Scorecards have become the Holy Grail of supplier performance management. Most companies either already use them or want to use them. Expectations for results are high. However, few firms are satisfied with their scorecards and even fewer are pleased with the results that they are getting from the scorecards. While it is true that suppliers can sometimes improve just by being measured because of the Hawthorn Effect, that is, because they know that the customer is watching, the improvements may be temporary. Part of the reason for the lack of supplier scorecard success is that firms often focus on the mechanics of getting scorecards implemented and neglect to focus on effectiveness. Supplier scorecards are most successful when deployed as part of an overall supplier evaluation business process.
When asked if the scorecards are providing results and whether supplier performance has improved, few respond "yes". The challenges of developing and deploying supplier scorecards are fairly common, but not insurmountable.
Why is developing an effective supplier scorecard such a challenge? Here are 12 reasons why supplier scorecards fail:
1. Firms measure what is easily measured rather than what is important to the business. Too often people come up with a wish list of metrics and KPIs that they would like to use, but end up actually deploying different and less meaningful metrics and KPIs because the data for the desired metrics are not readily available. This can lead to #2.
2. Metrics are borrowed from other companies and are not sufficiently relevant or meaningful to the borrowing firm. While it is helpful to learn what other firms, even in the same industry, are measuring on their scorecards, other firms' metrics may not fit your business or you may not be able to gather the same data as other firms. Poor fit means poor results.
3. Some firms try to track too many KPIs or measure too many suppliers to be effective. Quality of metrics always trumps quantity.
4. Metrics do not support or are not aligned with a firm's business goals. Supplier scorecards developed in a vacuum without regard to senior management's goals and objectives will have a lower chance of success and of senior management support in the form of resources.
5. Scorecards may lack credibility and transparency and thus can be subject to doubt and dispute, both within a company and with suppliers. Who wants to waste time arguing about whether the numbers are right?
6. Scorecards that require too much data cleansing and manipulation to produce have a lower probability of success. The more tweaking required, the greater the amount of additional (scarce) resources that may be needed and the potentially lower the credibility of the metrics with suppliers.
7. Internal stakeholders don't provide input on a timely basis or not at all. If internal support and discipline is lacking, the best laid plans for measuring internal stakeholder satisfaction can disappear, derailing your supplier evaluation process.
8. Scorecard results are not regularly shared with suppliers. If scorecards are kept a secret from suppliers, performance improvement will not result. And, yes, I have seen organizations that don't get around to sharing supplier scorecard results with their suppliers.
9. Suppliers are unclear about their customer's performance expectations. When suppliers are not sure what performance the customer expects, how can they meet customer performance expectations? Result of scorecards: nothing happens.
10. Metrics are confusing or have no meaning to suppliers. Suppliers: Did you ever see mysterious metrics on your scorecard and wonder -- where did they come from, what do they mean, and even sometimes, is the customer making them up?
11. There is little or no action or follow through that results from the scorecards. (i.e., suppliers do not see recognition, rewards, corrective actions, or disengagement as a result of their performance). If there are no consequences or rewards, a supplier will soon realize that scorecards are just customer window dressing. Yep, we've got supplier scorecards, check.
12. Scorecard metrics are simply not actionable. Or, scorecard metrics do not help expose the root causes of problems, making it difficult for the supplier to undertake corrective actions. Without action and results, scorecards can be a waste of resources.
Readers of this post may also be interested in the February 1, 2009 IndustryWeek article by Nick Zubko called, "Who's Keeping Score”.
- Sherry Gordon