Supplier Scorecard Price Comparison Formula

PurchTips edition #98

Having Trouble With Supplier Scorecard Formulas?

When there are multiple criteria for a supplier selection, purchasers often rely on supplier scorecards as a guide.

Such supplier scorecards allow a maximum number of points per criterion. Suppliers’ scores for each criterion are based on predetermined point award schemes.

For example, one criterion may be the location with a maximum of 50 points. The evaluator may award 50 points if the supplier is located within 20 miles of the buyer’s plant, 25 points if the supplier is located between 20 and 40 miles away, and 0 points if the supplier is located more than 40 miles away. That’s pretty simple.

But most purchasers struggle to figure out a way to score prices for comparison. So, I took it upon myself to create a supplier scorecard price comparison formula. Let’s dub it the “Dominick Formula” for ease of recall.

The Dominick Formula is built on this principle: the penalty to a supplier’s pricing score should be proportionate to the degree that its price varies from the Lowest Qualified Bid (LQB). So, if a supplier’s price is 25% higher than the LQB, its pricing score should be 25% lower than that of the supplier who submitted the LQB. If the supplier’s price is 40% higher, its pricing score should be 40% lower. Here is the Dominick Formula:

PS = MP x (1 – ((SP-LQB)/LQB))

Where,

PS = Pricing Score

MP = Maximum Points

SP = Supplier’s Price

LQB = Lowest Qualified Bid

Check out our Supplier RFP Scorecard designed to help your procurement department rate supplier RFPs.

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