Daily Archives: November 27, 2008

Do Common Scorecards Help (with Supplier Management)?

One of the presentations at the 6th Annual International Symposium on Supply Chain Management was on Performance Management in Buyer-Supplier Collaboration Programs. It focussed on the implementation of a common scorecard between a buyer and supplier and described the impact of the implementation.

A common scorecard, which extends the traditional balanced scorecard, was selected because the parties believed that it would lead to mutual success since it would clarify performance measurements, which in turn would align partnership goals, link strategic objectives to day-to-day tactical execution, and communicate the overall effectiveness of the partnership. Once the performance indicators are mutually agreed upon, a common scorecard can be implemented by way of regular data exchange between the parties.

The presentation described a case study on custom packaging materials where consignment stock (VMI) was used. In this particular example, where goods were being transported from Asia to Western Europe, the lead time was eight weeks, the demand viability on the buy-side was high, and the goods had to be expedited by air on a regular basis due to regular stock-outs. The motivation behind the implementation for the buyer was to decrease shortages and increase forecast accuracy and the motivation for the supplier was to improve operations efficiency and overall customer service.

The parties chose to monitor production cycle time, transit time, consumption vs. forecast, stock-outs at the buyer site, number of expedited shipments, the value of stock on hand for the next eight weeks of forecast, and the value of stock materials without demand. To enable these measurements, the buyer shared stock, consumption, minimal target stock, and consumption vs. forecast data on a weekly basis and the supplier shared its dispatch (supply) plan and stock levels with the buyer on a weekly basis.

After implementing a common scorecard, supplier production cycle time decreased 60%, consumption vs. forecast accuracy improved 40%, the number of expedited shipments in a month dropped from an average of 7 to 1, and the value of stock on hand decreased 25%, while the other measures remained constant or improved slightly. Thus, when properly implemented, common scorecards appear to do quite well. This is what one would expect if both parties enter into a collaborative partnership, share data, and work toward a common goal. More information will be released in an upcoming special issue of the Journal of Operations Management next March in a paper by Barros et. al.