Designing a Supplier Scorecard that Works | Red Arrow Logistics Transportation and Freight Forwarding

Designing a Supplier Scorecard that Works

Perhaps the most frequently repeated truism in logistics and supply chain management is that it’s all about relationships, and the supplier scorecard may be the best way to judge the health of those relationships. Designing a scorecard that accurately reflects your business’ needs and priorities is the most effective way to clarify your own expectations, communicate any frustrations with suppliers, and objectively determine the suppliers you want to do business with.

A well-designed scorecard is the difference between having raw data and actionable insights. The key to achieving this is by differentiating between metrics (of which you may have hundreds) and key process indicators (KPIs), those crucial metrics that define a healthy supplier relationship for your business. The best starting point in determining your KPIs might be to imagine what the perfect supplier would be for you. For a carrier, these may be on time pickups and deliveries, tender acceptance, and billing accuracy. Yet in defining these parameters, it’s important to resist oversimplification. For example, nearly every business would list cost as a crucial KPI, but simply comparing dollar amounts in pricing may not tell the whole story in rating suppliers. If one supplier charges less but consistently delivers late or damaged goods, the actual cost of working with them, both in terms of materials and time spent, may be much higher than a competitor with a higher initial price, but more reliable operations. Lead time–the time between when an order is placed and when it is delivered–is another essential metric for nearly every business, but again, one must take care not to unfairly hurt a supplier’s score for circumstances outside their control or for purposefully delayed orders.

Customers specifically measuring a carrier’s performance must take into consideration their own contributions to the carrier’s scorecard rating. Product availability, realistic appointment schedules, and time for loading and unloading must be taken into consideration. Time and effort go into booking and planning routes, so last-minute changes, cancellations or delays impact the relationship brokers have with carriers and with the carrier’s downstream trip plan. If you’re unhappy with frequent rescheduling, rather than placing all blame with the carrier, investigate the root causes, which may be a third-party vendor’s loading schedule. Be ready to not simply make assumptions based on your data, but ask questions, and listen to the answers. Be sure that you are in a collaborative environment and that you truly want to work with your suppliers.

The quality of a scorecard’s insights is entirely dependent on the quality of the data itself, so it’s important not to treat data entry as an afterthought, to be haphazardly recorded at the end of every quarter or year. When possible, use the data you already collect, and attempt to assign it objective, numeric values, even for qualities that may seem inherently subjective. For example, while “ease of communication” may be difficult to measure, “email response time” is not.

There are numerous scorecard templates available, and nearly all of them assign suppliers letter grades or color-coded designations to differentiate between acceptable and unacceptable performance. Such easily understandable designations are useful not only for your business, but in sharing scorecard scores with your suppliers. This is the final and most critical application for your scorecards: using them not just as in-house tools but as a means to proactively improve your relationships with suppliers. A good supplier will be grateful for constructive feedback, especially if they are encouraged to provide feedback of their own. When implementing a scorecard program, the onus is on your business to explain the reasons for it and the goals you are trying to achieve, and your rollout should include not just the threat of punishment, but incentives for vendors consistently performing at an A level.