Easy Practical Steps to Setting Up a Small Business Supplier Scorecard
Is your small business too busy to set up a supplier scorecard?
In small businesses, the only person busier than the small business owner is the person assigned to manage the — supply chain for that small business. And that’s usually because the small business owner is running the supply chain, too.
If you’re a small business owner — or just work in a small business — and supply chain is one of those things you need to take care of, but you don’t have time to think about it, take heart. Supplier scorecards are a great way to keep your finger on the pulse of your suppliers’ performance. And there are easy, practical ways to implement and maintain those scorecards — so you can go about the million other things you’ve got to do today.
Large corporations, with mountains of money that their executives use as rock-climbing walls, pay dearly for data. And then they double down and pay even more money to have analysts slice, dice and make sense of that data. How can you be expected to collect, analyze and make sense of that data – and incorporate what might be useful in your supplier scorecards?
Well, the good news is that you already have access to all of the data you need to keep easy track of your suppliers’ performance.
The orders you place on your suppliers give you your request date, the order quantity, and your expected price.
Your suppliers’ shipping documents and your receiving documents give you the actual ship date, the receipt date, as well as the quantity received.
And your supplier’s invoices can confirm your actual payment price.
That’s all you need to get your supplier scorecard started.
What to Grade
What is it that you and your small business hope to achieve, from a customer fulfillment standpoint? You probably want to ship your customers what they ordered, when they wanted it delivered — and get that done by spending as little money as possible.
And that’s what you should expect your suppliers to be doing for you. They should be shipping you what you want, when you want it — and charging you as little money as possible for what you ordered.
In supply chain terms, that translates to on-time delivery, order accuracy and cost of goods control.
Setting Up Your Scorecard
Using a spreadsheet is the easiest way to get this done. Once you have the underlying data set up, you can set up a Scorecard Tab that sources the data in the spreadsheet to a single location. The Scorecard Tab will allow you to view your consolidated information easily.
These scorecards are tools for you to quickly assess your suppliers’ performance. Scorecards are used to aggregate data to help drive supply chain management strategy and decision-making. Just like you might get an A, B or C on a school report card — it gives you a high-level idea of how you’re doing. Supplier scorecards also help you and your small business focus on what areas a supplier might need to improve on.
We’ll get back to the nuts-and-bolts of your scorecard in a few minutes, but first — a review of those supply chain terms.
Your customers want your small business to ship their orders on-time. You want to ship to your customers on-time. So it stands to reason that your suppliers want to ship to your small business on-time.
So why are there so many late shipments out there in the world?
Production and quality issues can drive late deliveries. Last second demand can cause last minute ordering, which may not allow for the proper lead times in the manufacturing and supply chain process. But the most common cause of late deliveries is poor planning. The good news is that’s the easiest driver to fix.
The first step in fixing it, though, is identifying it.
When did you place your order with your supplier? Was that within their allotted lead time? Did the order arrive to you on-time? It’s a yes or no question and your supplier gets a 100 percent or a zero.
What did you order from your supplier? Is that what showed up?
How many of those items did you order? Is that how many showed up? (There is often a caveat to this if the item is not easily countable and each individual unit is relatively low cost. In those cases, suppliers tend to ship small overages 3 percent to 10 percent and customers allow some leeway.)
Cost of Goods Control
How much did you expect to pay your supplier? Is that what your supplier invoiced you?
If your supplier’s costs are creeping up, your small business needs to know that sooner than later. Keeping regular track of that via a supplier scorecard can help head off a cost of goods disaster.
Using your spreadsheet (the one mentioned above), create a tab for your supplier, let’s call it Supplier A. In some cases, it might be easier to create separate spreadsheets — one for each of your suppliers.
If you have an ERP system (and if you don’t know if you have an ERP system, you don’t) or another system that tracks the orders you place with your suppliers (Quickbooks, for example), you should be able to export the data you need. If not, you may need to manually enter it — but once you get it set up, this can go pretty quickly.
Your columns should go something like: order number, supplier name, order date, requested ship date, product name (or part number), unit price, order quantity. You can get all of this information from the order that your small business generated.
Continue the columns with information from your supplier’s actual shipment: actual ship date, date received and quantity received.
When your supplier invoices you, you can add a column for invoiced price.
With that data, you have what you need to cross reference your requested ship dates with your supplier’s actual ship dates. Some goes to ordered quantity versus quantity received and order price versus invoice price.
Add three more columns to your far right with these column headers:
- 100 percent Order Accuracy?
- Right Price?
Now compare what you put on the orders to what you received from your suppliers. And populate the cells with a Y or a N. The total of your Y’s over the total orders give you your percentages. You can capture those percentages in that first Scorecard Tab we talked about above.
Once you set the template up, the Scorecard Tab can populate automatically. If you’re not sure how to set that up, there are a number of tutorials that can walk you through it. Or ask your teenager.
Your scorecard should read: Supplier Name, On-Time Percentage = xx percent, Order Accuracy = xx percent, Cost of Goods Accuracy = xx percent. That high-level look at your supplier’s performance can tell you if you need to manage that supplier more closely, or if you’re free to do those million other things you had to do today.