Decisions ... Decisions (& Matrices)
Certain tools are integral for dealing with qualitative and quantitative uncertainty and change in SCM (and in almost any other field of endeavor including Private Equity and Venture Capital investing). One tool I have used for quite some time to great effect to surf uncertainty and flux is Decision Matrices.
In a previous post, I wrote about Carter’s 10 C’s and how they are vital to analyzing and comparing new potential vendors. But with so much data — 10 buckets across any potential vendors — something like a Decision Matrix is needed to measure.
The redacted file here shows a Decision Matrix using weights for each of Carter’s C’s and resultant scores from 1 to 5 for each C. It does not have to be a range of 1 to 5; you could also use 1 to 10 or other gamuts.
The first step is for the team to agree on key questions and desired inputs for each of Carter's C's. Answers to these essential questions are then scored consistently to arrive at scores. The team can then allocate weights to each C depending on how important those particular criteria are to the given Supplier Selection exercise.
The second step is to over-communicate within the team that this is not a perfect analysis. The goal of a Decision Matrix is to concentrate thinking across several criteria that are either qualitative or quantitative or some combination of both. This is not an exact science!
Examples always help. In the shared spreadsheet, we can see some real-world, team-driven questions and inputs used to evaluate several vendors:
Competence - During this exercise, the ability of vendors to quote multiple product models or SKUs was deemed the best indicator of Competence. The more, the better (in this case). The buyer needed vendors capable of supplying multiple, differing SKUs. Competence was given a 20% weight.
Capacity was scored quantitatively based upon responses to RFQs. Of course, over time, buyers need to verify vendors' true production capabilities.
In terms of Commitment, adherence to recognized standards could be used.
Control Systems can encompass many things. In the shared sheet, the team determined that financial risk was the most relevant (given the trade war between the US and China at the time), and data was gathered -- if available -- to gauge said. What should be needless to say is: corporations in the developing world often have unreliable financial outputs (as shared with buyers) and must be taken with a grain of salt -- even for listed firms.
Cost was reviewed quantitatively with an eye, in this case, to commodity prices, exchange rates, and sustainability of costs offered.
Compatibility was gauged based on Customer Service (or lack thereof) and technological fit. Again, the SCM team needs to determine what questions to ask to measure this and the other nine C's.
In terms of Communication, the language skills of suppliers were measured.
Have you noticed that these are only eight of the ten C's? In addition to determining the right questions to ask (and undertaking to extract this data from vendors), and in addition to applying weights to each C, whether or not all C's are relevant to your real-world Supplier Vetting process is also relevant. In the case shared, it was determined that Cash could be subsumed under Control Systems. And it was felt that Consistency could be measured in the future. Tailoring a Decision Matrix to your entity's needs and circumstances is key.
It can be tough to compare qualitative variables and inputs against quantitative ones — but it must be done. Ideally with the “wisdom of teams” lending a hand and deep team discussion about each vendor and each cell. Please do let me know if you have any questions or would like me to email or transfer the spreadsheet to you (if the link to the Google Drive file does not work for you).