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Supplier Performance Scorecarding and Stratification Modeling

Supplier performance scorecards and supplier stratification modeling are related concepts, but very different in how they should be used. 

A supplier performance scorecard program should be used between an organization and its suppliers as a means of evaluating the performance of the suppliers against mutually agreed upon or accepted criteria.

A scorecard or performance measurement program is critical in the development and maintenance of supplier relationships, as it provides quantitative measurements that can be used to engage suppliers about improving their performance and incentivize them to do so (especially if high scores mean new opportunities for the supplier). Having a program that is well developed and executed helps keep suppliers focused on their internal process improvements, which will ultimately impact your organization’s business goals.

Supplier stratification should be an internal metric, where an organization takes other criteria (one of which can be the scorecard metric) and combines them to rank its suppliers. 

Stratifying the supplier base of an organization allows for collaborative partnerships to be formed through the segmentation of the supplier base into smaller and more manageable categories. This feeds directly into the concept of strategic supplier relationships, in which you will be able to identify the suppliers that your organization targets to do business with, the ones the organization must do business with, and the suppliers that the organization could likely do without.

Many organizations that attempt to stratify their suppliers do so based on only one or two factors (usually landed cost and cost of goods sold). A more comprehensive methodology is a combination of taking the final rank from the supplier scorecard exercise and then adding a few more factors, as shown below.

Successful implementation of these concepts can have a positive impact on supplier relationships, operational efficiency and improvement of EBITDA.  To learn more about these topics, including scorecarding criteria and reasons for stratifying suppliers, read the two-part series on supplier performance scorecards and supplier stratification recently published in Industrial Distribution.

Posted by Brad Vance, Senior Business Process Consultant, Epicor Software

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