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| is paper analyze t e use of balanced score card and ow it is elps NMI (Nielsen Manufacturing
Incorporated), Metal Fabrication company, to improve supplier collaboration. Alt oug some previous
efforts were undertaken to measure supplier performance, no consistent process existed wit in t e
organization made t e supplier performance unstable. NMI cooperates wit Oregon State University
created fixed balanced score card for suppliers so t at t e improvement of costs, quality, and delivery of
systems from customer could be fulfilled by supplier performance in t ose aspects. | e objective of t is
Supplier Score card is to improve supplier performance and ultimately will improve t e bottom line
performance of t e customer organization. | is process of balanced score card take five step from
identifying t e strategy until educating t e supplier.
In measuring performance, balanced score card is one of several met ods t at many companies
use it to consider financial and non financial aspect so t at decision making and workforce driven would
be compre ensive. Adaptation wit corporate strategy make balanced score card of one company
different wit ot er company, also for NMI Incorporated. For internal balanced score card, it starts from
performance report of t e company. Financial report measured financial key factor t at build t e
company. In t e beginning of period t e company settled an ideal target t at will be compared to t e
actual condition in t e end of period. Non financial factors included as consideration to make decision
making more compre ensive. | is performance report will is a written tracking of company͛s
performance in a period. |o measure t e performance from its report, t e company use performance
measurement w ic one of t em is balanced score cards. So t e result of balanced score card will
measure w et er t e company as operate in t e rig t track aligned wit its strategy. For external
balanced score card, t e performance report is not about internal company͛s performance but our
external company w ic in t is paper is supplier. All t e aspect from financial to non financial are
measuring partners, t us t e objectives also to encourage partners to do better so t at strengt en our
company performance. NMI uses four criteria in terms of parameter in balanced score card. | e
parameters are Quality, Cost, Delivery, and Customer Support. At t at time, NMI works wit 50
suppliers but 20 suppliers old 90% of all material in NMI. | us, t is paper analysis is emp asized to 20
not 50 supplier. However, t e scorecard process was developed wit t e intention of incorporating all
suppliers including t e small one.
$2Y *,
very kind of organization t at as strategies s ould ave formal system to make sure t at t e
strategies are executed well. State owned Company, Non Government Organization, Private Business,
Profit or non-Profit organization must ave strategy. Wit out strategy, t e organization is like ve icle
wit out w eel. | e strategy leads t e organization to its goal. | is strategy determine by market,
generally. A good strategy is t e 1st success factor for t e company. After company determines its
strategy, t e important emp asis is to convert t e strategy into business action. How t e strategy drive
t e entire company to ave goal congruence in ac ieve somet ing needs formal system called
management control. Management control can influence managers (subordinate) to implement
strategies t at management developed efficient and effectively. | is is t e 2nd success factor of t e
company.
| e implementation of management control is derived from strategy formulation: Goals, Strategies,
and Policies for corporate driven by market t en convert to management control activities: Planning,
Coordinating, Communicating, valuating, Deciding, and influencing. All t e implementing process
s ould be valid for all line managers wit goal congruence to prevent conflict of interest and ac ieve t e
maximum targets. Management control includes bot financial and non financial performance. Financial
dimension focuses on t e monetary parameter suc as return on investment, profit, and so on. But all
organization also as non-financial objectives suc as employee turnover, market s are, and so on.
| ese parameters are a target to ac ieve, a process to do, and result to evaluate. | e scope of t e
process itself includes formal and informal system starts from strategic planning, budget preparation,
performance report and measurement until compensation. Performance report and measurement do to
encourage manager (subsidiaries) to do better.
NMI is metal fabrication company t at as 50 suppliers try to improve four elements to increase its
product so t at could fulfill customer demand better. | e strategic vision of NMI is to become Lean
Organization implemented JI| (Just In |ime). Supplier management is increasingly important for
organizations implementing lean practices suc as JI|. Wit increasingly ig percentages of company
revenues dedicated to outsourced work and supplies, ignoring supplier management can be fatal. It is
important to establis a supplier measuring system t at is simple to understand and easy to maintain.
NMI use balanced score card for external parties w ic in t is case is supplier to ac ieve lean
organization. A properly designed and implemented supplier scorecard will potentially yield enormous
results and be a valuable tool for t e engineering manager.
)2Y , -
Nielsen Manufacturing Incorporated is a company base in Salem, Oregon, establis ed in 1957 by
Jack Neilsen as Neilsen Metal Industries to serve t e needs of food processing and ot er local industries requiring
custom parts. In addition t e company offered a line of atc ery equipment sold around t e world. In 1979 t e
company positioned itself to serve t e growing array of ig tec companies in Oregon. | at continues to be t e
company͛s primary focus. NMI is ISO 9001:2000 certified and offers ig flexibility fabrication services
including laser cutting, punc ing, forming, welding, printing, and silk-screening.
| e company͛s primary focus is in t e electronics industry. Products produced by NMI include
mainframe server cabinets; ig -end test cabinets for wafer, c ip, and circuit board test equipment;
enclosures for clean room applications and telecommunications equipment. Currently NMI s ips
products to customers t roug out t e Nort west, California, Colorado, Minnesota, |exas, New York,
Mexico, urope and Asia. Customers suc as |ektronix, Credence, Sun Microsystems and ot er ig tec
leaders generate t e majority of NMI͛s product volume.
Since t en, NMI ave built a reputation for excellence by offering family wage jobs, good benefits,
training programs, a world class facility, and cutting edge tec nology and processes. NMI and employees
ave consistently been good citizens, participating in, and financially supporting local c aritable
organizations and efforts. | e company operates t ree s ifts, keeping t e facility in operation seven
days a week. Production workers are members of Local 16 S eet Metal Workers Union. | e Company is
a member of bot t e Salem Area C amber of Commerce and SDCOR (Specialty lectronics
Development Corp.). NMI supports community organizations bot t roug employee projects and cas
contributions. | e company and its employees ave been a top contributor to bot t e United Way and
Marion Polk Food S are. | e company as been cited in numerous publications bot local and national
for its commitment and skill.
In September 2005, |om Neilsen, C airman of Neilsen Manufacturing Incorporated, decided for
restructuring t e company. Restructuring will reduce jobs and production over t e next six mont . | is
action takes to compete wit C ina͛s product intervention. Its goal is to make t is transition smoot ly
and local outplacement resource available at t e appropriate time. Neilsen cited a continuing trend to
outsource manufacturing and resulting competitive pressures as reasons for t is decision. | e result is
in 2006, Neilsen as 50 suppliers w ic 20 of 50 are supply 90% of Neilsen needs.
| e vision of t e company is to become specialized and better able to succeed in a ig ly
competitive global environment. | is vision is executed by t e missions to become lean organization,
systematically re-invent t e company values to create a small and responsive organization.
&2Y c , 33
NMI at t is period of Balanced score card process as 50 suppliers t at needs to improve in supplier
collaboration, product quality, and overall performance. Some issues raised and become t e main topic
are:
Did t e balanced score card use for t is company is suitable wit its strategic vision and missions?
Did t e Balanced Score Card designed for NMI easy to understand?

+2Y -,*
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| e first step to configure Balanced Score Card is determining four most important for NMI related
to its strategic vision and mission. Based on strategic objectives for NMI, four measurements were
identified as parameters in NMI͛s Balanced Score Card to provide t e most leverage to NMI in its own
improvement effort. | ose parameters are Quality, Cost, Delivery |ime, and Customer Support. x ibit
1 s ows t e criteria in t ose four parameters.
x ibit 1 Parameter in NMI͛s Balanced Score Card
å- 
Supplier does not exceed t e defective parts per million t res old
PPM establis ed by NMI (ratio of defective parts due to supplier to total
parts received from supplier, multiplied by 1,000,000)
Supplier prevents factory disruptions due to quality issues (i.e.,
Factory Disruption
material purges, stop s ips, line sorts, etc.)
Supplier meets establis ed timeline for fault analysis of defective
Fault Analysis
parts received by NMI
Supplier meets t e establis ed timeline for root cause problem
Root Cause/ Corrective Action
solving and corrective action required
3 
Supplier ac ieves reductions in unit cost of product or service in
Cost Reduction (%)
current quarter as compared wit previous quarter
Supplier submits proposals/initiatives outlining viable plans,
Cost Reduction Proposals met ods, and alternatives for reducing costs of supplied
goods/services
Cost Reduction Implementations NMI implements cost reduction proposals submitted by supplier
 - 4
Supplier deliveries meet t e NMI on-time delivery criteria (no
On-time delivery (%) more t an t ree days earlier and zero days later t an t e required
delivery date)
Supplier meets lead time establis ed by NMI (time, in days,
Lead-|ime (%) elapsed from t e initial requisition of goods from t e supplier until
receipt of supplies by t e NMI receiving section)
Supplier ac ieves reductions in lead time for product or service in
Lead-|ime Reduction (%)
current quarter as compared wit previous quarter
Customer demonstrates ability to adjust s ip-dates of
Flexibility (%)
requisitioned supplies (eit er forward or back) upon request
3 
 
Supplier meets establis ed response time for requests for quotes
RFQ Response |ime (time, in days, elapsed from submission of request for quote by
NMI to receipt of a written response by t e supplier)
Supplier meets establis ed purc ase order confirmation timeline
PO Confirmation |ime (time, in days, elapsed from initial receipt of a purc ase order
from NMI to receipt of confirmation from supplier)
Supplier provides quarterly financial statements, providing cost
Financial Statements
analysis of goods/services currently provided
Supplier provides OL certification data, outlining OL certification
OL Certification Data
status of all goods supplied to NMI, on a quarterly basis

| ose four parameters were broken down into several sub parameters. ac of sub parameter
applied to 20 suppliers quarterly. | e result was divided into t ree categories w ic are:
jY ´ 90% preferred supplier, meets or exceeds target level of performance
jY 70-89% satisfactory supplier, performs wit in t res old and target level of performance
jY â 69% conditional supplier, fail to meet t e t res old level of performance
very supplier will get comparison data about t eir performance in terms of four best criteria. Data
delivered to t em are t eir performance, average performance, and target level of performance
quarterly. x ibit 2, 3, and 4 s ows t e example for using balanced score card to measure performance
of supplier ABC in first quarter.
 x ibit 2 | e Sample of Balanced Score Card in Supplier ABC
Supplier : ABC
Commodity : Precision Making
Report Period : 1st Quarter 2005
Rating : Preferred

4--
*"&5
å-  Category Weig t = 25% "67+ "85
PPM 0 5000 400 40 39 98%
Factory Disruption 0 2 0 20 20 100%
Fault Analysis 99 95 98 20 18.5 93%
Root Cause/ Corrective Action 99 95 99 20 20 100%
3  Category Weig t = 25% (!!5 (!!5
Cost Reduction (%) 2 0 2 60 60 100%
Cost Reduction Proposals 2 1 2 20 20 100%
Cost Reduction Implementations 1 0 1 20 20 100%
- 4  Category Weig t = 25% 6876 6"5
On-time delivery (%) 99 97 97 25 17.5 70%
Lead-|ime (%) 99 97 99 25 25 100%
Lead-|ime Reduction (%) 2 0 0 25 17.5 70%
Flexibility (%) 99 50 58 25 18.7 75%
3 
  Category Weig t = 25% (!! (!!5
RFQ Response |ime 2 4 2 30 30 100%
PO Confirmation |ime 1 2 1 30 30 100%
Financial Statements 1 1 1 20 20 100%
OL Certification Data 1 1 1 20 20 100%
Current Quarter Spending $ 4,786,542.00
Projected next Quarter Spending $ 5,686,542.00
x ibit 3 Performance |rends of Balanced Score Card Result

x ibit 4 Historical Performance C art for 4 Quarters

 | ose c arts give suppliers insig t for evaluating t eir strengt and weakness in every parameter
compare to t e targeted level and also ot er supplier strengt and weakness. x ibit 4 give t em
istorical data depict t eir improvement or descent every quarter in certain year of period. Wit t is
c art, suppliers could be better in supplying material.

%2Y  *-*,

6.1)Y Financial Performance Report
very company as t eir own parameter to measure t eir performance. | e ideal targets are
settled in t e beginning of period and t e actual performances are written in performance report. | e
way t e company settled its target is different for eac depends on strategy of t e company and its
management control process. Parameter used in measurement usually is t e company target suc as
profit of Return on Investment (ROI). Company t at use profit for its performance indicator only concern
for t e growt of profit, but t e company t at use ROI concern not only t e profit growt but also t e
effectiveness of assets used to generate profit.
| e difference between t e budgeted or t e ideal result and t e actual called variances. Variances
appen because practices are often experience different t ings wit ideal condition so t at ideal
condition will be different wit practices. | ese variances could be favorable or unfavorable depends on
practices resulted more or less t an budgeted. Variances are divided to sales and expense variances.
xpense variances itself divided into two sources w ic are manufacturing costs and non-manufacturing
costs. A lot of factors descend from t ose t ree. | us, all t e factors related to department t at its
performance needs to be measured.
6.1.1)Y Variances
Sales can be determined by multiplying volume sold and selling price of t e product. Bot of
t em could be source of sales variances even t oug related to eac ot er. | e volume of sale is t e
unit number sold at t e period. | is is t e easiest parameter to measure sales performance. Selling price
is t e product͛s price sold in t e market. C anges in prices could affect t e number of product sold but
fewer prices do not mean t at sales will be ig er. | at is w y t e company needs pricing strategy to
determine maximum sales. Selling price is arder to be parameter.
Volume of product sold in t e market affected by two parameters w ic are market s are and
industry volume. Market s are s ows us our strengt in terms of competition to gain customer action.
Industry volume more as external factor t at company will decide w et er stay on t e same industry or
move to ot er industry t at as bigger capacity or ig er growt .
xpense cost come from discretionary expense and engineered expense. Discretionary
expense relation between output and input are not linear but t e company could use profit s aring for
use to t is function. Marketing, Researc and Development, Administration activities are t e examples
of discretionary expense. ngineered expense is more predicted and measurable because t e relation
between t em is close to linear. Manufacturing activity is t e example of engineered expense. Certain
outputs are t e result from certain variables costs combined wit fixed cost.
| e number of variances could be traced easily to t e source. ac activity could vary between
favorable and unfavorable. | e analysis of current variance from eac activity is considered as t e
budgeted or ideal condition for t e next period.
6.1.2)Y Management Action
Analysis of variance could be traced to eac activity and become consideration for
management to appraise w et er t e function relate wit t e activity is good or not. ven t oug
variances s ow quantitative factors, management s ould consider qualitative factors related to it. Some
consideration before deciding related to t e variances are; w y t e variances occur in certain function,
is t e variance significant to t e performance as a w ole, is aggregated variances depict all part of t e
function, management could become more dependent to t e calculation of variances, and t e last is
variances s ows only w at was appening in current not in t e future.
| e actions of management are not mont ly or annually. ven t oug performance report
collected periodically based on its lengt of t e period, t e content itself s ould be updated overtime.
Mean t at ig -top management watc es t e development often wit out limited by t e report.
Performance report is to provide t e motivation for subordinate͛s managers to take corrective actions
on t eir own initiatives.
6.2)Y Performance Measurement: Balanced Score Cards
| e report t at is written before is only part of t e performance measurement. In compre end
discussion, performance measurement as a w ole is useful to implement strategy of t e company.
Company t at as different strategy will ave different performance measurement based on its
parameters. If t e company͛s parameter improve t an t e company is in rig t track to implement t eir
strategy. One of t e performance measurement t at include quantitative and qualitative aspects is
Balanced score cards. | e use of Balance Score Cards is like das board in our car. It s ows us w et er if
we are in t e rig t direction.
 |o use balanced score cards, t e company s ould be assigned goals and t en measured from t e
following four perspectives:
jY Financial (e.g., profit margins, return on investment)
jY Customer (e.g., market s are, customer satisfaction index)
jY Internal business (e.g., employee turnover, cycle time reduction)
jY Innovation and learning (e.g., percentage of sales from new product)
x ibit 5 s ows t e example of balance score cards

Balanced Score Card originally made by Drs. Robert Kaplan and David Norton as a performance
measurement framework t at added strategic non-financial performance measures to traditional
financial metrics to give managers and executives a more 'balanced' view of organizational performance.
It is a tool t at elps t e company͛s focus on its strategies, improve communications, provide feedback,
and ac ieve goal congruence and encouraging every person in company to act for t e company͛s best
interest.
6.3)Yxternal Balanced Score Card
Balanced Score Card was used not only for internal parties but also external parties suc as
supplier. | is BSC as two main reasons w ic are: identifies supplier performance metrics t at are
most critical to t e customer organization, and enable t e evaluation of suppliers against t is metrics.
From t e perspective of t e supplier, an effective supplier scorecard as t e potential to elp suppliers
in t ree different ways. First, supplier scorecards enable a supplier to link its own internal performance
measures wit t e strategic objectives of its customers. Second, t e supplier scorecard enables
suppliers to identify opportunities to improve t eir performance so t at t ey are better able to meet
customer requirements. Finally, scorecard documents t e criteria used to define w at levels of
performance are considered unacceptable, acceptable, and superior by t e customer organization.
| e focus of t e supplier scorecard is to improve supplier performance and ultimately improve t e
bottom-line performance of t e customer organization. Since t is is involved external parties, decision
to make in terms of parameters will need agreement from our partners. Subtly level is depend on our
power of bargaining. If our position is weak, it will be ard for us to create supplier balanced score card.
But if we are t e major customer of t eir market t en it will be easier for us.

62Y ,-3 3
Did t e balanced score card use for t is company is suitable wit its strategic vision and missions?
| e vision is to become specialized and better able to succeed in a ig ly competitive global
environment. Its mission to be a lean organization, create a small and responsive organization. Vision
and mission depict by t e company movement to restructure t e organization and outsource t e
resource in local supplier. |o be responsive organization s owed t e commitment to served t e
customer wit s ort cycle time and easy to adapt w en market c anges. | is commitment played a role
in determines parameters for suppliers w ic are delivery and customer support. On-time delivery, lead-
time, lead-time reduction, flexibility, and customer support are used to s orten cycle-time process.
W en t e company wants to be a small wit a lot of resource outsourced, t en t e commitment s ould
address to t eir outsource partner, suppliers.
| is management action is different wit ot er company, since t ey c ange its core competence to
be outsourced t en t ey need better supplier or maintain present supplier wit better service. | at is
w y t e company use supplier score card. So t e vision and mission is suitable wit current balanced
score card.
Budgeting Process or Determine t e standard for Parameter.
For internal balanced score card, t e ideal or desirable result is come from budgeting process and
previous performance report w ere company needs growt overtime so standard is always increasing.
Difference between standard and t e actual could be favorable or unfavorable continued wit
compensation. In external score card like NMI, t e company set t e standard condition as t e needs
material served better in many aspects minimum is 70% or for preferred supplier t e result is more t an
90%. | is as no large different wit internal balanced score card w ic in NMI͛s score card t e ideal
standard does not c ange in percentage and performance measure by four parameters aggregated in
one score. | e report is quarterly so t at suppliers could evaluate and tidy up t eir management.
82Y ,*-3 ,
Supplier score card is made by t e company t at needs supplier performance related to t e
company performance. | is supplier score card is successful in identifying appropriate and well-defined
performance measures for suppliers, in developing objective scoring met ods, and in establis ing a
collaborative relations ip between t e customer and supplier. | e result of t is score card for t e
company is t e criteria of supplier as t e priority one or conditional one. | e company could allocate
and forecast t e expense in one supplier for t e next quarter. Congruence between supplier and
consumer is also made because t e parameter used based on NMI relation wit customer. For supplier,
t ey can evaluate t eir performance and become better.

"2Y *, ,

NMI as a company t at use a lot of outsource primarily needs supplier score card t at make
supplier͛s performance better. However, t e company still needs internal balanced score card to
evaluate internal performance. | e result of internal performance combined wit external performance
will result not only double but more.
Supplier as t e main partner of NMI to served costumer need to develop toget er wit t e
company. Means t at t e company tries to elp supplier developed t eir own competence. | is
program will increase t eir performance and in t e end will increase NMI performance.
Scoring model for sub parameter is not clear enoug . Weig ted for eac parameter is 25% means
t at every parameter as t e same importance for t e company. But sub parameters use in t is balance
score card are confusing to measure. Suc as for PPM sub parameter, NMI sets 5 defects every 1 million
part, if supplier precisely got 5 defects t en t e company give 90% assessment, ig er t an t at t en
t e supplier got ig er assessment incrementally. Lower t an t at t en t e assessment lower t an 90%
incrementally. I ave not seen t e exact incremental calculation. | is is point t at s ould be revised.
Compensation as follow up action of performance measurement is needed to make t e assessment
more meaningful not only as courtesy. NMI gives compensation to supplier in terms of projected
spending for t e next quarter. Ot er kind of compensation mig t be adding some more motivation.
,*3

Ant ony, Robert N., and Vijay Govindarajan (2007), c

 
 
  , Nint dition, Irwin
McGraw-Hill.

Doolen, |oni., |raxler, MAJ Mike., and McBride, Ken (2006),  
    
   

 
   
 
 
  
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, ngineering Management
Journal Volume 18. No.2