Supplier Performance Ratings - Scorecards, Rankings,

and Awarding Business

Summary
Akin to No Man is an Island to himself, Companies alone do not compete.Supply Chains
Compete. Thus, who has the best Supply Chain has a sustainable strength (competitive
advantage). To effectively manage a well performing Supply Chain, Leadership should utilize a
Scorecard and Ranking approach that has a composite weighting scheme to provide a Balanced
perspective. This can be used to award business based on evaluating overall past performance
and promised (quoted) performance.
Both objective and subjective data must be collected and analyzed to determine if corrective
action/improvements are needed. We perform Performance Reviews on our employees. Need to
do the same with our Suppliers/Partners (at least the key/strategic/focus ones).
From the Suppliers perspective, receiving feedback on their performance and being able to
benchmark themselves with the other suppliers fosters a competitive rivalry to better satisfy the
Voice of the Customer (VOC) in order to be awarded a larger portion of the Customers Total
Available Market (TAM).
This paper covers an approach myself and others have facilitated at various companies during
the last 20 years to provide feedback in the form of Supplier Scorecards, Rankings, and how to
utilize it to award business and drive improvements. This paper shows an example of a
Scorecard and Rankings Report. More extensive examples that include color coding and trend
charts will be shared at the presentation.

Keywords
Lean in an inclusive environment
Voice of the Customer
Balanced Supplier Scorecards
Balanced Supplier Rankings
Award Business on best perceived value
Share in the pleasure and share in the pain

Introduction
I have been engaged in supplier quality for 25 years in a variety of industries (i.e. Electronics,
Aerospace, Defense, Telecommunications, Heavy Machining, and Entertainment). All of my

employers provided feedback to their suppliers in one form or another. Some recognized the
need for formal periodic feedback on specific and overall performance to their strategic/key
suppliers.
When the opportunities arose to develop and implement these supplier performance systems, I
was part of a cross-functional team to facilitate this initiative which yielded desired
improvements. The below examples are hybrids based on approaches used some of my
employers and other Fortune 500 companies.

Scorecard Development see example and below notes

Lead in an inclusive environment by involving all key stakeholder groups within your
company who provide support and/or are impacted by the suppliers to be rated. Examples of
groups are Engineering, Purchasing, Receiving, Quality, Manufacturing, and Accounting.
Have Management representatives from each of the Stakeholder Groups on the Team along
with representation from the Suppliers.
Develop a shared mindset on the vision, mission, and strategy. An example of a mission
from a procurement perspective could be The Right Parts, at the Right Time, at the Right
Cost (total cost not just purchased price).
Narrow your focus to rating the suppliers that are strategic/key to your company and
determine how often they will be rated (i.e. quarterly). This will enable the Team to
concentrate their efforts on the vital few.
Similar to a Balanced Scorecard, determine the strategic Focus Areas and the associated Key
Performance Indicators (KPIs). Note: The example ScoreCards shows this as Elements.
o Examples of Focus Areas can be Quality, Delivery, Cost, etc.
o Examples of KPIs for the Focus Areas such as Quality can be Material Acceptance,
Responsiveness to Requests, etc.
Assign a Composite Weighting Scheme to the Focus Areas and KPIs.
Suggest adopting a possible overall total score of 100 points utilizing a Likert Scale with
Ratings of 1-5 with a total weighting of 20 to keep the calculations simple.
Rank the Focus Areas by importance first and determine how many points each Focus Area
has. For example, if Quality is the most important Focus Area, then it should have more
points than the other Areas.
Upon agreeing on how many total possible points each Focus Area has (shown in the
Element Subtotal section), divide the possible total points for each Area by the possible
highest rating (i.e. 5) to determine the total weight factor for that Area. For example, if
Quality had a total possible score of 60 points, then 60/5 = Weight Factor of 12. Or 30 points
= WF of 6.
Have the Team members distribute the weight factor amongst the KPIs within the Focus
Areas they represent and determine how the ratings for the KPIs will be determined. It is
important that they take ownership on this as they are communicating the relative importance
of the individual KPIs which is the Voice of the Customer (VOC).
Present the Scorecard Template with Senior Management and the Suppliers to be rated if
they have not already been involved in its development. Negotiate any desired changes and
obtain approval from Management and acknowledgement from the Suppliers.

Have the Team members provide ratings for the KPIs associated with their Focus Areas
along with supporting data for the supplier which can be objective (preferred) or subjective
for the period of performance.
Multiple the Ratings with the allocated Weight Factor to determine the Score (points).
Determine the Subtotal for each Focus Area
Determine the Total Overall Score.
Determine the Total Overall Rating which is the Total Earned Score/Total Weight Factor.
For example, if the Total Earned Score was 80 points (out of 100 possible).
80/20 = 4
4 = Above Average Rating based on the Likert Scale
Add Comments to support the Ratings
o Have the Team members provide brief summary comments on how they established the
ratings on the individual KPIs.
o Provide constructive feedback (recognize and reinforce).
o Comment if improvement has been made since the last review period.
o Include it in the comments section next to the KPIs.
Recommended Adopt a descriptive label and color coding scheme for the Likert Ratings
such as:
o Rating of 1 = 0% 39% (Unacceptable) Red Background
o Rating of 2 = 40% 59% (Needs Improvement)- Tan Background
o Rating of 3 = 60%-79% (Average) Yellow Background
o Rating of 4 = 80% 89% (Above Average) Green Background
o Rating of 5 = 90% - 100% (Excellent)- Blue Background
Note: The examples in this article had the colors removed to comply with the QMD
Conference Paper Submittal Guidelines. Use of the colors will help ensure that the
Management of your company and your suppliers will visually focus on those areas that
are doing well and those that are not. My presentation at the QMD will show color
examples.
Review the draft Scorecard(s) as a Team to achieve concurrence on the Ratings.
o Each Team member needs to be prepared to present and support (defend) the Ratings and
comments they provided.
o It should not be the responsibility of the Facilitator (i.e. You QA) to cover for the entire
Team.

Supplier Rankings Development see example and below notes

If you have more than 1 (one) strategic/key Supplier for a type of product/service, you should
rank them based on performance, share it within your company and with the ranked
suppliers.
The Rankings approach is very powerful as it provides Benchmarking information within
your company and to your suppliers.
Ideally, your better performing suppliers should be supplying a major portion of the awarded
business.
o If not, identify, elevate, and remove the constraints.

o Need to make any constraints very visible to Management and encourage them to explain
internally and to the Suppliers why performance is not being awarded (if that is the case)
and what actions are required.
Sharing the rankings with your Suppliers provides them with Customer feedback that
includes competitive Benchmarking information.
o They can use this to assess their Strengths, Weaknesses, Opportunities, and Threats
(SWOT Analysis) along with information on how much of the Total Available Market
(TAM) was awarded to them.
o This will foster a competitive rivalry and provide for a level playing field since the
Rankings are based on the same Scorecard Template for that type of Supplier.
If desired, you can remove the Suppliers names from the Rankings you distribute to the
Suppliers. They can still determine which Ranking is theirs based on their own Scorecard
and you should inform them of their Ranking. They probably know who their competitors
are but will not know which competitor received which specific ranking. Either way, it is
important that the Suppliers know how they compare to the competition.

Presenting the Scorecards and Rankings

As stated earlier, obtain concurrence from the Leadership of the key stakeholder groups
within your company on the developed Scorecards and Rankings for the rated Suppliers
covering the period of performance.
Schedule meetings with the rated suppliers. Senior Management representatives from the
key stakeholder groups and Management representatives of the Supplier are to attend.
Provide the Supplier a copy of their Scorecard, Ranking, and supporting data before the
meeting so they can be prepared to discuss it.
During the meeting, have either one Senior Management Representative present the
information or have a Management Representative for each Focus Area present their portion.
Encourage the Suppliers Leadership to think of this customer satisfaction feedback for more
than Corrective Action and Preventative Action (CAPA) purposes. They can use it for
Benchmarking and providing input for SWOT Analysis. Tell them why their performance
(success) is important for your success. Is a mutually beneficial relationship.
Start at the top of the Score Card and cover each Focus Area and its KPIs.
o Cover the Rating, the Weight Factor (relative importance), the Score, along with the
comments.
o Give recognition on improvements and high ratings.
o Discuss areas that require the Supplier to provide a written plan of action to improve their
performance.
Allow the Suppliers to challenge the ratings only if they have supporting data.
o If the dispute is on a subjective rating where data may be difficult to obtain, inform the
Supplier that they need to work on correcting/improving the perceived performance with
the parties reporting it.
o If they have supporting data warranting a change, then agree to change the ratings and
rankings as needed and redistribute as the final version.
Discuss what lies ahead for the next review period including collaborating on what each
party (customer and supplier) needs to do from a win-win perspective.

Use the Scorecards and Rankings as input for evaluating bids and awarding business. Share
with the Supplier how this is going to be used. This is a very powerful incentive (share in the
pleasure or share in the pain). An example is shown below.

Awarding Business

Ideally, business should be awarded to Suppliers that have the best proven capability to meet
the Customers needs. Below is an approach to award business to Suppliers based on their
past performance (actual performance) and quotations (promised performance).
Collaborate with Purchasing and Accounting to develop a model for evaluating quotations
from Ranked Suppliers which factors in past performance. If your information systems does
not capture all of the costs of poor quality from the supplier to determine the Total Costs of
Procurement, you can implement this formula to predict it.
Perceived Cost = Quoted Price / Past Performance
Past performance is a good predictor of future performance. Use the Suppliers earned
overall performance Score as a Percentage in decimals for the last period (or rolling 4 period
average) in evaluating quotations from the Supplier during the next review period.
Below is an example of why Supplier A would be awarded the order based on best perceived
value.
Supplier C has the lowest quoted price but their past performance can result in a higher
perceived total cost.
Supplier
Quoted Price
Past Performance
Perceived Cost

A
$100
100 (1.00)
$100/1.00 = $100

B
$100
90 (.90)
$100/.90 = $111.11

C
$90
80 (.80)
$90/.80 = $112.50

This provides the Supplier with an incentive to win business by sustaining or improving their
performance to provide the best perceived value.
If the Supplier does not want to compete based on performance, they will only be able to
compete by lowering their prices (cutting into their profit margins). For Supplier C to beat
Supplier A, their quoted price would have been lower than $80. This should provide them
with an incentive to perform or eventually become disqualified. Share in the Pleasure and/or
Share in the Pain.

Conclusion

Maintain a Constancy of Purpose