Understanding a Vendor Scorecard Helps Your Small Business Improve

As a supplier, your performance is graded monthly by the customers you work with. Most retailers and many other types of customers do this with a scorecard. Every retailer will have a unique scorecard that covers what they consider to be important. The metrics on the scorecard provide unambiguous feedback and support the maxim that “what gets measured gets improved.”

Understanding the various metrics used to grade your performance and how they tie together can help ensure that you are able to provide the highest quality service possible, and retain your customers for the long term.

What Metrics Are Used For Vendor Score Cards?

If you’re not exactly certain what’s involved with scoring, you’ll find the following explanation of the typical metrics helpful. Always refer to your customer’s scorecard for exactly what they want.

Ship Quantity vs. Order Quantity

When a retailer orders product from you, they expect you to ship the entire order at one time. However, there are numerous factors that can make that difficult or downright impossible. You may end up splitting the order into two separate shipments (or more). That’s actually a bad thing. Being unable to fill an entire order at one time negatively affects your score.

Lead Time

Quoted lead time versus actual lead time is another important metric on monthly scorecards. If your actual lead time creates significant variances in delivery time, your customers will be unhappy. This is particularly true with time-sensitive shipments and seasonal products.

Delivery Time

If you can’t provide timely deliveries to the companies you supply, you’ll find they desert you very quickly. Not meeting shipment windows puts your customers in danger of not being able to serve their own customers, which will encourage them to jump ship for a company that can deliver on time. Orders may be “fill or kill” meaning that unless your shipment can arrive by the requested date the order should not be sent at all.

Documentation Accuracy

Your customers expect accurate documentation concerning their orders. If the documentation you supply is inaccurate or does not contain the specific line items the customer needs, it will count against you. Complete accuracy in documentation at all times is essential. This includes EDI compliance for transmissions of advance ship notices, invoices and any other required electronic document types.

Price Variations

The price of orders placed versus the price actually invoiced to your customer is another important area to consider. You need to ensure that they’re the same – variations in price (particularly when the invoiced price is higher than the ordered price) will negatively affect you and encourage your customer to find another company to fill their needs. And of course price variation will usually cause the retailer’s accounts payable department to reject your invoice for payment.

Product Defects

Some product failure may be unavoidable. However, if your products experience a high number of defects routinely, expect your customers to look for another provider. Remember that your failed products damage not only your reputation, but your customer’s reputations as well. There is little room for reputation damage tolerance in today’s competitive world.

Rate of Returns

The rate of product returns by your customers is a direct reflection of the quality in your products. Most retailers will set a specific return rate percentage that, if exceeded, requires their suppliers (you) to initiate new quality control programs or factory audits in order to assure better quality and continue doing business with the customer.

Sustainability

Consumers are increasingly concerned about sustainability of the world’s resources. Wal-Mart has been a leader in this area and other retailers are becoming involved. Green initiatives by retailers may require supplier reporting related to energy and climate, material efficiency, natural resources, and people and community.

There are many other metrics used on monthly scorecards, and most customers have metrics that are specific to their organization. In all instances, it’s vital that you study your scorecard to understand where opportunities for improvement lie and what you can do to ensure a long-term relationship with each customer.

In addition to scorecard reporting, many retailers will have chargeback fees to a provide strong incentive for suppliers to follow their procedures and maintain a high level of quality. Check back next week for the beginning of a four part series on chargebacks.

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