1). What metrics should companies be using to track the performance of their suppliers during (and after) COVID-19?  List at least 5 metrics Companies MUST use to track supplier health, performance, or other aspects of risk; describe what it measures, frequency of measurement (how often the measure should be taken), and why it is important.

QUESTION

Supplier scorecards are critical in Supply Chain Management.  Determining what should be measured is extremely important, but how to manage it is another challenge altogether.

1). What metrics should companies be using to track the performance of their suppliers during (and after) COVID-19?  List at least 5 metrics Companies MUST use to track supplier health, performance, or other aspects of risk; describe what it measures, frequency of measurement (how often the measure should be taken), and why it is important.

2).   For each of your metrics listed, describe HOW they are measured.   Include:

• Who does the data collection/reporting
• Where the data comes from
• How the data is aggregated (totaled) to provide a meaningful metric
• If the data/metric is measuring short term or long term performance

3). HOW do you recommend SCM managers review this data with their suppliers (phone call, face to face meeting with executives, etc)?  How often Should the reviews be held?

4).  Name a company that uses supplier scorecards. Provide an example of their scorecard and describe what you like/don’t like about it during this period of COVID-19 disruption.

ANSWER

Metrics for Tracking Supplier Performance during COVID-19:

 On-time Delivery Performance: This metric measures the ability of suppliers to deliver goods or services on the agreed-upon delivery date. It is important because disruptions caused by COVID-19 may impact supply chain operations, making timely delivery crucial. It should be measured regularly, such as weekly or monthly, depending on the frequency of orders.

Quality Performance: This metric evaluates the quality of products or services provided by suppliers. It assesses whether the delivered goods meet the agreed-upon specifications and customer expectations (CHAPTER 8:  PRODUCT/SERVICES AND QUALITY, n.d.). Quality inspections, customer feedback, and testing can be sources of data. Measurements can be conducted periodically, such as quarterly or annually.

Inventory Management: This metric examines the efficiency of suppliers’ inventory management practices. It measures factors such as inventory turnover, stock-outs, and lead times. Data can be collected through supplier reports, inventory audits, and order fulfillment data. Monitoring this metric regularly can help identify potential disruptions or inefficiencies in the supply chain.

Financial Stability: This metric assesses the financial health and stability of suppliers. It considers indicators such as liquidity ratios, profitability, and credit ratings. Data can be obtained from financial statements, credit reports, or supplier self-assessments. It is important to monitor financial stability periodically, especially during times of economic uncertainty like the COVID-19 pandemic.

Risk Management: This metric focuses on evaluating suppliers’ ability to identify and manage risks effectively. It measures the implementation of risk mitigation strategies, contingency plans, and business continuity measures. Data can be collected through supplier self-assessments, risk assessments, and incident reports. Regular reviews are essential to ensure suppliers are proactively managing risks.

Measurement of Metrics

 On-time Delivery Performance: Data can be collected by the purchasing or logistics department within the company. It can be obtained from order tracking systems, delivery receipts, or communication with suppliers. The metric can be calculated by dividing the number of on-time deliveries by the total number of deliveries.

Quality Performance: Data collection can involve quality control teams, customer feedback, and product inspections. The metric can be calculated by dividing the number of conforming products by the total number of products received.

Inventory Management: Data can be collected through internal audits, supplier reports, and inventory management systems. Key metrics include inventory turnover ratio, fill rate, and lead time. Aggregating this data can provide insights into overall inventory performance.

Financial Stability: Data collection can involve financial analysts, supplier financial statements, and credit rating agencies. Metrics such as liquidity ratios and profitability can be used to assess financial stability. Aggregation can be done by analyzing key financial ratios and comparing them against industry benchmarks.

Risk Management: Data collection can be a collaborative effort between suppliers and the purchasing department (A Practical Approach to Supply-chain Risk Management, 2019). It can involve self-assessments, risk registers, and incident reports. Aggregation can be performed by analyzing risk ratings, identifying common risks, and tracking the implementation of risk mitigation actions.

These metrics can measure both short-term and long-term supplier performance, depending on the frequency of data collection and the nature of the metric.

Reviewing Supplier Data

SCM managers should review supplier data through a collaborative approach, which can include a combination of phone calls, virtual meetings, and face-to-face meetings when feasible. These interactions provide opportunities to discuss performance metrics, address any concerns or issues, and explore improvement opportunities. The frequency of reviews may vary based on the criticality of the supplier, the level of risk, and the impact of COVID-19 disruptions. It is advisable to conduct regular reviews, at least quarterly, to stay updated on supplier performance and maintain open lines of communication.

Example of a Company Using Supplier Scorecards

One example of a company that uses supplier scorecards is Company X, a global manufacturing company. Their scorecard focuses on key performance metrics to evaluate supplier performance during the COVID-19 disruption. The scorecard includes metrics such as on-time delivery performance, quality performance, inventory management, financial stability, and risk management.

During the COVID-19 period, what stands out about Company X’s scorecard is their emphasis on agility and adaptability. They recognize the challenges faced by suppliers due to the pandemic and factor in the ability of suppliers to respond effectively to the changing market conditions (Harapko, 2023). They also incorporate metrics related to risk management, demonstrating their commitment to ensuring suppliers can handle unforeseen disruptions.

What I particularly appreciate about Company X’s scorecard is their inclusion of financial stability as a metric. Considering the economic uncertainties caused by COVID-19, assessing suppliers’ financial health is crucial to ensure the continuity of the supply chain. This metric provides insights into the suppliers’ ability to withstand financial shocks and invest in resilience.

However, one area for improvement could be the inclusion of sustainability metrics. While the scorecard focuses on immediate performance during the pandemic, considering sustainability aspects, such as environmental impact and social responsibility, would align with the growing importance of sustainable supply chain practices.

In summary, Company X’s scorecard effectively addresses the challenges posed by the COVID-19 disruption. It emphasizes key performance metrics, incorporates financial stability, and highlights risk management. Including sustainability metrics would further enhance the scorecard’s comprehensiveness and align with evolving industry expectations.

References

A practical approach to supply-chain risk management. (2019, March 8). McKinsey & Company. https://www.mckinsey.com/capabilities/operations/our-insights/a-practical-approach-to-supply-chain-risk-management

CHAPTER 8:  PRODUCT/SERVICES AND QUALITY. (n.d.). https://www2.nau.edu/~rgm/ha400/class/productservice/productservice/textqual.html

Harapko, S. (2023). How COVID-19 impacted supply chains and what comes next. EY – Global. https://www.ey.com/en_gl/supply-chain/how-covid-19-impacted-supply-chains-and-what-comes-next