How do you evaluate your merchandise vendors? If you ask Merchandising, Operations and Accounting
Product assortments in many omnichannel businesses have become very large – hundreds of thousands of SKUs – making it very difficult to keep track of vendor financial contribution and problems.
Most merchants manually pull together essential data from a variety of systems when they are meeting and negotiating with vendors. A uniform method, available to other managers under security access, will greatly benefit your business.
This blog shows how leading merchants are developing their scorecard to objectively evaluate the financial and service impacts vendors have on their businesses. Here are 6 points to consider in developing a vendor scorecard system:
1. Two major “slices” in the data
You want to be able to collect and display or report the data in two major ways: One by category, by vendor and all the vendor’s items in the category. And the second by vendor showing all styles or items you source from that vendor.
2. Key Financial Data
From your merchandising systems key financial data such as gross demand in dollars and units; cancellations in dollars and units; returns in dollars and units; shipped sales in dollars and units; gross margin earned are the most important.
For returns by vendor and item, save from the reason for returns reporting, the return reason codes that can be attributed to a vendor issue – i.e. poor quality, defective products, etc.
Also, save the backordered dollars and units for the products on a weekly basis. Many times backorder reporting is not cumulative; it is only as of a run date. As receipts come in and items are no longer on back order, you generally lose the backorder visibility that late deliveries cost your company. In a blog that we recently wrote we discussed that backorders have a financial impact to many companies of $7 to $12 per unit on backorder. Include those costs in the scorecard.
3. Be sure the vendor scorecard reflects the vendor compliance policy issues you have had with the vendor. Here are some:
4. Subjective evaluation
You can’t always reduce vendor performance to data and calculations. What are the ways that vendors excel which should be included in the vendor scorecard? Developing exclusives and private label manufacturing? How well does the vendor proactively communicate issues? Do they bring ideas that benefit your business?
5. Comparing vendors
Create a system calculated index which helps you compare one vendor to another for key data criteria such as sales, gross margin, etc. For more subjective data, input periodically with an A through E rating.
6. Make the data selectable
The data comes from multiple applications such as your order management system, financial applications and vendor compliance spreadsheets. Typically this data is collected into a data warehouse daily or at least weekly. The selection criteria should allow users to select by date range vendor performance data by:
You have valuable data in your company about vendor performance. Make your vendor scorecard holistic and its value grows for management analysis and cost reduction potential too.