competitive advantage.
If you’re interested in finding out more about an automated supplier rating customization, contact us today. We can help!