In my last post, I listed 11 reasons why supplier scorecards fail.
I’d like to write about the first reason – measuring what is easily measured instead of measuring what is meaningful or important. This assumes that you already know what is important for your company to measure, but that’s a future topic.
Let’s look at a typical situation. A company wants to measure customer satisfaction (either internal or external) regarding its transportation service. The only information or KPI (key performance indicator) that is currently collected is whether a delivery truck arrives on time. Other elements, such as courtesy and helpfulness of the driver, condition of the goods, corrective actions taken when service failures occur, whether the service met expectations, etc. are not collected. Because of the additional resources required to gather more information, the company bases customer satisfaction largely on one dimension that fails to give sufficiently useful or actionable information.
Or take the example of measuring supplier quality. Companies may measure incoming supplier quality because they have customarily collected the information, but not measure or track in-process supplier quality rejects because of the further investigation needed to determine if the quality problem is the supplier’s fault or the firm’s own fault. If supplier quality is measured only on the one dimension, then the picture of it is likely to be inaccurate. These types of incomplete data make it difficult for the customer or supplier to take any meaningful action to correct problems because they only know part of the picture.
Measuring what is easily measured also applies to categories. A good example is office supplies. It is easy to get data from office supply vendors, as they track their own performance and readily share the information in detail. Because it is so easy to get this information, some companies spend a disproportionate amount of time with office supply vendors. Office supplies are very visible, but not strategic. However, many, if not most, strategic suppliers do not provide such detailed analysis, and more time and resources may be required to gather the most valuable supplier performance information. The risk of pursuing “low-hanging fruit” metrics is focusing too much attention in the wrong areas.
Another aspect of easily collected metrics is that they tend to be lagging rather than leading indicators; that is, that they tell you about what has happened in the past but are not predictive of future performance. While lagging indicators are important, a good supplier scorecard should also contain leading indicators.
One of the big challenges of creating supplier scorecards is finding and/or creating sources of metrics that are meaningful to your business. While it is never wrong to start with a few measurements or KPIs and build the supplier scorecard from there, you should try to choose meaningful, not half-baked or ambiguous metrics just because those metrics can be easily collected.
To learn more about how to succeed with scorecards, my book, Supplier Evaluation and Performance Excellence is a good resource. It is the first book totally focused on how to evaluate suppliers.