Building a Vendor Scorecard

Here are five key issues to consider before you start.

When Jim Healey, vice president and CIO at Affymetrix Inc., joined the biotechnology firm in February, the first thing he did was ask for a list of all the Santa Clara, Calif.-based company's IT vendors, sorted by the dollar amount of business that had been conducted with them in the past two years.

Affymetrix used its vendor scorecard, fed by data from its ERP system, to compile the data. With that information, Healey could easily see the top 15 companies whose representatives he needed to meet. The scorecard also provided the names of the account executives for every vendor, giving Healey the opportunity to contact each one proactively.

"I found many names in that list, such as Microsoft, IBM, Cisco and Sun, but I also found names that were unfamiliar to me, including some temporary employment agencies and technology service providers," Healey says.

He reached out to these top vendors to introduce himself and to get familiar with their businesses. "Without a scorecard, I wouldn't have been able to do this right away," he says.

IT managers use scorecards to organize and evaluate data about their IT suppliers and processes. Score-cards allow them to monitor the performance of their vendors in order to cut costs, mitigate risk and drive continual improvements in products and services. It's the measure by which they manage vendors. Here are five key issues to consider in building your own scorecards.

1. Metrics. The effectiveness of a vendor scorecard depends on the type and quality of the information that it tracks. The most common mistake companies make is trying to measure too many things and losing focus on key metrics for the business, says William Maurer, an analyst at Gartner Inc.

Another mistake is collecting the most accessible data. "People tend to collect the information that is easiest to get," says Sherry Gordon, vice president of supplier performance intelligence at Emptoris Inc. "You have to collect the right stuff."

Managers who will be using the data need to decide what they're trying to accomplish with the information. Measures to manage the costs of products and services will be different from those used to improve quality, for example. "You don't want to just collect the data for the sake of data," Gordon says. "You need to be able to take action on the information."

The Allstate Corp. focuses its scorecards on performance criteria, including how well suppliers meet their deadlines, the quality of the service received, and whether products and services meet Allstate's budgetary goals. Scorecards help take the emotion out of the rankings. "We really like to focus on the performance of suppliers rather than on relationships," says Lori Yelvington, assistant vice president for procurement governance. "We have scorecards so that we have solid facts to base our relationship on."

2. Format. Scorecards range from simple spreadsheets to sophisticated software embedded in a company's ERP system. Anne Marie Biernacki, chief technology officer and co-founder of The Digiticians LLC, says it can be as simple as a table in a Word document.

In contrast, at Affymetrix, the ERP system tracks each vendor's transaction record, including purchase orders, invoices and shipments, for use in the scorecard. It also has a system that tracks the quality of products delivered and the time it takes to resolve problems related to quality. "We have different layers or systems [and] many users that contribute information on vendor performance," Healey says.

3. Standards. A common mistake with novice scorecard designers is to look for standard measures to use, Maurer says, but there are none. What is right for one company may not be right for another, so when building a scorecard, make sure you tailor it to deliver the specific information you need.

Many organizations, particularly those that outsource their IT infrastructures, use service-level agreements (SLA) as foundational criteria for building a scorecard, Maurer says.

"We start out with the SLAs in the contract" when developing some scorecards, says Yelvington. "Those are real. Everyone knows what those are, and they are pretty easy to grade."

4. Collection. There are various methods for gathering the data needed to create a vendor scorecard. Some companies, like Affymetrix, tap into ERP systems. At others, IT managers visit suppliers to get a detailed look at how they operate and to ensure quality. Many get information through internal customer surveys.

For key vendors, Allstate polls its employees, asking questions such as whether the vendors invoice properly and provide good reports and high-quality customer service. The survey may also include more subjective questions, such as whether an employee would recommend renewing the contract, Yelvington says.

5. Use. Using the information is the whole point of the scorecard. "What you do with the results is what helps determine if a vendor scorecard is successful," Maurer says. "If you're a service recipient and the vendor is supposed to be meeting service levels and they don't, how do you remedy that? How do you make it better and improve processes?"

Start by telling suppliers the criteria by which you are measuring them. "It's almost like an employee performance review," Yelvington says. "We get an average of what their grade is for the time period, and that's what we show suppliers during meetings with them."

Invite vendors to work with you on compiling and evaluating the information. If they value the relationship, they'll see the scorecard as a collaborative effort. If they don't, you'll notice.

"The point," says Healey, "is to have a scorecard available so that you can make decisions quickly."

Supplier Performance Management Scorecard

A screen shot of the Supplier Performance Management Scorecard

(Click image to see larger view)

Dunn is a freelance writer in Belmont, Mass. Contact her at cdunn@savoirmedia.com.

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