What’s the Impact? Translating Scorecard KPIs into What Users Need to Know
by Victor Engesser of RVCF
Almost every retailer provides their supplier community with a scorecard measuring supply chain-related performance. With quite a few KPIs (key performance indicators) on the scorecard measuring so many different order-related activities, these data points can quickly become overwhelming and confusing to both internal and external users.
Our goal is to see scorecards evolve to better support the needs of various users so they can see past the data and gain a clear picture of real-world impact. Let’s look at three examples of how retailers are, and can be, working to drive improvement by enhancing the relevance of their scorecarding programs.
The Retailer Merchant Community
First, consider the merchant community inside the retailer, from Buyer to Merchandise Manager to Chief Merchandising Officer. These merchants determine who will be part of their company’s supplier community. They effectively “own” the overall relationship.
The merchant community’s understanding of and engagement with the supplier is critical to improving supply chain performance. However, most scorecard KPIs don’t translate well to what matters most to these folks.
When this group asks, “What’s the impact?” they really want and need the scorecard to offer perspective on the actual impact that poor supplier performance has on lost sales dollars and margin dollars. These are arguably the two most important company goals they answer for.
Does the scorecard help the merchant understand the direct impact of poor supplier performance on Speed to Shelf and Out of Stocks? If so, this data can be used to calculate the approximate revenue lost, as well as lost margin dollars when the product is not available for purchase.
When you arm the merchants with this dollar-stated calculation from the current scorecard, they’ll have a direct line of sight into how their supplier’s performance delivers, or falls short of, the retailer’s budgeted objectives. Merchants learn to fully appreciate how seemingly small improvements to metrics such as “on-time” and “fill rate” directly relate to sales and profit objectives. When merchants understand this impact and the critical role supplier performance plays, their involvement and support can reach a whole new level.
Supplier Senior Management
Let’s change perspectives and think about senior management on the supplier side. These individuals deal with large numbers of retailers, each with different scorecarding and compliance programs. It is not reasonable to assume suppliers have the time to seriously study all the various KPIs on all the different scorecards used by their retailer customers. Senior management in the supplier organization would benefit from a simple overview that tells them if their attention is needed, and why.
To fill this need, retailers have started grading supplier performance, using the letter grades we all grew up with in school to indicate if performance is above, at, or below expectations. For the supplier, the impact of a scorecard grade is simple, straightforward, and effective. They may not know if a 94 percent on-time rate is good, or if an 82 percent fill rate is terrible, but everyone knows a “B” is above average and a “D” is not. Letter grading allows the supplier to immediately know if overall performance is acceptable or problematic.
With this perspective, middle managers and senior management can focus attention where and when it is needed. Think of the overall grade as their GPA, with individual grades for each major area of importance. If one area needs attention to raise their GPA, make it easy for the supplier to spot on your scorecard cover page.
An added benefit is that grading supports the retailer internally. Now, the merchant and the sales side of the supplier can tailor their discussion, positively or negatively, and easily identify what areas need their attention. Plus, over time, retailers can raise the bar and decide that performance that once received a “B” is now a “C,” thus, working towards continuous improvement.
The Retailer Inventory Team
A third group, and one that probably gets the least consideration with regards to how scorecard enhancement could help them support supplier improvement, is the inventory team. This team inside the retailer is responsible for maintaining a high in-stock level, while at the same time keeping overall inventory levels as low as possible, resulting in increased inventory turns.
As the inventory team works to take down safety stock levels, the optimal approach is to order more, less often, with great on-time and fill rate. However, supplier performance related to on time and fill rate is often highly dependent on the availability and quality of the retailer's forecast.
To improve forecasting, retailers need to first measure their forecast accuracy and forecast volatility. They should be looking at the degree to which their forecast is affecting supplier fill rate. That brings us back to, “What’s the impact?”
There is potential for fill rate improvement if the supplier is provided with a more accurate, dependable forecast. The low-hanging fruit is found when forecasts are consistently lower than actual purchase order need, resulting in poor fill rate. As a first step, placing these metrics onto the retailer’s internal scorecard would help the merchants and their inventory partners spot the largest error relationships so they can work together to develop an appropriate improvement plan.
In summary, there are always opportunities to expand and enhance supplier performance scorecards. Here at RVCF, we are committed to helping retailers and suppliers identify these opportunities. Start by looking at each area of the trading partner relationship and asking two simple questions:
“Do they understand the impact that performance is having?”
“Can we do more to educate, engage, and support?"