Supplier Relationship Management

Transcription

1 Supplier Relationship Management Building a Vendor Scorecard Process University of Virginia Procurement & Supplier Diversity Services Kristin Floyd Jay Gallimore Shannon Wampler

2 Table of Contents Introduction... 2 Step One: Develop Goals... 3 Step Two: Develop Metrics... 5 Step Three: Build Your Scorecard... 8 Step Four: Manage Data More Information Kristin Floyd, Buyer (434) , kaf4b@virginia.edu Jay Gallimore, Web Application Developer (434) , jpg8x@virginia.edu Shannon Wampler, Procurement Analyst (434) , saw2w@virginia.edu 1

3 Introduction Steward the University s resources to promote academic excellence and affordable access. - University of Virginia Strategic Plan, Pillar V In University of Virginia s Procurement and Supplier Diversity Services (PSDS) transitioned into a hybrid strategic sourcing model in order to better align its goals and output with the University s newly-developed Strategic Plan. The objectives of strategic sourcing surround the reduction of overall cost, while maintaining or improving quality, efficiencies, and supplier relationships. An important part of strategic sourcing is Supplier Relationship Management, which is a way of working in partnership with an organization s suppliers to maximize value for both parties. In designing the University s first strategic single-source contract for Office Supplies, which added high visibility at the executive level, PSDS realized that in order to be successful in a decentralized, choice-driven environment, the resulting agreement would require not only high cost savings, but also high levels of customer service. PSDS had a need to show the University community concrete results, and to ensure consistent and proactive follow-through, so the Office Supply RFP team researched, developed and implemented a Vendor Scorecard. Developing a Vendor Scorecard can be accomplished in four easy steps: 1. Develop goals for the Institution and the Vendor 2. Develop meaningful metrics 3. Build an easy-to-use scorecard 4. Manage the data collected The Scorecard has proven to be highly successful, and it should be an integral part of any institution s Supplier Relationship Management strategy. This guide will assist you in navigating these four steps to creating a scorecard of your own. 2

4 Step One: Develop Goals It s important to think through what you want your process to look like, and to anticipate any potential problems before you do anything else. This will help you to decide which metrics to include in your scorecard and to make sure that you align your scorecard goals to those of your RFP and your institution. Here is a checklist of questions to get you started: What do we want to gain from our agreement/contract with this vendor? - Answers could include better pricing, better service, revenue generation, reduced risk, or other strategic goals of your institution. Why are we doing a scorecard for this particular vendor? - Why is this contract or vendor strategic to your procurement department? The commodity/service could be high spend or high visibility, or it could be an opportunity to consolidate vendors or reduce or standardize consumption. What aspects do we want to measure? - Cost Savings The best method for obtaining hard and soft cost savings from a vendor was likely negotiated prior to executing a contract. Moving forward, it may be advantageous to put a system in place that ensures these cost savings are actualized. - Customer Service In an ideal world all vendors would provide excellent customer service all the time, but is your definition of good customer service the same as the vendor s definition? It is advantageous to identify what good customer service means to you and your Institution. That way there is no question when these expectations are communicated to the vendor. - Increased Data Could you benefit from better insight into your purchasing behaviors? Typically, vendors will be willing to provide you with an annual report identifying metrics such as total spend, savings off list price, or fill rate, but does this data really tell you anything? Could additional data help you identify more cost savings opportunities? Is there a trend in purchasing behavior? Could this data identify power users and assist with an incentive program? 3

5 What aspects do we want to measure? (continued) - Innovation A supplier partnership should foster creativity. Perhaps industry developments have created a new machine that would benefit your institution? Is that something your vendor is likely to share with you? What if you determine that you would like to realize increased efficiencies based on an automated process would your vendor be willing to test that process with you? Innovation is a goal that keeps both you and the supplier at the forefront of the industry. Leave room to innovate. What behaviors or actions do we want to avoid? - Think through what could go wrong. If you ve contracted for this good or service in the past, how was your relationship with the vendor(s)? Where were expectations mismanaged and miscommunicated? If you haven t contracted for this good or service in the past, reach out to peer institutions and find out what their experience was. 4

6 Step Two: Develop Metrics Now that you have an idea of where you re going with your scorecard, develop the metrics that will take you there. Ideal Metrics Are: Meaningful You can measure a lot of things, but what will help you meet your goals? Metrics should be meaningful so that both Procurement and the vendor can collaborate to meet the Institution s strategic goals. They should promote revenue-generating activities and/or other high priorities in procurement. Measure activities that can be impacted by the actions of either Procurement or the Vendor, and in turn have an impact towards your goals. Otherwise, they re just numbers. Measurable Metrics should be easily measurable with minimal time input from the buyer and procurement analyst, and should heavily favor existing reporting (preferably reporting owned by Procurement). The measurements don t always have to be quantitative; the idea is that you want to obtain information consistently and quickly, and react to the information in a proactive manner. For example, if you ve identified timeliness of reporting as an issue, a metric could simply be whether or not you ve received a certain report at an agreed-upon time. Objective Well-written goals are objective for ease of scoring, to reduce any potential disputes, and in order to increase buy-in from the vendor; you will not want goals that are determined based on opinion. Avoid using rating systems unless you are measuring customer service (and there are ways to reduce rating systems in that area as well). Your 5 is another buyer s 3 and doesn t provide useful information. Aligned to the Goals of the RFP These should in turn be aligned to the institution s strategic goals. Innovation-Driven Remember, the point of a scorecard is to foster innovation and collaboration. It s not an opportunity for a power trip. 5

7 Here are some examples of metrics: You ll note that not all of these strictly follow the guidelines above. In some cases you ll find that you need to prioritize certain goals (such as high customer service and ease of measurement) over others (objectivity), and you ll develop a way to fit a measurement into the scorecard that works; however, for best results try to adhere to the ideals as much as possible. Vendor maintains a 4-star rating within the University Contract Summary Rating System. Negative ratings in the University Contract Summary Rating System are less than 20% of all ratings received during the biannual period. Supplier maintains a fill rate of 98% for all Core List orders. Supplier maintains next-day delivery for 95% of catalog orders. Contract administrator receives zero complaints regarding late or tardy notification from departments (department receives notifications within one business day). Supplier utilizes e-procurement catalog message board. Supplier provides resolution to concern(s) deemed appropriate by the Contract Administrator. Supplier responds to Contract Administrator inquiries within one business day. Supplier maintains the Best Value list usage percentage established at the previous period's scorecard review. Supplier provides self-audit report. Variance for Best Value pricing for the period is 0%. Supplier identifies five cost saving measures/opportunities within the Best Value list. Supplier makes payments of rebates and fees within 30 days of acknowledgement. Supplier has completed any corrective action(s) from previous biannual period's scorecard meeting to the Contract Administrator's satisfaction. Supplier maintains 99.99% electronic invoicing. Supplier identifies SWaM sources and recycled products in Uva Marketplace Punchout Catalog, and maintains a feature to search within the catalog by these indicators. Supplier maintains 99% accurate pricing based on invoice. Supplier maintains 95% SciQuest Marketplace Punch-out Catalog Orders. Supplier provides quarterly SWaM spend report. Supplier participates as a platinum sponsor for annual SWaM Fest. Supplier provides one innovative idea annually to include but not be limited to Recycled products/initiatives to the University. Supplier completes one or more Catalog improvements. Supplier follows through with idea(s). 6

8 Corrective Actions Along with metrics, it s important to develop corrective actions for the scorecard that will provide necessary positive and negative incentives without causing undue damage to the vendor s business. Try to create corrective actions that are specifically tailored to the metric, and that result in a win-win scenario for both the vendor and the institution. For example, if a vendor does not perform up to standards on a pricing variance metric, i.e. the University paid a price different than agreed upon, the corrective action triggered escalates depending on the score, and is that the vendor is required to provide a 5% discount to users on orders for a period of one week. This type of corrective action provides incentive to the vendor because the added discount will likely increase sales and visibility. It also benefits the institution in added cost savings. Some additional examples of corrective actions are: Supplier to identify new process for delivering notifications to customers. Customers will receive a one-time 5% discount. Supplier to identify ways to improve delivery performance and fill rate before next review. Refund of financial inaccuracies discovered plus 5%. Supplier to identify and implement a cost savings project with University approval. Supplier to identify small, woman, or minority-owned business vendor within Best Value List to provide support to and/or highlight products in catalog. Supplier will spend 1 week on campus visiting departments to discuss savings opportunities and promotions. Supplier will offer additional.5% early payment discount for 6 month term. It s also important for the institution to offer positive incentives for good scores. Some examples of these are: University to continue to offer catalog and logo in e-procurement system and on University website. University to promote positive service levels through various University media outlets. University to promote agreement with supplier throughout University community and to peer institutions. 7

9 University to develop an institution-wide vendor fair with reduced or zero fees for topperforming strategic vendors University to offer reduced or faster payment terms to vendor Step Three: Build Your Scorecard Begin by defining Categories. Categories are the basic overarching objectives that you want to achieve with the vendor that you have defined in Step One. Examples of Categories include Customer Service, Finance, Innovation, Fulfillment, and Marketing. Next, identify Goals that will indicate the vendor s performance in each Category. For instance, in the Category Finance, one Goal could be that the Vendor invoices orders at the accurate contract amount 100% of the time. Once Categories and Goals are established consider what steps will need to be taken to measure these metrics these steps were defined in Step Two and are considered Tasks. Task Task Task Goal (Score: 50%) Goal (Score: 100%) Category (Score: 75%) The example above shows how Category scores are determined (assuming that each goal has equal weight). Tasks roll up to goals, which are weighted and combined to determine each category score. Category (Score: 75%) Category (Score: 100%) Category (Score: 80%) Overall Score - 85% 8

10 The example above shows how the Overall score is determined (assuming that each Category has equal weight). Use your discretion to decide whether you want to apply different weights to goals and categories. It adds an extra layer of complication to the mathematics behind your scorecard, but it is also important in demonstrating which area(s) are most crucial to the success of your partnership. Next, define your legend. At what score(s) will each positive or negative Corrective Action you defined in Step Two be triggered? At this point, especially if you ve added weighted goals and categories, it might be helpful to run some test numbers to see which scores are possible. Finally, put your information into a format that will be easily understood by not only the vendor, but also by your institution s executive leadership and by purchasing professionals in other institutions. This will help you to create buy-in, gain top-down support from leadership, and market your contract. Microsoft Excel or Access offer the easiest ways to build a decent-looking scorecard. The UVa Office Supply RFP team carefully researched scorecards found online, and found many of them to be overcomplicated and poorly designed. The team s first try was in Excel, and was followed by a more streamlined version in Access that allows for aggregation and tracking of data over time. You can access a sample of the University of Virginia s Excel-based scorecard in the NACAS Easy 2015 folder we ve created on Box.com at (free sign-up required), or try a free Excel template from SupplyChainCowboy.com at The Access version is the culmination of the scorecard building efforts, but is tied to UVa systems and cannot be easily shared. However, if you have Access programming experience and would like to obtain the Access Application Schema we used, you may visit the Box.com folder we ve created above. 9

11 Step Four: Manage Data Once you ve determined your goals, designed your metrics, and built your scorecard, you can finally begin to test, implement, and follow-through with the outcome of each scorecard. Run the metrics that make up the tasks for a sample period of time. Was the data easy to obtain? Did the combination of metrics and resulting score demonstrate the story you want to tell? The UVa Office Supply RFP team found it helpful to increase buy-in from the vendor by making the first scorecard a test to not only reassure the vendor that a high score would not be difficult to obtain, but also to help to define a baseline score for future trending purposes. For marketing purposes, it s important to share with your institution s leadership and decentralized purchasers that you re working to measure your vendors performance. It shows that your procurement operation is customer-focused, value-oriented, collaborative, and innovative. Finally, determine a process that will ensure that scorecard review meetings will be held in a timely, consistent fashion. Make sure that everyone involved knows in advance who will run which sets of data, who will compile the data into the scorecard, and when everything is due. Review the data together at each meeting, and talk openly about what can be done differently. Keep copies of supporting documentation in case questions arise. Set specific deadlines for completion of corrective actions, and assign a team member to ensure that they ve been finished. 10

12 Here is the University of Virginia s scorecard process: Buyer, Procurement Analyst, and Vendor collaborate to build Categories, Goals, Tasks, and Corrective Actions into Template Procurement Analyst creates the period's scorecard Vendor completes corrective actions and Procurement Analyst closes out scorecard Procurement Analyst uses University and vendor-supplied data to complete scorecard Buyer, Procurement Analyst, and Vendor meet to discuss performance and corrective actions Report of corrective actions is triggered for any "Needs Improvement" or "Poor" scores Vendor scorecards can be developed easily, and when the right process is followed, they can maximize value for your strategic contracts and attract interest from leadership in your procurement program. 11

13 Sample Documents Interested in learning and seeing more? Please visit the folder* we ve created especially for NACAS East 2015: This folder contains an electronic version of this handout and the slide presentation, a copy of the first scorecard used for The Supply Room Companies, Inc., the Excel scorecard that we used to build our first scorecard, an Access Application schema that we used to build our final scorecard, and more. *UVa Box is a cloud-based storage and collaboration service that gives members of the University community the ability to access, store, and share up to 50 GB of nonsensitive/moderately sensitive University files securely anywhere, anytime, on any device. For more information please visit 12