Retailer scorecarding of supplier performance across a wide range of key performance indicators (KPIs) is a proven tool for both measuring order performance and driving compliance improvement. Back in 2014, RVCF partnered with Supply Chain Insights to better understand the current role of scorecards in improving relationships and corporate performance.
The central focus behind the development of scorecards has been supply chain performance, with the greatest emphasis on activities related to on-time, accurate and complete shipments preceded by an ASN (Advance Shipment Notice, the EDI 856). With input from 34 retailers and 31 manufacturers/suppliers, the survey provided us with an overview of the current and potential value proposition for scorecarding across various elements of the relationship, a contrast of importance and performance of retail scorecards across a number of activities as shown here:
This graph was the combination of two questions we asked both retailers and suppliers. First, when you think about your current primary relationship, how important is each of these elements? Second, how would you rate your primary relationship in each of these areas?
Both retailers and suppliers responded that traditional supply chain focus areas (accurate shipments, on-time, properly labeled, with ASN) were the highest in both importance and performance. But other areas such as exciting assortments, promotions, lowest total cost and corporate social responsibility (CSR) impact were all aspects of the relationship for which scorecards had little value or impact.
Looking at this data in a slightly different way, as shown above, Supply Chain Insights concluded, "The focus of the scorecard activity changes slightly by type of trading partner. While both retailer and supplier are aligned on the importance of scorecards to improve the perfect order, they are not aligned on the other dimensions of scorecard performance. The work to date is the tip of the iceberg. There is much more to be done. The key to success is alignment. For example, the retailer is more interested in improving assortment and the supplier is more focused on the management of deductions. Since scorecards have not been made a part of buying decisions, progress is slow. If scorecards were more of a carrot than a stick, the progress would be faster."
The study continued to look at how suppliers use scorecards internally, how often they were reviewed, and to what degree they were shared cross functionally inside the supplier organization. For retailers, we asked what types of data was shared, how often this data was provided, and how data was provided or accessed (spreadsheets, portals, etc.).
Supply Chain Insights concluded, "While the retailer has more power in the channel than the supplier, they are behind the supplier in sharing of data and building effective value networks. It is also ironic that the most common data shared by the retailer is often the least useful, i.e., the forecast error of the retailer is just too high for forecast data sharing to be meaningful. A greater value for the supplier occurs when the retailer shares actual take-away from the store via point of sale purchases. The second most valuable data element is warehouse perpetual inventory (PI) levels. The lack of a good, and more widespread, capability for perpetual inventory is a barrier to retailer and supplier collaboration."
Finally, after drilling down into how retailers reward or penalize suppliers based on performance, and identifying the most common carrots and sticks retailer use, the study provided recommendations for both retailers and for suppliers to consider.
Share data timely and openly through a private network. Private networks are more effective for data sharing and collaboration than portals.
Focus on clean data. An accurate perpetual inventory signal that reflects real time changes, as well as accurate forecasts, are critical.
Take your hand out of the supplier's pocket. Deductions should be a tool for driving performance improvements, not a revenue stream.
Use retailer data. This data can help you get a better sense of demand and improve replenishment.
Give retailers a reason to share clean data. Use retailer data to uncover new opportunities that add value to the relationship.
Pay for performance. Closely monitor deductions and types, and tie promotion performance to incentives when possible.
If you would like to read the study "What Is the Value of a Retail Scorecard?" in its entirety, click here.
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