What are Supplier Scorecards (And Why Procurement Should Use Them)?

Can your procurement team effectively manage suppliers? What parameters does the team use to objectively evaluate their performance? Does it offer support to under-performing suppliers? 

To accurately measure performance, procurement needs a robust mechanism that rates suppliers on predefined criteria. This is where a supplier scorecard comes in handy. 

What is a Supplier Scorecard? 

Supplier scorecards are performance management tools used by procurement and finance teams to evaluate vendor performance in set parameters. These parameters may include delivery timelines, product quality, compliance, and invoice accuracy. Supplier scorecards turn raw supplier data into actionable insights, which help optimize working capital, drive collaboration and reduce operational risk. 

What to Include in a Supplier Scorecard 

Supplier scorecards consolidate all KPIs in one place, making it easier to assess performance and identify underperformance. 

• On-time delivery rates: 

This shows the percentage of deliveries made by or before the agreed-upon date. High on-time delivery rates validate logistics and supply chain planning. 

• Product quality: 

This shows the percentage of delivered units meeting predefined quality standards, such as product specifications and defect-free rate. High-quality products lower the volume of returns and warranty claims. 

• Invoice accuracy: 

How many vendor invoices matched with purchase orders and goods receipts? Accurate invoices eliminate payment disputes and accelerate approval workflows. 

• Pricing competitiveness: 

This shows how vendor pricing compares with prevailing market rates. Competitive pricing supports cost management and savings goals. 

• Responsiveness and communication: 

This shows how agile the supplier is in addressing queries and resolving issues. Effective communication enhances collaboration needed to quickly address any issues. 

• Compliance rates: 

This validates a supplier’s adherence to regulatory and ESG standards. High compliance scores protect against legal penalties and reputational damage. 

When to Use a Supplier Scorecard 

When should procurement use supplier scorecards? Timing is as important as the criteria they measure. Using scorecards at the right time can help teams act quickly and make informed decisions. 

• Onboarding: 

Using a scorecard while onboarding a new supplier helps set clear expectations. It allows both parties to decide and agree on delivery timelines, quality levels, and other performance standards. 

• Performance reviews: 

Scorecards are vital to objectively review vendor performance. These reviews help teams evaluate performance in KPIs and identify specific areas of improvement. 

• Contract renewals: 

Scorecards are helpful while renewing a vendor’s contract or negotiating new terms. You would like to renew the contract if the vendor’s performance has been up to the mark. Otherwise, you can refer to the scorecard data to initiate fresh negotiations. 

• Recurring issues: 

If there are repeated instances of late delivery or poor quality, the scorecard will highlight these issues. This information will help procurement decide whether to continue the relationship or switch vendors. 

How to Create a Supplier Scorecard 

1. Assess vendor relationships: 

All vendors do not need the same level of oversight. Some vendors may be more critical to the business than others. Your A-level vendors are those that supply key components or have a higher share of procurement spend. Identify these vendors and conduct the scoring process for these vendors regularly. Then come your B- and C- level vendors who have medium to low impact on the business. Vendors in this category also need supervision, but less frequently than the A category. 

2. Define performance metrics: 

Choose KPIs relevant to your business such as on-time delivery, product quality, invoice accuracy and responsiveness. Clearly define each performance metric along with data sources and measurement frequency. 

3. Work on scoring criteria: 

All performance metrics do not have equal importance. Discuss relative weightage of performance metrics with stakeholders to assign weights to each KPI, expressed as a percentage of the total score. 

4. Collect and organize data: 

Get relevant data from your ERP, procurement, and accounts payable system. Validate this data by reconciling invoices with purchase orders and delivery records. 

5. Build the scoring template: 

Design a template that displays each supplier, KPI scores, weighted results, and a final score. 

6. Start small: 

Test the scorecard with a small set of suppliers. Assess the results and understand the scoring mechanism. Then expand the program to a larger set of suppliers. 

Ready to Identify Underperforming Suppliers? 

Still think you are better off without using supplier scorecards? Think again. When procurement teams do not use supplier scorecards, they are likely to overlook clear signs of declining performance. For example, suppliers may be delivering inferior quality products without getting noticed. Or they may be delivering products much later than the set timelines. Repeated instances of late delivery may be hurting production and delivery schedules. 

Without knowing these details, you may award a contract to an underperforming supplier again. To effectively manage performance, you must have a mechanism to accurately capture supplier performance. Supplier scorecards perfectly fulfil this requirement.