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."

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.

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."

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.

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.”

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.