My previous post about why supplier scorecards fail generated a lot of interest. So today I’m going to write about one of the biggest reasons for failed supplier scorecards: There is little or no action or follow through that results from the scorecards.  Supply managers get so focused on the idea of having a supplier scorecard and on the content and the mechanics of the scorecard that they lose sight of just why they are developing a scorecard in the first place. By that I mean that they don’t focus on the business outcomes of having the scorecards. Scorecards for the sake of scorecards are another way of collecting data for the sake of data. You can tell the boss that yes, we’re measuring our suppliers’ performance now. Check. But so what? Have the scorecards produced any results?

 What kinds of actions can and should result from a supplier scorecard system? Here are a few examples of possible actions:

• Provide performance feedback to suppliers
• Identify supplier continuous improvement opportunities
• Develop corrective actions
• Help suppliers develop a better understanding of and compliance with your performance expectations
• Rationalize current supply base
• Disengage with low performers and risky suppliers
• Recognize high performers
• Give more business to high performers
• Work on development projects with suppliers
• Create preferred or certification program
• Set criteria for new supplier on-boarding
• Establish criteria for an approved supplier list

Supplier scorecards need to show results or lose their reason for being. Suppliers should be improving their performance and your company’s as well in the process. And if suppliers are not improving, you’ve got some evidence as to why not and some information on potential improvements to pursue. The scorecards should be providing the information you need to identify and disengage poor performers and of course give your higher performers the recognition and potentially the extra business they deserve. The scorecards should facilitate measurable supplier performance improvements, be a positive business driver, and add value to the company. Otherwise, they can become an empty, bureaucratic exercise. Senior management will lose interest and will not see any reason to provide the resources required to deploy them.

The failures at Peanut Corporation of America are tragedy in every way. This supplier failed to meet both regulatory and customer requirements. Its customers failed either to uncover or report the failures, and people died as a result. Now a healthy, everyday product is suspect, and faith in the U.S. food processing industry has been shaken by tainted product. Food contamination isn’t just a Chinese problem any more. According to Lora Cecere, an analyst at AMR Research and a food supply chain expert, food safety has ranked low in the U.S. as a supply risk concern (12th out of 15 in AMR surveys). However, in China it is ranked second. The peanut scare has been a wakeup call and confidence buster about U.S. food safety.

This situation illustrates an order-of-magnitude regulatory failure, compounded by lack of state inspection resources and lack of oversight. It also illustrates a worst-case scenario of supplier risk and abdication of responsibilities.

Why did this failure occur? In quality terms, the food industry relies more on inspection than prevention (and even inspections don’t always occur or are poorly done). And it is well known that quality inspection is far more expensive and far less reliable an approach than problem prevention. Preventive versus reactive is basic when it comes to quality.

While inspection is important in the food industry, preventive actions need to be institutionalized and enforced to avoid food contamination in the first place. Inspection, in fact, should focus on assessing preventive measures in the area of quality and safety. Do we want to know how many contaminated batches of food are found? Or worse, do we want the food industry to leave quality control in the hands (or stomachs) of the customer? Or would do we want verification that that all food safety rules and cleanliness standards are in fact followed to prevent contamination?

And when supplier evaluations and inspections are outsourced to third parties, how do customer firms assess those third parties and ensure that they are not, in fact, just the foxes guarding the chickens? The complexities of the supply chain no longer allow a reliance on good intentions or lackadaisical supply chain management practices downsized in the name of cost. Since second and third-tier suppliers, often invisible or barely visible to the customer, can adversely impact our food supply, understanding their operations and performance becomes essential. Food contamination falls into the category of supply risks that can be prevented (preferably) or mitigated. They are not an unavoidable natural disaster. Not only should companies consider these risks in their sourcing strategies, but they should also have robust supplier assessment systems, including regular site visits to higher risk suppliers, to prevent the occurrence of such failures. The costs of food contamination in illnesses and deaths, lawsuits, brand damage, consumer confidence – and even company bankruptcies and job loss – are far higher than the basic sourcing and supplier management activities needed to prevent them.

McKinsey recently published the results of its global survey on managing global supply chains.  To boil down a seven-page article: they aren’t managing the risk.  Or to quote the article: “relatively few respondents…say that their companies are translating the importance they place on these [risk] factors into corporate action.” Are we surprised at this conclusion? Of course not. Managers who are not addressing risk seem to be a favorite whipping post lately for supply chain pundits.  

So if risks are so important, why are they not being addressed? And, can risks really be avoided or overcome? There are several possible reasons why executives are not addressing risk. Perhaps they are unclear how to do it. Risk is not something that you can eliminate, as many articles on supply management seem to imply. The probability of some supply risks can be reduced, but many catastrophes or supply chain failures cannot be prevented, only mitigated once badness occurs. There is no magic solution. Or perhaps companies have focused global supply chain management on chasing the lowest price for goods and services and have not paid attention to the resulting supply chain complexity and increased risks. In the process of seeking to lower cost with lower price suppliers, companies may be giving up reliability and sustainability.  Another contributing factor to global supply risk is that businesses processes, including supply chain processes, simply evolve over time and are not consciously designed, planned or improved. The resulting processes can become out of control or just inefficient, ineffective and prone to failure.

While it’s discouraging, McKinsey’s study comes to the same conclusion as other similar studies (e.g., Aberdeen Group’s report, “Supply Risk Increases as the Market Stands Still” – subscription required) – supply risk management is still in its infancy and not yet widely adopted. It’s still in the lots of talk but little action stage.

What can companies do about supply risk? I discuss this in Chapter 9 of my book, Supplier Evaluation and Performance Excellence and will post some more thoughts on the subject in future blogs.

My new book, Supplier Evaluation and Performance Excellence: A Guide to Meaningful Metrics and Successful Results, has just been published this week. This is my first experience as a book author (although I did publish a shorter e-book in 1999 on Improving Company Performance Through Supply Chain Management Practices). The book is available through the publisher, J. Ross Publishing, and through Amazon.

There has been a huge gap in the literature on supplier evaluation, supplier performance management and supplier relationship management, which are all different sides of the same coin. There have been many articles published and some discussion in the blogosphere, but no actual book on the subject. Most importantly, there are few sources of information that actually tell you how to evaluate suppliers in any practical way or by following any particular business process.  There have been a number of webcasts lately, sponsored by software providers, that address supply risk. Software solutions can be an integral part of a supplier evaluation and performance management program. But what is missing? The business process. And that is exactly what I address in the book: how to create a business process as a vehicle for facilitating the reduction of risk and cost as well as performance improvement. Not just create slick scorecards, but get real results.

Some executives and practitioners from several well-known companies have been very interested in reviewing the book. Some of these companies include: Boeing, Wolters Kluwer, Caterpillar, and GlaxoSmithKline. The book is just shipping this week, so it has not yet been fully reviewed. But here are a few early comments from the back cover of the book:

“Finally, there is a practical guide to managing supplier performance. This much-needed book is a must read for all executives and practitioners who are looking for ways to measure and improve the performance of their suppliers and reduce supply risk.” –Charles Ballard, Supplier Development Manager, The Boeing Company

“This how-to books takes on supplier performance management (SPM) like never before–from development to implementation of effective SPM tailored to your particular work environment. Gordon does a great job of showing how to link SPM directly to the goals and objectives of your organization and gives great advice on how to establish the best methods for communicating performance results with the supply base to get the desired results.” –Gregg Brandyberry, Vice President, Global Systems & Procurement Processes, GlaxoSmithKline.

From the title, you might have visited this blog to learn more about sub-tier supplier management. Not today. For April Fools’ Day, I’m deviating from the serious and sometimes deadly boring business of supply chain and lean to talk about the trend of business networking on Linked In.  Linked In has mushroomed since I first joined several years ago. Today I’m profiling, or rather poking fun of, some of the types of people you may run into on Linked In.

Blowhards– post answers to every question, link to you so that they can send you newsletters and spam. It’s all about them – all hot air, all the time. Is this bus dev 2.0? Once you connect to a blow hard, it’s like catching the flu. Stay connected just to marvel at their chutzpah and at how much time they are willing to waste to spread their self-centered germs. Get a life.

Networking Enthusiasts – are trying to win the prize for having the most links. They see Linked In as a business popularity contest and a competitive sport. They link to hundreds and hundreds of people. Do they actually know all of these folks? Wow. They must have some social life. If you link to these people, your network will instantly grow into the millions. It would be interesting to check to see how many of their connections are actually still living.

Groupies– these folks like to join Linked In groups and collect the badges of the different groups that they join. They are the boy scouts and girl scouts of the Internet. The groups they join may never be active or add any particular value, but those merit badges sure look cool. Watch out for blowhards in these groups, who may join them to pontificate about how great they are.

The Weakest Link – someone told them about Linked In and invited them to join, but they never got further than a couple of connections of the people who invite them. And they’ve forgotten their password by now, anyway.

Area 51– are the people who ask you to link, but then keep their network top secret and don’t allow you to see it.  It’s OK for them to see your network, but not theirs. And I’m talking about people you actually know, not strangers. Do they think you’re going to harrass their connections or run away with their clients? Sheesh.

Trophy Linkers– are very selective about whom they link with. Only CEOs and VPs please. OK, and maybe a few famous sports figures, too. Don’t want their network to be just “ordinaire”.

Intergalactic Travellers – These are people come in from outer space like aliens and find you, but you can’t figure out how they know you. It’s because they actually don’t know you. These people are not necessarily the compulsive collectors with zillions of people in their network. They just decide that you’re someone they’d like in their network, so they write to you on the pretext that either you knew them when you were a grunt 3 or 4 jobs ago or that you currently work for the same company as they do (huh?). Haven’t figured these folks out yet.

Linking Maniacs – These are people who think that joining one networking site or even two is not enough. So they invite you to join lots of other networks that they are in. I’m not sure what you do with networks on top of your networks. Does anyone besides recruiters actually have time to participate in them all and get something out of all of these networks? I get tired just thinking about them.

Genuine Colleagues – are just regular people on Linked In who are discovering old connections and are linking to their associates and former associates to get or stay in touch or see where it will lead.  

OK, people, you have a million connections in your network. Now what?