Vendor scorecards are used by businesses to track vendor performance over time using relevant metrics. The vendor scorecard helps you identify performance gaps and areas for improvement, determine ROI for your supplier spend, and eliminate supply chain kinks. Due to the many other priorities businesses manage on a daily basis, most don’t think to create a vendor scorecard. However, doing so will result in an engaged and efficient vendor base that aligns with your business objectives. When used correctly, scorecards can be a huge benefit for businesses looking to stay on top of vendor performance and take corrective action if anything goes wrong. Maintaining strong supplier relationships and streamlining your expenses are possible with vendor management. It is essential to align your scorecard with vendor management best practices.
These four best practices will help you create an effective vendor scorecard.
Automation and digitization
The task of manually tracking vendor-related data becomes increasingly challenging as your company grows. A digital solution simplifies workflows and allows you to focus on value-added tasks. With OptimizeMRO’s vendor management feature, for example, you can see all of your vendor spending on a single dashboard.
To streamline procurement, you can view spending trends and upcoming vendor expenses. A duplicate expense analysis will also reveal shadow IT and increased business risk.
Engage in collaboration
Vendor support is essential to your business’ success. In order to understand your vendors’ issues and challenges, you should collaborate with them before defining new standards. In turn, your vendors will understand your needs. You will be able to increase cooperation levels with your vendors as a result of realistic criteria.
Benchmarking the industry
Make sure your vendors’ KPIs and spending are in line with industry benchmarks. One of your vendors might be responding to your issues on time but below industry standards.
If you want to meet benchmarks, you must upgrade your KPI thresholds. As a result, you will remain competitive in your industry if you have a vendor scoring system and vendor management system in place. It’s easy to review your vendor spend and eliminate duplicate SaaS subscriptions with OptimizeMRO.
Measure KPIs and link incentives to penalties
You will be able to make objective decisions only if you link KPIs to incentives and penalties in your vendor scorecard. Your suppliers can be aligned with your business goals with incentives. You can reward successful vendors by adding them to your preferred supplier list and paying their invoices faster. The penalties might seem harsh at first, but most vendors will strive to improve performance if you tie them to KPIs. It is effective to reduce future orders and remove suppliers from preferred supplier lists as penalties.
Choosing vendors by feel or intuition reduces transparency in your vendor performance processes, which leads to dissatisfaction among your suppliers. Share KPIs with your vendors to help them understand your thought process and expectations.
Only when scorecarding is fully integrated into standard operations and vendor management will procurement be able to extract maximum value from it. Scorecarding does have its challenges, but the benefits far outweigh them. It is often said, “What gets measured gets managed.” However, how do you manage something you don’t measure? Buyers can gain actionable insights into their most reliable and worst suppliers using supplier scorecards. Additionally, it can be used to manage vendor relationships, minimize errors, optimize costs, and mobilize continuous improvement. Vendor management allows you to maintain strong supplier relationships and streamline your expenses. In order to achieve vendor management best practices, your scorecard needs to be aligned.
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