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March 2011

Dr. George Harris

Developing a Supplier Scorecard: Devising Aspects of Supplier Performance

Dr. George L. Harris by
DBA, CPM, CPCM, President, Calyptus Group

Organizations have attempted to measure supplier performance in a number of ways as a part of their quality management program, based on customer requests or as part of the effort to manage supply chain risk. Supplier measurement systems have been in place since the mid 1970s with varying degrees of success, both in the product and service industries. Typically, suppliers are provided measures and targets as performance indicators, data is collected on performance (and is published), and the buyer works with the suppliers to evaluate shortfalls in performance and to develop corrective actions. In some rare cases, the supplier receives incentives and rewards such as being able to provide additional products or services or being designed into future products or services by the buyer. The Balanced Scorecard method has created a significant level of interest and compliance in determining how a specific organization is performing and a supplier measurement system is the underlying way to measure supply chain performance.

This article addresses the best practices in the creation and management of supplier scorecards with the goal of further improving supplier performance. In manufacturing industries, supplier value added represents up to 70 percent of the costs of a final product. In service industries, the value added may only represent about 30-40 percent. In any event, the performance of suppliers greatly affects the cost, quality, delivery and responsiveness of the buyer's organization in the market.

Most large organizations have some sort of supplier performance management system. Companies such as Bank of America and Hewlett Packard have long standing and relevant systems. Most systems are a combination of scorecard or published measurements as well as the system to track and provide data on performance. There have been great strides made over the last 10 years in standalone and integrated systems to measure supplier performance. The more progressive organizations have the supplier performance system tracking to Six Sigma or Lean Management, or underlying ISO or TQM initiatives within the firm.

Yet there is a sense that perhaps the methods and approaches that have been established are not providing the level of improvement and value as expected. There are various elements that influence this perception.

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