Strategic Sourcing

Supplier Scorecard

Supplier Scorecard is we used to measure suppliers, and to give qualified or certified status to suppliers. Ideally, The best scoring suppliers per commodity group would get more share in the order.

1) Quality

Monthly DPMO (defective parts per million opportunities) = Monthly Quantity Rejected ÷ Monthly Quantity Received x 1,000,000
Rolling three-month DPMO to track trending = Rolling 3-month Quantity Rejected ÷ Rolling 3-month Quantity Received x 1,000,000
3 sigma = 10 points
4 sigma = 20 points
6 sigma = 25 points

2) Delivery Performance

Monthly on-time delivery = (Monthly Deliveries – Monthly Late Deliveries) / Total Monthly Deliveries
Rolling three-month on-time delivery = (Rolling Quarter Deliveries – Rolling Quarter Late Deliveries) ÷ Total Rolling Quarter Deliveries
98%-100% = 25 points – Level required to be the certified supplier
95%-97% = 20 points – Minimum required to be qualified supplier
93%-94% = 10 points – After three consecutive months at this level, the buyer would request the supplier present an improvement plan to recover within 30 days.
90%-92% = 5 points – After two consecutive months at this level, the buyer would require the supplier to present an action plan to improve to 95%-plus within 30 days.
Less than 90% = zero points – Immediate probation with a workout plan required within 15 days. Qualified supplier status at risk.

3) Lead-Time Improvement

Improvement = (Actual Lead Time – Starting Lead Time) / Actual Lead Time
Score 25 points > 50% improvement
Score 15 points 26%-49% improvemen
Score 10 points 15%-25% improvement
Score 0 points < 15% improvement

4) Inventory Turnover Improvement

50% improvement = 25 points
26%-49% = 15 points
15%-25% = 10 points
10%-14% = 5 points
< 10% = zero points

In summary, this structure for metrics provides four important improvement initiatives, each worth 25% for a total of 100 points on the scoreboard. You will now have a monthly and quarterly “supplier report card” for the buyers to discuss with the supplier’s sales management. It’s not only a great way to get improvements started right away, it’s also a great way to begin moving volume to the better performers right away.
Please note that pricing negotiation is not on this scorecard. That’s with purpose. This agenda is about improving both the performance and the relationships with our much smaller group of suppliers. The benefits from the better performance will show up in the numbers and can be quantified. The price negotiation has external market conditions that affect the outcome and has no part in improving processes to excel.

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