A vendor scorecard allows businesses to objectively evaluate their suppliers. Use this guide to create an effective scorecard program quickly.
Written by: Mark Saltarelli Last Updated: April 17, 2024
Evaluating vendors on performance can be a difficult task. Companies often rely on the subjective experience of stakeholders to determine whether vendors are providing good value, sufficient service, and quality products. But subjective experiences may cloud the objective truth about a vendor’s performance.
When deciding which vendors to use and how to negotiate with them, it’s essential to understand their reliability, cost-effectiveness, customer service, turnaround times, and the quality of materials they offer. Without objective data, decision-makers might choose based on familiarity or ease of implementation rather than considering the bigger picture.
Vendor scorecards offer a solution to the challenges of objectively evaluating vendors. With a vendor scorecard, users document the quantifiable aspects of working with a supplier. This data is invaluable in determining which vendors should earn one’s business, how to deal with current vendor issues, and how to improve supplier relationships for the best mutual outcomes.
This article covers everything to know when building an effective vendor scorecard program. It addresses all essential aspects of building a launching a program, including:
A vendor scorecard is a vendor management tool used to rate the performance of your vendor partners. The data collected in the scorecard is instrumental for evaluating the effectiveness of existing vendors and identifying areas needing improvement. Users can also use this data to inform decisions on potential partnerships.
Some common metrics tracked using vendor scorecards include the following:
The criteria used to evaluate your vendors are derived from the objectives and business goals of your company. For instance, a company aiming for better contract compliance uses criteria such as the percentage of compliant transactions, security profiles, and exception rates to determine vendor scores.
Vendor scorecards contain objective criteria for assessing vendor performance data against predetermined standards. Completing a vendor scorecard yields a numerical score based on actual performance. This objective measure allows procurement professionals to make better decisions when selecting, renewing, or managing vendor relationships.
The scorecard should include a variety of criteria that align with the company’s specific objectives. Defining these standards in advance is essential to ensure accurate evaluations of each vendor. Vendors who achieve the highest scores effectively adhere to measured policies and procedures, such as offering high-quality products, meeting pricing requirements, or demonstrating ethical business practices.
Procurement professionals use vendor scores to make informed decisions when selecting vendors for contracts or projects. The information obtained from the scorecard helps them compare potential vendors and determine which is most suitable for the job.
Establishing criteria for vendor performance is essential for maintaining a solid procurement practice. A vendor scorecard provides a uniform, easy-to-review way to examine these criteria and make decisions.
Using a vendor scorecard ensures organizations establish clear and transparent expectations for vendors while accurately measuring their performance over time. Scorecard-based vendor analysis also provides a consistent way to evaluate different vendors so that no single vendor is selected subjectively over other (potentially more competitive) options. This objective data helps eliminate bias and confirms that the best vendor receives the job.
Using scorecards offers organizations a range of benefits, including:
Increased objectivity: Make decisions based on facts as well as experience. Many buyers and procurement professionals build personal relationships with vendor contacts over time. These relationships may yield better collaboration and stronger negotiations. But data should back up every vendor relationship. A data-informed vendor review ensures your experience matches the measurable outcomes. The combination of data collection and relationship-building may yield even better results.
Reduced spending: Build a cost-focused vendor scorecard to reveal data on the cost efficiency of your vendor relationships. This allows you to compare the cost performance of your current vendors to alternatives and find the best deal for your company.
Improved vendor selection: Select new vendors using data on expected performance. Vendor scorecards enable you to make informed decisions based on data-driven metrics and benchmarking. They provide objective and measurable information on historical vendor experience to help you extrapolate future performance potential.
Stronger supplier relationships: Build meaningful vendor partnerships with actionable insights by using a vendor scorecard. With a clear view of each vendor, you’ll have the necessary tools to make future partnership decisions. This allows you to refine your vendor list over time.
Maintained contract performance: Analyze historical data on vendor contract performance to compare pricing, terms, and outcomes year over year. These data points enable corrective action and aid in negotiations.
Reduced risk: Use a balanced scorecard to assess the performance of vendors and identify areas of weak legal or regulatory compliance that could expose you to potential risk. Using the scorecard to track compliance performance over time helps organizations identify areas where risk is increasing and take steps to address it. You can also use the scorecard to note certifications or security profiles that translate to more secure transactions.
Improved sourcing: Establish strong metrics and expectations for vendors, and strategic sourcing outcomes naturally improve. The combination of initial due diligence, regular reporting, and access to data for negotiation and decision-making clarifies vendor decisions and incentivizes vendors to keep contract performance high.
