Best Practices within

Oracle Application

Supplier Scorecard

Module/s –
Oracle Purchasing

Author
Vanaja Ragunathan
Consultant – Oracle Apps

Reviewed By
Dheeraj Sharma
Senior Consultant – Oracle Apps

Creation Date:
08-June-2010
Version: 1.0

KPIT Cummins Info systems Limited

Plot No. 35/36, Rajiv Gandhi InfoTech Park,
Phase I, MIDC, Hinjwadi, PUNE-411057, India
Tel: +91 20 6652 5000, Fax: +91 20 6652 5001
www.kpitcummins.com
© 2010 KPIT Cummins Infosystems Limited
Business Challenges

• Supplier appraisal is one activity which supply chain teams

undertake that can have real bottom line fiscal impact.

• Get it wrong or have none at all and the business can find
itself aligned with improper suppliers, ineffective goods and
impractical delivery schedules.

• Get it right and the organization can be positioned with

suppliers who are focused and tuned alongside the needs of
the business.

Abstract of the Best Practice

An effective supplier scorecard should :

Communicate all pertinent information related to the

organization's key performance measures.

Concise, accessible, and understandable to

managers and leaders in both the supplier and
customer organizations.

© 2010 KPIT Cummins Infosystems Limited

Implementing Best Practice (Contd..)
Quantitative
Method Reference /Qualitative Advantages Disadvantages
Parameters
Cost Ratio Timmerman -Quality The evaluation -Attributes are
(1986) -Delivery process is clear Weighted equally
-Service and systematic
-Price Inexpensive -Subjective

-Requires a -Imprecise
minimum
Performance
data
Categorical Timmerman -Quality Subjectivity is Complexity and
(1986) -Delivery reduced requirement for a
-Service developed cost
-Price -Flexibility accounting system

-Performance Measures
(cost ratios) are
artificially expressed in
the same Units

Neural Wei(1997) -Performance -Saves a lot of Lack of experts and

Networks -Quality time and money Requires a software
-Geography of the system
-Price development

Principal Petroni -Quality Considers -Knowledge of

Component &Braglia -Delivery simultaneously advanced statistical
Analysis (2000) -Price multiple inputs method is required
-Reliability and outputs
without prior
assignment of
weights

© 2010 KPIT Cummins Infosystems Limited

Implementing Best Practice (Contd..)
Quantitative
Method Reference /Qualitative Advantages Disadvantages
Parameters
Total Ellram Price Substantial Complex
Cost of (1995) -Quality Costs Cost savings
Ownership -Unreliable
Delivery Costs -Allows various
-Transport Cost purchasing
-Ordering Cost policies to be
-Reception Cost compared with
-Inspection Cost one another
Analytic Nydick & -Quality -Simplicity- -Inconsistency on the
Hierarchy Hill (1992) -Delivery Captures both method
Process -Service qualitative and
(AHP) -Price quantitative
criteria
Weighted Timmerman -Quality -Attributes Subjective
Point (1986) -Delivery weighted by
-Service Importance -Difficult to
-Price effectively consider
qualitative criteria

•One of the simple yet effective method called the weighted point method has
been described in detail, which considers attributes that are weighted by the
buyer.

•The weight for each attribute is then multiplied by the performance score that
is assigned.

•Finally, these products are totaled to determine a final rating for each
supplier

•This method is designed to utilize quantitative measurements and minimize

subjective factors in evaluation

© 2010 KPIT Cummins Infosystems Limited

 Functional flowchart
Identify key supplier evaluation categories.
•Decide which performance Metrics to include
•Generally the Most obvious and most critical areas that affect the buyer

Weight each evaluation category

•The performance categories are weighed to reflect their relative importance.
•The total of all the weights must be equal to 100.

Identify and weight subcategories

•Performance subcategories are decided within each broader category.
•The sum of weight of subcategories must equal to the main category weight

Define scoring system for categories and subcategories

•A quantitative scale of measurement is defined in the scoring system
•In a 5-point scale, 1=poor, 2=weak, 3= marginal, 4=good, 5=outstanding

Evaluate supplier
•Scores of different suppliers are compared and selected one
over the another based on the evaluation score.

Review evaluation results and make selection decision

•The primary output from this step is recommendation about
whether to accept a supplier for a business.

Review the evaluation periodically

•The emphasis shifts from the initial evaluation and selection of suppliers
to evidence of continuous improvement by suppliers.

© 2010 KPIT Cummins Infosystems Limited

Implementing Best Practice (Contd..)

Performance Metrics:

Number of acceptable lots from vendor

Quality divided by total number of lots from vendor

A subjective evaluation of the factors

Cost deciding the performance of suppliers
on the price perspective

Number of on time deliveries from

Delivery vendor divided by total number of
deliveries by vendor.

A subjective evaluation of the

Service variety of services offered by each vendor.

A subjective evaluation of the advice

Support and assistance provided by each vendor.

© 2010 KPIT Cummins Infosystems Limited

Implementing Best Practice (Contd..)
Quality :
It is measured using the DPPM (Defective Parts Per Million)
method. This information can be collected using Inspection
Quality Plan.

Total no. of defective items

X 1,000,000
Total no. of items received

Score PPM

3 <100 PPM
2 100-500 PPM
1 >500 PPM
Delivery:
This information can be collected from promise date and actual
receipt information.
Total no. of items received on time
X 100
Total no. of items received

Score %

3 >99%
2 97-99%
1 <97%

© 2010 KPIT Cummins Infosystems Limited

Implementing Best Practice (Contd..)
Cost:
The following sub factors are considered for weighing a
supplier on this performance metric.

Cost Reduction Efforts

Performance during Delivery Process
Competitive Price
Quote analysis can help in identifying the competitiveness

Service:
The following sub factors are considered for weighing a
supplier on this performance metric.

Communication
Responsiveness
Immediate Corrective Action

The sub factors are given a score as below:

1-Not Good, 2-Poor, 3-Good, 4-Very Good, 5-Excellent
The Total weight for a category is the sum of scores of the sub factors.

© 2010 KPIT Cummins Infosystems Limited

Implementing Best Practice (Contd..)

Supplier Code of Conduct:

The following sub factors are considered for weighing a
supplier on this performance metric.

Statutory Compliance
Equality in Treatment
Integrity
Protection of Environment
Fatality & Safety initiatives
Confidentiality
Comply with the Cummins Supplier Code

The sub factors are given a score as below:

1-Poor, 2-Good
The Total weight for a category is the sum of scores of the sub factors.

© 2010 KPIT Cummins Infosystems Limited

Implementing Best Practice (Contd..)

Example of Weighted point method:

Assume that there are five performance metrics that are being
used to evaluate suppliers, quality, cost, delivery, service and
supplier code of conduct.

These attributes are weighted with their corresponding values on

a 1 (least preferred) to 5(most preferred) scale.

Further, assume that proposals from four suppliers are being

considered (S1, S2, S3 and S4).

The Table below presents the final results.

Weights Supplier1 Supplier2 Supplier3

Quality 35 3 3 2
Cost 15 12 9 6
Delivery 30 3 2 2
Service 6 5 4 2
Supplier Code of 14 13 10 8
Conduct

Total 100

Final scores are calculated as:

Supplier 1 = (35*3)+(15*12)+(30*3)+(6*5)+(14*13) =587
© 2010 KPIT Cummins Infosystems Limited
Implementing Best Practice (Contd..)

Final
Scores
Supplier1 587

Supplier2 359

Supplier3 284

According to the above results, the higher weight belongs to

supplier 1, and is judged to be the best overall.

© 2010 KPIT Cummins Infosystems Limited

Implementing Best Practice (Contd..)
Final Output:

© 2010 KPIT Cummins Infosystems Limited

Implementing Best Practice (Contd..)
Scorecard used in Honeywell Industries:

© 2010 KPIT Cummins Infosystems Limited

Implementing Best Practice (Contd..)
Scorecard used in Allstate Corp, USA:

© 2010 KPIT Cummins Infosystems Limited

Implementing Best Practice (Contd..)
Scorecard used in National Instruments, USA:

© 2010 KPIT Cummins Infosystems Limited

References
Doolen, Toni
“Using Scorecards for Supplier Performance Improvement: Case Application in a
Lean Manufacturing Organization”
Engineering Management Journal , June 1, 2006

“Performance Measurements and Metrics”

Supply Chain Management Portal

Christine Dunn
“How to: Building a vendor scorecard“
Computer World, May 29, 2006

CUMMINS SUPPLIER HANDBOOK

Page 17, May 19, 2008

CUMMINS INC FILTRATION BUSINESS UNIT SUPPLIER QUALITY HANDBOOK

Page 15, June 2007

Cummins Supplier code of Conduct

January 2009

Honeywell • ACS Vendor Scorecard (Version 2.1 January 2008)

© 2010 KPIT Cummins Infosystems Limited