Pop Quiz: How would your suppliers grade you? Ask them.
Leading-edge procurement organizations flip supplier scorecards and ask suppliers to rate them as a customer. The results can be surprising.
By David Hannon -- Purchasing, 8/16/2007 2:00:00 AM
The idea of supplier scorecarding is certainly nothing new, as purchasing organizations have been rating suppliers on a host of metrics almost since the beginning of the buyer-supplier relationship. But some leading-edge procurement organizations are realizing the benefits of asking suppliers to rate them as a customer on "reverse supplier scorecards."
Why ask for your suppliers' input? Brian Powilatis, managing director of the Procurement Strategy Council (PSC), a Washington-based benchmarking organization, says most procurement organizations have no idea where they stand in the eyes of their most important suppliers, an issue that could prove costly in times of part shortages or contract negotiations.
"We recently surveyed 110 procurement executives and only about 30% were confident they knew where their companies stood in the eyes of their key suppliers," Powilatis says. "The other 70% had some or no idea. So, for those organizations, it was a realization that during times of shortages or increased surcharges, not knowing where you stand with suppliers could mean leaving money on the table or missing out on supplier innovation."
Benefits
The PSC has defined three distinct benefits that a procurement organization can reap from establishing reverse supplier scorecards. First and foremost is the ability to get product from a supplier when it's on allocation. Being in "good standing" as a customer will keep a firm at the top of that list.
Secondly, being a favored customer can mean the supplier brings its latest resources and value-adds such as Lean manufacturing or Six Sigma strategies to those customers first. And lastly a supplier's new product innovations and top employees are typically focused on its best customers, which doesn't necessarily mean its largest customers.
"It's a good strategy for a company that wants to punch above its weight class and get benefits that are normally only reserved for higher volume customers or higher margin customers," Powilatis points out.
Charles Dominick of procurement training firm Next Level Purchasing in Moon Township, Pa. says procurement organizations that have the best success with reverse scorecarding are small enough that they need to keep very good relationships with suppliers but also large enough to be able to dedicate resources to a program.
But getting a reverse scorecarding strategy off the ground is not as easy as it may seem. Dominick teaches the technique in his training, but says it is one of the least implemented techniques due to some major hurdles. "We hear a lot of people talking about it, but not a lot of people using it," he says.
The nuts and bolts
Reverse supplier scorecarding programs can range from less formal supplier meetings and surveys to more structured scorecards with scheduled reviews. Like traditional supplier scorecarding, companies typically only institute the strategy with most-valued suppliers either in terms of total spend or criticality of supply being provided.
The measurements and metrics of reverse scorecards can vary as well, Powilatis says, depending on the desired outcome. Some scorecards are meant to define the strength/status of the partnership with the goal of looking for suppliers to develop deeper ties with. Metrics on these scorecards may ask suppliers to rate the buying company on areas such as communication, corporate compatibility, shared customers or management philosophy.
But other reverse scorecards can ask suppliers to track more operational metrics with the goal of improving the processes or reducing costs between the supplier and buyer. Questions on those scorecards may be: Are we increasing your costs with our processes? Are we providing accurate and timely forecasts for your planning? Do we pay you on-time? Do we respond to questions/concerns quickly?
Dominick recommends collecting a combination of both qualitative and quantitative metrics from suppliers to get both a big picture as well as more actionable recommendations from suppliers.
"The quantitative metrics are important for measuring year over year results and show directional trends," he says. "The qualitative measurements will give you specific ideas to make improvements. For example instead of just asking suppliers to rate your payment process, ask them to provide suggestions on how to improve the payment process."
Dominick says asking a supplier to provide ideas based on what its other customers do well is a good way of soliciting advice because suppliers can provide specific examples and data without naming names.
The format of the scorecarding program may affect the feedback received from suppliers. John Lemke, director of purchasing and supplier relations at marketing materials provider Budco in Highland Park, Mich., says face-to-face meetings with suppliers convey a more collaborative feeling than a formal scorecard process. He says two areas that suppliers ask for more flexibility on are delivery deadlines and payment terms. For example, when surveyed informally, suppliers said they would like to be able to send partial shipments to Budco for extremely short turnaround projects, rather than the "all or none" philosophy most buyers take on contracts.
"We also learned from surveying our suppliers that turning a quote around in 24 hours doesn't give our suppliers enough time to get an accurate cost estimate," Lemke says. "It's not enough time for them to shop for things like paper and materials. We're working on having our sales staff educate our customers on our suppliers' constraints, telling them if they can provide us 48 hours, they can get a much more attractive quote."
|
Web Exclusive: How-to guide for establishing a reverse supplier scorecard program Preparing the scorecards
What to put on the scorecard
After the scorecard results are in
Source: Next Level Purchasing
|
And Budco also found through supplier surveys that smaller suppliers with less financial clout typically ask to be paid sooner than larger suppliers. As a result Budco has worked to change its processes in these areas to improve the supplier-buyer relationship as well as reduce its overall costs.
Donna Klemme, supply quality director at cheese maker Sargento Foods in Plymouth, Wis., also finds that more casual meetings with suppliers work best to get honest feedback on Sargento's status as a customer. It avoids the "principal's office" feeling that suppliers can have in some scorecard review meetings.
Klemme says accurate forecasting is the most common request suppliers make of Sargento, and the company is listening. Currently the cheese maker is working on establishing supplier portals that would provide its ingredient suppliers direct access to the latest demand forecast data Sargento can provide.
The challenges
Clearly, the biggest challenge to instituting a reverse scorecarding program is convincing suppliers they are free to provide honest and open feedback without repercussions. Powilatis points out that if key suppliers are selected and educated on the goals and strategies behind the program, they will provide useful criticisms where appropriate and praise when appropriate, as well.
But some suppliers, no matter how critical or important, simply won't understand the goals and are not suitable for a reverse scorecarding program. Bordon says that with "Some suppliers, you'll never get that trust level. But you have to show them how this directly impacts your ability to help them meet their metrics on their scorecard. And it helps if you talk to someone beyond the salesperson level at the supplier, because the salesperson is in the habit of never saying anything bad to their biggest customers."
Michael Higgs, supply chain manager at Synetics Solutions in Portland, Ore., agrees that "a salesperson doesn't want to blast their customer and tell them their response time to RFQs is poor. So when things are going bad from the supplier perspective, too often it doesn't get reported. The whole point of a reverse scorecarding program is to hear your faults, which is sometimes hard to swallow."
Two strategies can go a long way toward proving to suppliers that the procurement organization wants honest comments on its reverse scorecards or surveys. First and foremost—take the comments seriously and without bias. That is, don't live up to the supplier's fear that if they provide constructive criticism, they will be penalized when the next contract comes up for bid.
"We have to tell the people on our team they may get their feelings hurt," Bordon says. "And emphasize to our team that they never hold the supplier's feedback against them."
To avoid this problem, Synetics asked suppliers to keep internal metrics of its performance in certain areas and then would review that scorecard with only the supplier's and buyer's executives in the room, not salespeople or lower-level buyers.
"So there are no names associated with anything and no personal feelings involved," Higgs says.
The second way to ensure suppliers provide real feedback and measurements is to use the information they provide. Powilatis points out that perhaps the biggest reason that reverse-scorecarding programs fall down is because the data and information is collected and analyzed, but never used to make any changes or improvements, leaving suppliers to think it's being used for other purposes or was simply a waste of time. The only thing worse than not asking suppliers how they feel about their customers is to ask them to fill out surveys or scorecards that are simply tossed in a file and never acted upon.
 Lemke: “We’re working on having our sales staff educate our customers on our suppliers’ constraints.” |
Synetics gathers all data from reverse scorecards and then assigns improvement projects to individual supply personnel based on the data. "So at the next quarterly business review meeting, we can show the supplier we've not only heard what they said, we've taken the next step and made some improvements based on it," Higgs says.
Another key to successful reverse scorecarding is getting high-level executive support for the concept and the actions taken as a result. Dominick emphasizes that "Improvements require resources, so if you get feedback but have no resources to make any improvements, then your reverse scorecarding was a waste of time."
The challenge is that procurement is trying to sell a lot of programs and concepts to the executive level at many companies and revere scorecarding on its own may get pushed way down the priority ladder, says Dominick. "Reverse scorecarding has the highest probability of success when it is introduced as a component of a larger, enterprise-wide process improvement initiative like Six Sigma or Lean," he adds.
Higgs says, in one case, suppliers reported that communication on engineering change orders were not enough. Higgs worked with the company's engineering department to develop a process where engineers must respond to a suppliers request on an ECO within 48 hours saying they have received the information and understand it. If a request is not responded to in 48 hours by an engineer, the request is automatically escalated to the next level.
It's benefits like those that streamline supply chain processes and remove costly delays.
Also read:
Clarke American's procurement transformation
Also read:
How to improve supplier performance
Clarke American leverages "two-way" scorecards
 George Bordon says reverse metrics should reflect supplier goals. |
Perhaps one of the best examples of a reverse scorecarding program can be found at Clarke American, a San Antonio, Texas-based provider of checks to U.S. banks and consumers. George Bordon, vice president of procurement and supply management, says Clarke's "two-way scorecarding" program was born out of a value-analysis workshop with a group of suppliers.
"During the workshop, a supplier told us we were placing orders that the supplier would begin working on, but we'd often come back the next day and tell them the PO was incorrect or had to be changed," Bordon recalls. "So the supplier would have to shut the run down, which was a big waste that costs us both money in the end."
A very measurement-focused company, Clarke had experience with traditional supplier scorecards. When developing its reverse scorecarding program, Bordon decided to ask Clarke's top suppliers to rate the company on areas like payment terms, forecasting and purchase order accuracy. In fact, whenever possible, Clarke asks suppliers to grade it on areas that will directly impact the supplier's performance.
"For example, if we set a metric and goal for our suppliers' on-time delivery performance, we may also set a corresponding 'reverse' metric and goal for us measuring the accuracy of our forecasts," Bordon says, noting that suppliers cannot deliver on time without accurate forecasts.
Bordon says Clarke focuses the program on "suppliers that are huge spend or high criticality. So it's an X and Y axis, with dollars spent on the X and criticality on the Y and we narrow it down from there."
Like most other companies, Clarke had trouble first convincing suppliers their feedback would not come back to bite them. "We had to work through the trust element to ensure the suppliers understood that we needed the feedback, good or bad, to make positive improvements and that they would not in any way be penalized for providing honest feedback we requested," Bordon says.
Get good grades
-
Target your program to the suppliers that matter, but avoid selecting too narrow a universe. Consider criteria beyond size of spend (e.g., criticality, innovativeness) when selecting potential respondents.
-
Avoid gathering feedback solely from the "usual suspects" at a supplier organization. Involve multiple contacts (e.g., sales, operations, technical) to avoid bias and uncover all relevant issues.
-
Don't focus only on your organization's needs. Solicit input from suppliers that explore areas of concern to both parties.
-
Don't overwhelm respondents with too many questions, but make sure you get to the heart of the matter. Go beyond simple measures of satisfaction to specific questions that uncover root causes of relationship issues (e.g., blocked invoices, forecasts).
-
Ask suppliers to compare your company to their other customers. Your business stakeholders will be more motivated to act on supplier-identified issues if they see competitors' performance outpacing their own.
-
Don't consider supplier surveys or scorecards as "one and done." Repeat supplier surveys regularly (e.g., annually, quarterly) to uncover trends, and monitor the implementation and impact of initiatives.
-
Revise questions to ensure current relevance, but don't overdo it. Make changes sparingly to enable comparability over time.
-
Allow suppliers to submit feedback anonymously if requested. If they don't feel comfortable providing feedback, you'll get fewer and less candid responses.
-
Clearly communicate the benefit to the supplier. Document and present examples of improvements made based on past feedback to encourage ongoing supplier participation.
-
Engage business stakeholders in advance to ensure they are willing to accept candid supplier feedback. Be vigilant to anticipate, identify and manage any "backlash" that may arise.
Source: Procurement Strategy Council
Pop Quiz on reverse scorecarding
08/21/2007Know your suppliers other customers
06/04/2009Suppliers join the design huddle
09/06/2006
Now Playing: 