5 ways Supplier Ratings can help Procurement to Buy Smarter!
‘Rate us on a scale of 1–5’
‘Please let us know, how was your overall experience?’
‘Out of 5 stars, how likely are you to recommend a friend?’
To Rate has become an innate part of our lives. Think of a service, product, place, and/or business; chances are you can find a rating of that thing after a quick Google search. Who knows, the rating you find may even be facilitated by Google themselves, via Google Reviews.
“As of the start of 2021, there are 4.66 billion active internet users (DataReportal, 2021). That marks a 316 million year-over-year increase compared to 2020’s figures. At 7.3 percent, the growth in active internet users worldwide is more than seven times faster than the total population growth, which stands at one percent” (Oberlo 2021).
The scaling availability, access, and ability to share information and data has led to an influx of opinions online, which simultaneously dilutes and strengthens the value of customer ratings.
Can you really trust that the newly opened Food Truck around the corner is actually a 4.6 out of 5 stars? Maybe, maybe not, but chances are you’re going to take a look at a review (or a few) before deciding if that particular dining experience is worth an investment.
As consumers, we rate, and review ratings, after we’ve had a buying experience and/or make buying decisions. Ratings — in a consumer context — are often shallow and not composed of overly diverse criteria, but still, we rely on ratings to make more ‘conscious’ or ‘smarter’ buying decisions. We may quickly assess the ratios of other reliable reviewers, take into consideration the number of reviews, look into alternatives, read details of subjective experiences, review the information at hand, investigate alternative information we can find about the product/service provider, and make decisions based on the insight we’re able to gather.
Ratings are the starting point for many purchases. They quickly provide us with a buying traffic signal: Stop and Investigate, Proceed with Caution, or Go for it. Ratings make analysis and decision-making a bit simpler, but still, require buyers (in a private or professional context) to not leave their heads at home.
Procurement, sourcing, and/or purchasing in a professional context is far more complex than buying in a consumer context. You already know this, but sometimes it’s important to state the obvious. Contracts are more comprehensive, risks are greater, suppliers are less reliable, and spend volumes are sometimes awesomely large. Your life as a procurement, sourcing, or supply chain practitioner is complex. Navigating a global supply chain is complex. Managing supplier relationships and performance is complex. Building deeper supply chain visibility and transparency is complex. Unfortunately, these areas of your work aren’t getting any easier, they’re only becoming more complex.
Ratings offer simplicity.
I’m not suggesting that you should reduce the complexities of supplier transparency, risk, compliance, relationships, and performance to the same level as your most recent dining experience. What I am suggesting is that adopting a framework, process, and system for Supplier Rating will help you and your procurement team to buy safer, smarter, and more sustainably.
Here are 5 ways Supplier Ratings help Procurement to Buy Smarter
1. Owning KPIs & Targets
Building a solid foundation and framework for insightful supplier rating requires the definition and implementation of three main rating cornerstones:
- Key Performance Indicators (KPIs): What criteria/parameters do you want to measure & rate in your supplier rating?
- Goal/Targets: What is the desired output of suppliers?
- Acceptance Criteria: What is the minimum & maximum output to be accepted?
KPIs will vary depending on the industry, size of the company, size of supplier, category, type of supplier, etc. With this said, delivery and cost shouldn’t be the only dimensions you’re measuring suppliers against (you should of course be measuring these as well ☺️).
Building a diverse and holistic criterion for supplier KPIs will diversify and strengthen the reliability of supplier ratings. Defining KPIs will also aid you & your procurement team in determining what/where data/information inputs should be collected in order to best generate supplier ratings.
Setting Goals and/or Targets on Supplier KPIs is a great exercise to align your procurement team internally and align to broader business objectives. This is also a great way to make goals measurable throughout the buyer-supplier relationship, which can lead to cross-functional benefits impacting sustainability, quality, supply chain, and more. Target configuration should start simply by using a 0–10 or 0–100 scale, and apply Yes/No, Multi-select, and/or Multiple-Choice data entry on KPIs in order to best-set goals, weight data inputs, and set acceptance criteria that fits the KPI you’d like to rate.
Multiple-choice survey/questionnaire methodology may seem outdated, but it’s only outdated if you’re relying upon your excel spreadsheets to complete surveys. Modern solutions (including Kodiak Rating) show that this methodology is still an incredibly useful and powerful tool when data gathering is optimized, via API inputs and streamlined stakeholder reporting, so you spend less time configuring your spreadsheet, and more time analyzing supplier ratings.
2. Buyer-Supplier Alignment & Engagement
Supplier Ratings provide a framework for accountability, trust, and transparency in buyer-supplier relationships.
Rating can make buyer-supplier relationship management more objective, and feedback, corrective actions, or improved proposals to suppliers can be established in holistic data intelligence, rather than a gut-feeling. Again, it’s important to not leave your head (or gut-feeling) at home, but supplier ratings + human/emotional intelligence provide a balanced starting point for more meaningful and engaging supplier partnerships.
Having a supplier rating framework, process, and system in place allows you as a procurement professional to objectively communicate to your suppliers “This is what good looks like when collaborating with us”. This is a powerful tool for aligning expectations and service levels from the jump.
3. 360º View — Balanced Scorecards
At Kodiak Rating our SRM solution has a strong focus on aiding procurement teams to build 360º supplier ratings, but more importantly to visualize supplier ratings in Balanced Supplier Scorecards.
It was reported in the 2021 Deloitte CPO Survey that high-performing procurement teams follow up on a wider array of supplier KPIs, including quality, sustainability, risk, innovation, and performance (Deloitte CPO Survey 2021). This is just one aspect of how the elite separates themselves from the rest of the pack, but it provides a great glimpse into the importance of measuring and following up on supplier KPIs. Having balanced supplier scorecards w/ balanced supplier ratings allows your procurement team to measure & follow up on a wider range of KPIs, faster.
Referencing back to the ‘traffic signal’-like insights Supplier Ratings provide, (Stop & Investigate, Proceed w/ Caution, Go for it) it’s important that your procurement team has an array of ‘traffic signals’ to check suppliers against a wide array of performance indicators.
At Kodiak Rating we aid teams to build balanced scorecards from an array of data sources in a wide range of supplier evaluation criteria. Our solution balances supplier ratings, by providing users with supplier ratings from (but not limited to):
- 3rd party data sources: Covering social, environmental, financial, media, and sanction-related risks.
- Company-Specific KPI definition: social, environmental, quality, IT, financial, supply chain, industry-specific compliance.
- Company-Specific KPI definition: quality, commercial, delivery, innovation, collaboration, and sustainability performance.
Balanced supplier ratings can help you and your team to buy smarter, but also safer and more sustainably.
4. Supplier Segmentation
Knowing who and where your best suppliers are can be complicated.
Segmenting, or classifying your supplier base can be a difficult task. There are a lot of models out there for supplier segmentation, with the Kraljic Matrix serving as one of the most common segmentation models.
If you find segmentation to be difficult, or time-consuming, supplier ratings can aid you in more quickly understanding suppliers that belong to different segments based upon a wide range of supplier rating criteria, as listed in the last point.
One could also reverse engineer supplier rating in order to build framework, process, and ultimately solution by starting with the desired segmentation model and working backward. Identifying the important segmentation personifications could help to quickly build criteria suppliers should be evaluated upon.
5. Sustainability & Governance at Scale
Putting a supplier rating methodology into place will compel your procurement team to define goals, measure progress, and report.
Rating suppliers provide a great means to objectively set goals and report. For this reason, rating suppliers poses a great opportunity to gain deeper buying insights and for procurement to show their worth cross-functionally in the organization.
Following up on an objective array of supplier KPIs in a systematic manner can support sustainability, risk, compliance, and quality teams to progress on ambitious business goals within supply chain transparency and sustainable development. Supplier Rating criteria (KPIs, Goals, and Acceptance Criteria) can also be tied back to ISO standards, UN SDGoals, EU taxonomy, and other international/domestic standard frameworks built to ensure that CSR & corporate ESG initiatives drive real change.
Supplier ratings provide your procurement team with a means to communicate best practices to suppliers, build an evaluation framework upon objectivity/fairness, and make more responsible sourcing/procurement decisions based upon a wider range of evaluation criteria. All the while, supplier ratings give you a means to better safeguard brand value, locate innovative partners and drive overall supply chain performance.
Are you ready to rate suppliers?
This publication is brought to you by author Sam Jenks, but also in part by Kodiak Rating — A Supplier Relationship Management SaaS functioning out of Stockholm, Sweden. Kodiak Community intends to challenge traditional business practices with innovative thinking and creation.