As competition becomes more and more fierce, what can suppliers do to get a leg up? Just like we should always be aware of our credit score, the same can be said for vendor scores. Do you have any idea how your business is perceived by your customers? If not, this blog is for you! The purpose of vendor scorecards is to measure and track a vendor’s performance over time, thereby determining how valuable your partnership is to your customer. The more valuable you are, the more business you will get from your customer and the more lucrative your partnership becomes to both parties.
How are Vendor Scores Determined?
There are typically four different steps in determining a vendor score:
- Determine KPIs – this process starts from the contract, or even from the RFP. What are the SLAs and do they align with the business goals? Vendorful.com reports that there are four relevant KPIs: quality, vendor responsiveness/communication, on-time procurement and price variance.
- Define Metrics – now that you have the KPIs, how will you measure them? What specifically are you tracking? On-time ASNs? Correct pricing on invoices?
- Prioritize Metrics – what weight will you assign to each metric? What is more important? Each company will have different priorities, whether it’s responsiveness, sustainable sourcing or price variance.
- Evaluate Ranking – based on how you’re scoring with your customers, you can identify areas for improvement. You’ll also have a good idea which customers you’re most at risk for losing business.
How does a good (or bad) vendor score affect me?
Once your customer has amassed information over time, you can expect many scenarios to unfold. If you are perceived as a “good” supplier, your customer may come to you for a long-term contract to lock in pricing. Or if you are a “bad” supplier, your customer may reduce your distribution down to a smaller market. How would it affect your bottom line if you went from 1,000 stores down to 50 because of a bad vendor score. As supply chain technology gets more sophisticated, we can expect retailers to take a much more strategic approach to sourcing and procurement. Vendor score cards are just one way in which retailers are doing just that. And that retailer that reduced distribution for the “bad” supplier? They now have more money to spend on the “good” suppliers. It’s a win-win for both the retailer and the “good”’ suppliers.
The Value of Data Integrity
It cannot be overstated that if your customer is using bad data to issue vendor scores, the exercise becomes pointless. How can you ensure that your customer is using good data? It goes without saying, anecdotal data does not count. Our EDI visibility platform, Syncrofy, offers human readable insight and analytics that come directly from your EDI records, giving you access to up-to-the-minute information and a single version of the truth. Communication and collaboration are key. Communicate with your retailers easily and efficiently via the collaboration tool. If an invoice fails on the retailer side, Syncrofy will provide information on the exception and via the collaboration tool, teams can easily resolve the issue (see figure 1 below). You can view the entire lifecycle of an order, helping to eliminate gray areas and promote transparent communication.
What are the key takeaways for suppliers looking to leverage vendor scores to keep their best customers happy? First and foremost, ensure that you are meeting SLAs. Just because you won the contract does not mean that you can get complacent. Keep track of those KPIs and communicate regularly with your customers to stay on the leaderboard. Other advantages to keeping a higher score can also include non-monetary incentives such as unlimited meetings with your vendor manager and category leader, such was the case with former Amazon Platinum Merchants, according to reasonautomation.com. These sellers of course, had Amazon sales in the 7-figure range. But for vendors in lower score categories, they might have had only one meeting per year, severely impeding opportunities to foster the relationship. This program was replaced by Amazon a few years ago, but it clearly illustrates that higher vendor scores not only mean better relationships, more orders (and profit), but perks you may not have even considered.