Today’s guest post is by Ken Ballard, supply chain project analyst at Source One Management, Inc.
How often do we say a failed sourcing project “looked good on paper” right up until major issues started cropping up? Only looking good on paper is an often-cited attribute of problematic initiatives – someone dotted their I’s and crossed their T’s but didn’t see the grand picture. An objective and thorough analysis can help identify potential pitfalls before trouble rears its head. All too often, this just isn’t the case. More than likely, decisions are made using subjective criteria or without fully analyzing all facets of a supplier’s offerings, strengths, and weaknesses. So let’s give that “on paper” analysis one last shot – by implementing a scorecard system.
What Is A Scorecard?
Even trying to fully understand a single supplier’s strengths and weaknesses related to a set of requirements can be a buyer’s headache. Throw in multiple alternates, and you’re looking at a nightmare. Through an apples-to-apples comparison of suitability, buyers can save themselves from subjectivity and gain the most value in sourcing efforts.
Chapter Five of the strategic sourcing how-to book, Managing Indirect Spend: Enhancing Profitability through Strategic Sourcing, presents some best practices that can serve as a real life-saver during a sourcing initiative. Scorecarding, in the context of a strategic sourcing engagement, is the practice of applying a weighted “score” to a potential supplier’s proposal as a mechanism to evaluate RFx responses. Even if you’re fluent in strategic sourcing, it’s never too late to refresh your game and make sure you’re getting the most value out of potential suppliers.
A Method to the Madness
An all-encompassing scorecarding process entails a detailed qualitative and quantitative measuring and weighing process that provides a transparent and objective analysis of a supplier’s product and service offering. A robust scorecarding and evaluation process helps to ensure the right questions are asked, the correct factors are weighed, and in the end, the optimal supplier is chosen.
Developing a Selection Criteria (measuring value) — Qualitative
The first half of the evaluation process focuses on the qualitative aspects of the supplier’s proposal and the actual quality of service offered such as account management and additional value added services. When scoring a proposal, it is most helpful to establish an RFP matrix that evaluates the responses based on predetermined criteria. Criteria should be established from the core needs and “must haves” that your organization values the most and that have the largest impact on the outcome of your decision. Once the primary criterions are developed the next steps are to assign a weight to each area, category, or specific question from the RFx document. Once the categories and weights are established, the scoring process can begin. Excel is a great tool to complete this exercise where weights can be applied and a total score easily calculated for multiple suppliers.
Following the completion of the qualitative analysis, the final piece to the holistic scorecarding approach is to evaluate price. In an RFQ, price is typically the main driver of the business decision and therefore the score from the qualitative analysis holds less weight in the overall scoring process and can oftentimes be bypassed altogether. However, in an RFP, price and quality of service are typically weighed more equally. When conducting the pricing analysis it is most important to utilize an apples-to-apples comparison to ensure that units of measure are equal and that the calculated savings percentages from the baseline price (if this is a service/product already being provided) are comparable. The savings percentage offered by a prospective supplier from the current suppliers’ pricing can then be used as a main indicator of alternative supplier’s competitiveness. Competitiveness can be gauged both against the incumbent supplier as well as among competing bidders. The overall savings percentage offered by prospective suppliers can be utilized to quickly vet prospective suppliers if proposed pricing is not competitive which helps to transition the focus of the evaluation process to top competitors only.
Other Advantages of Scorecarding
A thorough scorecarding process makes it easy for buyers, procurement professionals, and others responsible for evaluating RFx responses to make an informed decision. It allows individuals the ability to quickly pinpoint supplier competencies, competitive advantages, and potential areas of weakness with both price and service levels. In addition, a team approach is taken to scorecarding ensures that a variety of viewpoints are considered and therefore the best organizational decision is made. Scorecarding is an adaptable term and there are different approaches that can be taken. However, if important criterion are selected for the qualitative analysis and both pricing and service levels are weighed accordingly, this will lay the foundation for an informed business decision based on the factors most important to a specific project.
Bringing It All Together
By following these steps, an organization can ensure a well-rounded decision to support long-term growth. As the scorecarding phase ties together all analysis, RFx responses, and research performed, keep in mind these helpful hints to optimize information and keep it as objective as possible.