Recall that measurements are used to motivate certain behaviors. Supplier scorecards can be used to provide feedback on performance, as well as make comparisons between suppliers. Four types of results can occur based on performance against standards:
- Reward: additional business, acknowledgement as a preferred supplier, and public recognition.
- Acceptable: continuation of contract, suggestions for next level
- Development: areas below standard acknowledged with deadlines for improvement or compliance
- Penalty: no future contracts, downgrading from preferred, or bill back of costs associated with poor performance.
Depending on what is defined in the contract, the buying organization can reserve the right to require corrective measures for evaluation results less than expected or deemed necessary. Failure or inability to address the issues can result in termination of the supply agreement.
Supplier audits are one means of monitoring suppliers and ensuring compliance with agreed-upon performance. Audits can be conducted by purchasing staff, or externally by a third party. Having a pre-defined set of questions for the audit can help ensure that the process is efficient and effective. Types of audits include:
- Compliance audits to assess performance to financial, government and sustainability regulations
- Standards audits to identify how well a supplier is meeting requirements around objectives such as sustainability, or assessing conformance to an adopted standard such as Fair Trade
- Program audits to evaluate adherence to a specific program such as ISO 14001 or SA 8000
- Risk audits to assess potential risks or liabilities to the supply chain
- Best practices assessments to look for improvements such as energy conservation, waste reduction, or process improvement