5 Insights - Joint Scorecards to Improve Profit

Missing KPIs mean lost opportunities for both partners

Earlier this year IMS had an opportunity to complete a review of top US retailer scorecards.  This past week at the VCF Fall Conference there was a unique opportunity to participate in simultaneous dialog with retailers and vendors on metrics and scorecards.  The clear take away is that scorecards are far from balanced.  But, the real gain for both partners will come from joint scorecards focused on profitable life cycle management. 

Many Retail Scorecards – Where are the Vendors?

VCF stands for Vendor Compliance Federation.  A primary VCF goal is to get retailers and vendors on the same page by working out a common language to optimize relationships.  The theme of this week’s fall conference was “Collaboration 2.0:  Upgrading the Trading Partner Dynamic”.  If that is to happen, clearly scorecards and measurement must be a renewed focal point.

While there were a lot of examples of retail scorecards and metrics, there were very few corresponding examples of vendor scorecards.  It became readily apparent that retailers have become increasingly sophisticated in the compliance aspect of holding vendors accountable for performance. Vendors not so much.

There were few scorecards shared by vendors for measuring retailer performance.  Vendors simply have not “manned up” [not intended to be sexist … refers to lack of resources].  For collaboration 2.0 there is a clear need for vendors to more fully develop their own scorecards with core KPIs affecting their ability to execute efficiently and profitably.

Partnering for Profitable Lifecycle Management

Retail is detail … it’s all about execution.  There is nothing wrong with that.  In fact it is essential that both partners focus on accurate orders, and on time delivery.  However, a majority of the supply chain metrics today are focused only on executing and shipping orders to distribution points.

PLM, Profitable Lifecycle Management, goes beyond fulfillment.  PLM requires a minimum of four essentials:

1. The “right” products (mix)
2. In the “right” stores
3. At the “right” time
4. In the “right” quantities

In short, PLM requires store level optimization.  This requires on-going real time adjustments throughout the product lifecycle.  

Both partners lose when high performing stores are out of stock, and low performing stores are overstocked.  A high proportion of potential profit is lost at the end of the product lifecycle when old SKUs are not transitioned effectively to new replacement SKUs.  The result for both partners is lost sales, mark downs, and increased costs.

5 Insights on Collaborative Scorecards for Profitability

While vendor scorecards were in the minority, there seemed to be almost no examples of jointly developed scorecards focused on optimizing partner growth and profitability.  The most significant areas of profit opportunity in fact require execution by both partners in order to change performance.  Here are five immediate areas of opportunity and insights related to collaborative scorecards for PLM:

1. Forecast accuracy.  Vendors can’t reliably ship what was not forecasted by retailers.  With longer lead times of sourcing products abroad, sell through demand forecast accuracy is a critical metric that must be on both partner’s priority list.
2. Joint Process – CPFR.  CPFR in fact stands for Collaborative Planning Forecasting and Replenishment.  Early adopters are already deploying CPFR as the means to develop one shared sell through forecast.  CPFR focuses on joint metrics to improve the planning, forecasts, as well as the replenishment.  If not possible to deploy resources for the full CPFR model, partners would do well to pinpoint key elements and add joint process improvement metrics.
3. Store Optimization.  Very few scorecards show any evidence of tracking store level performance.  The immediate low hanging fruit is to reduce out of stocks.  Many of the markdowns and returns can be minimized by reducing overstocks at low performing stores.  While stores are the responsibility of the retailer, fulfillment is increasingly being managed all the way through to stores.  If what gets measured gets managed, both partners win by focusing on metrics to optimize store inventory and stock to sales ratios.
4. Golden Metric of GMROII.  Gross Margin Return on Inventory Investment is the gross profit generated divided by the average inventory at cost.  By jointly measuring store and category GMROII performance partners can constructively assess on how to optimize topline growth through mix, and minimize risk through inventory turns.  It takes partnership and sharing data to jointly optimize turns.
5. Cost to Sell Through.  Retailers have costs related to order accuracy, fill rates, on time delivery.  Vendors have costs to serve related to pick & pack, tagging, shipping and fulfillment costs.  Considerable learning can be gained and mutual costs reduced if both partners share metrics on what it costs to sell through a unit to a consumer.  Something as simple as changing master carton size or minimum order quantity could lower costs for both partners. 

In today’s economic climate, with eroding prices and margins … it can no longer be a question of your scorecard versus mine.  The clear winners are proving to be those partners collaborating on joint scorecards with balanced metrics focused on supply chain, PLM and store level optimization.

How would you characterize your scorecard?

• Supply chain, fulfillment driven
• Supply chain efficiency plus profitability metrics
• Collaborative scorecard with joint partner metrics
• No time … no resources … no formal scorecard


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Comments

[Chris Petersen]

Thank you for your very positive comment!

While you like to read our blog daily, we unfortunately can not publish daily.

There is however an archive of many past posts on a variety of topics related to retail and measurement. Please use the search bar to find topics that interest you.

We appreicate your continued readership,
Chris

[Shopping Cart Software Solutions]

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