Directworks Case Study

Directworks Case Study

Supplier scorecards have been a critical piece of any supplier relationship
management program for decades. They can be a very effective tool
for virtually any industry and every type of spend. When done well,
they can drive supplier performance to levels that truly impact your
companys bottom line.

So heres a question: Why is it that everywhere you look, e.g., industry
conferences, LinkedIn discussions, community portals, and blogs and
such, people are still asking questions about how to fix their supplier
scorecards? This practice should not be that difficult, so what is the
source of frustration? Following are two articles that shed some light
on the issue as well as some best practices to overcome the challenges
of supplier scorecarding.
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Supplier scorecards
Supplier scorecards www.directworks.com
Metrics are incomplete or not timely
For anyone who ever had to pull metrics, the first source of frustration is easy to identify. Accurate metrics are
rarely at ones fingertips. The data exists in multiple systems and lack of data standardization can make it difficult
to roll up to an individual supplier. Also, the time frame or event period that the data represents may be difficult
to align. Its pure frustration right out of the gate. Thus, instead of focusing on capturing the right information
needed to meaningfully measure supplier performance, companies often find themselves measuring what is most
convenient and easy to report on. This results in a scorecard that is ineffective at driving true supplier performance.
Creating an effective supplier scorecard has proven to be much
more difficult than one would think. While there are many
potholes and roadblocks that need to be overcome, a number
of leading manufacturers have clearly identified and prioritized
the key issues that need to be addressed. Lets examine these.
Its the same scorecard for every type of supplier
All suppliers are not the same. As an example, the Kraljic Model classies suppliers as commodity, transactional,
bottleneck, or strategic. Each segment represents diferent levels of prot impact, sourcing risk, and complexity to
replace. Each segment also requires very diferent supplier management strategies and action plans. So why do so many
companies have just one type of supplier scorecard or choose to only use scorecards with select segments? Customizing
your scorecard by segment will enable you to enhance the value each segment can provide to your organization.
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So how do you address the many frustrations related to supplier scorecards? First, focus your scorecard around
improving the end-game, such as margin enhancement for a division or product line. Second, you will need to
understand the interrelationships between supplier metrics and how changing one can adversely change another.
For example, optimizing shipping costs for Supplier ABC may save you money in logistics, but drive up inventory
and storage expenses. Third, make sure your supplier scorecard is appropriate for the role or value that the supplier
serves for your company. Finally, and most challenging of all, you need to get accurate, timely data that can be
relied upon. If you can do these things, you should be able to quickly discover issues to address which will truly
improve your companys bottom line.
Too much qualitative, not enough quantitative
Misaligned department objectives
A one-sided view of the relationship
One sure-fire way of judging a scorecard quickly is to examine the type of individual
metrics. How many are quantitative versus qualitative (yes/no, excellent/average/
poor). For the quantitative ones, how many are actual calculations, preferably
fed in and verified? A good scorecard utilizes quantitative metrics with little
subjectivity. Using too many metrics that are opinion- and judgment-based yields
great debate and significant frustration.
There are many stakeholders in the sourcing and supplier management arena
including executives, process owners, functional partners, commodity managers,
and so on. Each stakeholder views supplier performance a bit differently and may
have conflicting goals. Too many times, the overall company business objectives
get lost in the shuffle with one departments gains being offset by anothers
losses. Scorecards need to be built so they show the true impact on overarching
company objectives. It takes a collaborative process that is driven by the C-suite.
Finally, many scorecards today are very one-sided with the buyer scoring the supplier
and asking what are you going to do to make this better? The reality is that the
buyer and supplier are interrelated, with each impacting the others performance.
In the manufacturing industry, best-in-class supplier managers have turned to
conducting 360 degree reviews and closely examining how their own processes
and performance impacts each of their suppliers. Manufacturers recognize that
changes on their side of the equation can also improve supplier performance. So do
you have a scorecard that tracks internal performance?
Conclusion
Scorecard data not integrated into sourcing and supplier management tools
The next source of frustration centers on how scorecard templates and data
often function outside of ones existing sourcing and supplier management tools.
Many scorecards are spreadsheet-based with a lot of manual processing and data
cleansing needed. Without integration, purchasing and sourcing specialists may
be acting on old data including bringing suppliers into the fold who should be on
a block or watch list. Gathering and analyzing data from multiple places can be
time consuming and fraught with error. Outbound integration is also needed to
push supplier data collected during a sourcing event into the scorecard process.
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Directworks Case Study
The ABCs to building an
efective scorecard
I. Establish the right purpose for your scorecard
A truly effective scorecard is one that successfully identifies supplier risk and performance issues allowing ample
time to correct the issues before they impact financial performance. The metrics monitored should be linked to
root causes and be easily verifiable by the supplier. It is a communication tool that all parties have helped to build
and act upon. Each involved party should be motivated to get the most effective scorecard system in place. A
scorecard should be viewed as a tool that helps create long-term, successful relationships.
In nearly every industry, supplier scorecards are viewed as an important part of
managing supplier relationships. Scorecards help keep both parties on the same
page. They are used to identify areas of improvement, to justify change, or to add
extra incentive when pushing good suppliers to take performance to the next level.
Unfortunately, many will tell you that while they believe in the scorecard process,
they struggle to build a scorecard that is truly efective. Data can be inaccurate,
not timely, out of sync, too hard to measure, or not provide enough direction on
how to address a particular issue. Manufacturers have been wrestling with this
challenge for years and many have made signicant progress. Lets look at some key
practices that have made a diference.
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II. Build it backwards
The best way to build a truly effective scorecard is to
start at the end of the process and work your way back
to the metrics you need to capture. The end of the
process can be defined as the final action you need to
take because of the storyline that the scorecard metrics
are telling. Lets look at the following example.
Suppliers need to be able to deliver the right amount
of components or direct materials in the timeframe
required. Those who fail may ultimately be replaced,
even if they have the best price. In this situation, this
action marks the end of the process. So lets continue to
build the story backwards, identifying measurements
and data needed to identify the problems.
Working backwards allows you to identify various storylines that need to be tracked so you never experience a
production line stoppage due to a component shortage. Its the metrics along the way that help identify root
causes and potential solutions. In the example above, shipments from Asia to the US were being held up in Customs
much longer than expected. The supplier agreed to provide additional lead time to help address the problem.
1. A manufacturer has identified that if it should run out of component XYZ, production lines will stop
completely resulting in significant costs and a potential loss of sales. The component is a critical part
of the final product and is hard to source at a reasonable price.
2. For such strategic components, a policy is created stating that every supplier who misses their
delivery commitments, on average, 20% of the time or more be reviewed for corrective action or
possible replacement.
3. A dashboard indicator is created that turns red when 15% of components provided by a supplier
arrive beyond the promised delivery date. A three month rolling average is used to calculate the metric.
4. Any supplier receiving a red flag on this issue must immediately review its production floor metrics
to determine if the agreed upon quantity is being produced in the agreed upon timeframe, as well
as metrics around how long it takes to move the finished product to port.
5. Simultaneously, the logistics group reviews the metrics that show the amount of time it takes for
products delivered to the port to reach their final destination, the plant floor.
6. Finally, metrics are created showing the number of components in stock, as well as the number needed
for the week or month of production.
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To learn more
Call 724.933.1180 or Visit www.directworks.com
.
About Directworks
Directworks provides cloud-based software solutions purpose-built for
manufacturers to improve supplier collaboration, total cost visibility, and the
efciency of sourcing and supplier management activities. Leading manufacturers
use Directworks to accelerate product launches, expand margins, and optimize
their direct materials supply chain for cost, performance, and risk.
To learn more about
our sourcing and
supplier management
software, call
724.933.1180
Conclusion
When done well, scorecards can be a powerful tool that not only reduce risk and enable better supplier performance,
but improve product profitability. Scorecards are worth the investment they take to set up. Those that excel
at building effective scorecards will achieve a competitive advantage by ensuring that the right suppliers are
delivering the right materials at the right time.
1. Make sure the data collected for each metric is from the same time period.
2. Rely on data that is system generated and less subject to human error.
3. Audit key data elements to ensure quality, including supplier-provided data.
4. Only pull the data you need, as it is easier to manage, maintain, and keep clean.
III. Address the roadblocks
Building a scorecard backwards allows you to create a path from metric to action enabling you to identify root
causes and correct deficiencies before they impact your profits. But you still must pay attention to the finer details
of data collection, which, if ignored, can truly derail a good scorecard. Here are some tips:
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