Insights
Understanding, experience and technology for success

How to give a Quality Score to your Supplier

A supplier scorecard contains categories or main groupings of metrics by which suppliers are measured. These categories include quality, delivery, cost, and responsiveness. Aggregated score for each category is calculated first, providing a company visibility into quality score, delivery score etc. Each category has assigned weighting, which is then rolled into the overall supplier score within the scorecard. The score of the quality category (quality score) typically carry 40% to 60% of the overall supplier score weighting factor in most organizations. Hence, quality management systems (QMS) drive the overall supplier scorecard in such organizations. This paper first describes how some of the leading manufacturers calculate their quality score and then gives a checklist to ensure that your quality management system (QMS) can drive an accurate and quick calculation of the quality score.

The following chart identifies key metrics in each of the categories.

Figure 1: Various Metrics in Supplier Scorecard
(Please click on image for enhanced version)

Supplier Quality Score
The Supplier Quality Score is an aggregate rating of the various quality-related performance metrics for the supplier. Scores for various quality metrics are multiplied by their weighting and the summation provides the overall quality score for the supplier. The following examples show how two leading manufacturers calculate the overall quality score for their suppliers.

Example 1: A Business Unit of a Fortune 500 Medical Device Manufacturer:
Supplier quality score is a simple metric that is a result of three key measurements:
  • Lot Acceptance Rate (LAR)
  • Supplier Corrective Action Requests (SCAR)
  • Past Due SCARs

LAR is the percentage of lots shipped by the supplier and accepted by the organization within the given fiscal month.

Each SCAR issued results in a 2 basis point deduction from the LAR for the fiscal month in which it was issued. If there is no response to SCAR within 20 business days then it is past due.

Past Due SCAR results in 3 basis points deducted from the LAR for each fiscal month in which it was overdue.

The Quality Score is calculated using each of these three measurements described above using the following calculation. Quality Score = LAR – (# of SCARS * 2 basis points) – (# Past Due SCARS * 3 basis points)

An "approved" supplier must consistently maintain both quality and delivery scores of 90% or greater.

When either score falls below 90% for an extended period of time, the status of the supplier may be downgraded to "conditional", which means that future business may be dependent upon the successful completion of a written CAPA (Corrective and Preventative Action Plan) to eliminate the root cause of the quality or delivery problem.

If the score of a "conditionally approved" supplier falls below 70% for an extended period of time, the supplier may be downgraded to "disapproved". The organization will not purchase from disapproved suppliers.

Example 2: A Fortune 500 Automotive Supplier:

(Please click on image for enhanced version)

What to look for in a QMS
Quality Management System (QMS) enables a manufacturer to deploy supplier quality scores and use it as a basis to categorize their suppliers, as a part of their overall supplier strategy. While evaluating a QMS, you should look for the following four key capabilities within the system:

  • Ability to configure the quality scorecard: The manufacturer should be able to easily configure the scorecard capability within the QMS to add their own metrics with their own calculations and apply their own threshold criteria for each metric (to show green/yellow/red status for each metric) without having to modify their QMS system.
  • Ability to see charts and details: The manufacturer should be able to configure the supplier scorecard capability within the QMS to easily see trend charts for a metric, as well as, be able to drill down into the details to better diagnose the issue without having to modify their QMS system.
  • Ability to easily import information from other systems: The manufacturer should be able to easily import relevant information from various homegrown systems with no hardcode programming into the QMS scorecard module. This enables the manufacturer to quickly create scorecards and easily update them when the source systems change, at a very low cost of ownership.

Ability to calculate quality score: The manufacturer must be able to apply their own model to calculate their overall quality score without having to write custom software code within the QMS system. This is very important, since the calculations and weightings evolve over time and the manufacturer need not have to bear the cost of developing, testing and validating such changes to the QMS software on an ongoing basis.



(Please click on image for enhanced version)

Supplier quality scores, when implemented correctly, provide a very compelling tool to a manufacturer to automatically and continuously measure the performance of their supply-base and to proactively work with them to improve their capabilities. Without the right QMS product, these scores are created manually on spreadsheets in many corporate quality organizations – a very manually intensive and error-prone process.