- 13 February 2014
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Tags: performance scorecarding, performance scorecards, stratify your supplier, stratify your supplier base, stratifying, supplier performance scorecarding, supplier performance scorecards, supplier stratification
Supplier performance scorecards and supplier stratification modeling are related concepts, but very different in how they should be used. A supplier performance scorecard program should be used between an organization and its suppliers as a means of evaluating the performance of the suppliers against mutually agreed upon or accepted criteria. Supplier stratification should be an internal metric, where an organization takes other criteria (one of which can be the scorecard metric) and combines them to rank its suppliers (traditionally in an ABCD type model). The information below will help guide anyone wanting to implement either concept in their organization. Successful implementation of these concepts will have a positive impact on supplier relationships, operational efficiency, and improvement of EBITDA.
Cre8tive Technology & Design will be posting a weekly 3 part series on Supplier Performance Scorecarding and Stratification Modeling.
Part 1 – Supplier Performance Scorecarding (SPS)
Common SPS Criteria
Part 2 – Supplier Stratification
Why Stratify your Supplier Base?
Best Practices Criteria
Part 3 – Conclusion
Stratification is the process of categorizing all suppliers based on a defined set of criteria to gain an understanding of your supply base and its critical aspects, and adjusting resource allocations in response to the findings.
Why stratify your supplier base?
There are myriad reasons why an organization would and should want to stratify its suppliers:
- Too many suppliers
- Time spent per supplier is little or untraceable
- Difficulty or inability to analyze supplier base
- Difficulty or inability to reduce supplier base
- Suppliers are too easily added (maverick effect: Where suppliers are added for one-off purchases, never to be purchased from again)
Stratifying the supplier base of an organization allows for collaborative partnerships to be formed through the segmentation of the supplier base into smaller and more manageable categories. This feeds directly into the concept of strategic supplier relationships, in which you will be able to identify the suppliers your organization targets to do business with, the ones the organization must do business with, and the suppliers that the organization could likely do without.
Best practices criteria
Many organizations that attempt to stratify their suppliers do so based on only one or two factors (usually landed cost and cost of goods sold). A more comprehensive methodology is a combination of taking the final rank from the supplier scorecard exercise and then adding a few more factors, as shown below.
This is a simple calculation of overall profitability of each supplier’s products. This allows an organization to determine who really has the pricing power (the supplier or the organization), and can assist the organization with establishing goals for improvement.
This is the scorecard ranking already discussed above. Use a supplier’s known performance (based on these and other metrics) to help guide the stratification process.
From a distribution standpoint, the question of whether or not the supplier is exclusive frames this criterion. From an end user perspective, the scoring can be done by asking, from how many other suppliers can the organization purchase the brands currently bought from the supplier being scored.
Follow this series and other previous postings on http://www.ctnd.com/blog/.
From an Epicor White Paper
Epicor Software Corporation is a global leader delivering business software solutions to the manufacturing, distribution, retail, and service industries. With more than 40 years of experience, Epicor has more than 20,000 customers in over 150 countries. Epicor solutions enable companies to drive increased efficiency and improve profitability. With a history of innovation, industry expertise, and passion for excellence, Epicor inspires customers to build lasting competitive advantage. Epicor provides the single point of accountability that local, regional, and global businesses demand. For more information, visit www.epicor.com.