Improve Vendor Performance by Implementing a Vendor Scorecard

Vendor scorecards are a fantastic tool to track and measure vendor performance. When used appropriately and consistently, vendor scorecards allow you objectively identify and remediate issues, control costs and, ultimately, strengthen relationships with vendors – especially those vendors that are critical to your operations.

Vendor scorecards also provide an objective lens for measuring vendor performance by allowing you to:

• clarify vendor performance criteria that are most important to you,
• share expectations with your vendors, and
• evaluate vendors on their ability to consistently deliver value.

There’s no right way to build a vendor scorecard; however, there are definitely core performance criteria that should be included. Here are five I always recommend.

Level of Service

Your scorecard should include criteria on how well the vendor met pre-established levels of service in areas like quality, delivery and support. Most vendor contracts should include expectations regarding service levels or, in some cases, a formal, documented service-level agreement (SLA). Your scorecard should simply be the tool you use to measure the vendor’s performance against these SLAs.

Cost Control

Another criteria on which to evaluate vendors is how well they help you manage costs in two areas. First, does the vendor adhere to the pricing you’ve agreed to in the contract? And second, is the vendor providing you with new ideas on how to reduce the cost of the relationship going forward?

Good vendors deliver a product or service for the price to which they’ve agreed; great vendors look for ways to help you reduce costs through things like alternative products, better use of technology or better inventory management. Your scorecard should evaluate both.

Ease of Doing Business

Vendors who are difficult to work with cost you time and money, and frustrate your staff. You should evaluate your vendors on how efficient they make it for you to work with them, including their processes and systems.

Regulatory Compliance

Many organizations rely on vendors to meet a variety of third-party compliance mandates and regulatory guidelines.  These mandates are growing rapidly, and vendors are critical to ensuring compliance. Be sure to include these in your vendor scorecard, and require that your vendors track and report on their compliance with these requirements.

Innovation

Your most strategic vendors should bring new ideas to the table on a regular basis. They know what’s going on in their industry, and they should know what’s going on with your business.

The best vendors will look for ways to help you leverage changes in their industry to improve the way you do business. Your scorecard should include these criteria too, with a focus on process (i.e. they meet with you quarterly to discuss new ideas) rather than quantity (i.e. they called you to say hi six times.)

Using a vendor scorecard can really help you align expectations and generate more value from your vendors. To get the most from your scorecard keep these three things in mind:

• Keep it simple. Use no more than one or two measures per criterion.
• Focus on your key vendors. There are probably 15-25 that really matter, so focus on getting those relationships right.
• Develop a consistent process. Incorporating the scorecard into a regular review process enables you to track performance over time and make better, data-driven decisions.

This article was originally published in Jan  2017. Updated February 2022