What Is the Value of a Retail Scorecard? - 21 OCT 2014

What Is the Value of

a Retail Scorecard?

Results from a Quantitative Study of 65 Retailers and Suppliers

10/21/2014

By Lora Cecere

Founder and CEOSupply Chain Insights LLC

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Contents Disclosure

Research

Research Methodology and Overview

Executive Overview

Using Retail Scorecards to Improve Performance

Understanding the Players

How Suppliers Use Scorecards

How Retailers Share Data

The Use of Scorecards in Reward Systems

Advice for the Retailer

Advice for the Supplier

Summary

Appendix: Demographic Data

About Supply Chain Insights

About RVCF

About the Author

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DisclosureYour trust is important to us. As such, we are open and transparent about our financial relationships

and our research processes. This independent research was jointly conducted by Supply Chain

Insights in partnership with the Retail Value Chain Confederation (RVCF) during 2014.

ResearchSupply Chain Insights LLC is dedicated to bringing thought-leading research to the supply chain

leader. This report is designed to guide your decision making in defining and executing scorecards

between retailers and suppliers. Please share this data freely within your company and across your

industry. All we ask for in return is attribution when you use the materials in this report. We publish

under the Creative Commons License Attribution-Noncommercial-Share Alike 3.0 United States and

you will find our citation policy here.

Research Methodology and OverviewThis report is based on responses from 65 supply chain leaders from a quantitative study fielded

through a web-based survey during January through June of 2014. While the detailed demographics

are shared in the Appendix of this report, an overview of the study is shared in Figure 1.

Figure 1. Overview of Retail Scorecard Study

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To guide the reader and ensure clarity in reading this report, here we start with some definitions:

Collaboration: In this report, the definition of collaboration is the establishment of practices that are

win/win for both the supplier and the retailer. This is quite different than collaborative data sharing

where trading partners agree to share data but, the data is not connected to win/win practices where

both the retailer and the supplier see value.

Demand-Driven: The term demand-driven in this report is defined as the use of demand data

(channel data of point of sale, warehouse retail withdrawal data, perpetual inventory information and

loyalty data) to better sense, shape and translate demand with zero latency.

Retail Scorecards: In this survey, this term was defined as a set of key performance indicators that

are used to track the progress between a buyer and a seller in terms of the health of the relationship,

specifically where the retailer evaluates the supplier.

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Executive OverviewRetail scorecards are now more than a decade old. The companies in this study had an average of

more than five years of experience using retail scorecards. Buyers and suppliers now manage

multiple scorecards simultaneously (in the same relationship) in trading partner communications. The

most common scorecards are focused in the areas of supply chain.

As with any relationship, there is always a carrot and a stick. A carrot, or an incentive to do better, is a

positive reward system given to affirm good behavior; while a stick is a punitive action for an

unwanted behavior. Today, in the administration of retail scorecards, they are more focused on

deductions and the withholding of payment.

The primary value of the retail scorecard is the improvement of on-time and in-full shipments. Both

parties have the opportunity to use the scorecard to improve assortment and reduce total costs.

Today, these opportunities are aspirational. Here we share the insights from the study and end with

recommendations for both trading partners.

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Using Retail Scorecards to Improve PerformanceAfter a decade of implementation and use, the primary value of the retail scorecard is the

improvement of on-time shipping performance. The scorecard has opened up dialogues between

retailers and suppliers to facilitate the movement of goods in-time and in-full to expectations. This

benefit, while not trivial, is only the beginning of what could be possible through the use of retail

scorecards. The overview of the current and potential value proposition—a contrast of importance

and performance of retail scorecards—is shown in Figure 2.

Figure 2. Importance versus Performance of Retail Scorecards

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To understand the potential, let’s take a closer look at the impact on on-time delivery. In the evolution

of retail scorecards, on-time deliveries lacked a common definition with each retailer setting a

different expectation of the meaning of “on-time.” As a result, the scorecard improved trading partner

communication to improve the perfect order. The scorecard enabled productive dialogue for trading

partners to align on a critical element of business pain.

While the greatest benefit of scorecards was in the improvement of the perfect order (a shipment that

is on-time, in-full and accurate), the promise could be much, much more. Since the focus has been on

logistics and the perfect order, the scorecard has had little impact on assortment or total costs.

Understanding the PlayersRetailers and suppliers come to the table to trade from different backgrounds with dissimilar needs

and very different political dynamics. The retailer is typically a smaller company with a regional focus.

Retail, and the merchandising of goods, is a combination of both art and science. Within the retailer,

there is tension between the buyer/ merchandiser and the retailer’s supply chain organization and

store operations. The role of the store is changing with the greater acceptance of e-commerce and

mobile commerce by the consumer.

The retailer’s supply chain systems are not as advanced as those of their suppliers. In general, they

have been later adopters of technology. For example, in this study 56% of retailers have a Perpetual

Inventory (PI) signal in their warehouses with 47% having a PI signal for their stores. Managing

inventory on a perpetual basis is a sign of supply chain maturity and an important foundation for

retail/supplier collaboration.

The supplier interaction with retail usually starts with a call from a salesperson. The larger the

supplier’s company, the larger and more complex the sales team, and the greater the political

dynamic between the supplier’s sales group and other functions within the supplier’s organization—

marketing, demand insights, category management and customer service.

In larger and more significant accounts, like Walmart or Target, the sales group becomes a sales

team focused on selling to the retailer. These teams can range from a small team of two to five

people calling on a local retailer, to a team of hundreds calling on Walmart for a major consumer

products company. A struggle for the retailer is the difference in scale and capability of the suppliers’

organization. Each supplier has a different definition of regional/global governance, and the supplier

account team often has to fight within their own company to get support for the retailer relationship

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that they support. As a result, getting the right attention to improve retail scorecards is not easy. The

typical organizational structure of a supplier’s organization is shown in Figures 3a and 3b.

The depiction in Figure 3a is an overview of a manufacturing organization attempting to implement

demand-driven processes. In these attempts to better use demand data, the supplier’s organization is

implementing technologies and processes to improve demand sensing and translation. This includes

push/pull decoupling points and the use of advanced analytics.

Figure 3a. The Supplier’s Organization and Demand-Driven Processes

While it sounds easy, managing demand and translating retailer needs within the supplier is a

challenge. The average supplier is greater than $5 billion in revenue operating over 50 manufacturing

locations and 28 distribution centers. Consumer packaged goods and consumer durable companies

tend to be more global, while food and beverage companies tend to be more regional.

The depiction in Figure 3b is an overview of the regional sales account team structure. While a

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regional team may have 30 to 50 account teams, each with scorecards, the global consumer

packaged goods companies have hundreds of account teams with scorecards. As a result, the

supplier’s organization struggles to harmonize and standardize information across a myriad of

retailers that each has a very different scorecard with different definitions and formats. While it is the

intent of the supplier to use customer scorecards, no supplier feels that they do it well.

Figure 3b. The Supplier’s Organization - Regional Sales Structure

The focus of the scorecard activity changes slightly by type of trading partner. While both retailer and

supplier are aligned on the importance of scorecards to improve the perfect order, they are not

aligned on the other dimensions of scorecard performance. The work to date is the tip of the iceberg.

As shown in Figure 4, there is much more to be done. The key to success is alignment. For example,

the retailer is more interested in improving assortment and the supplier is more focused on the

management of deductions. Since scorecards have not been made a part of buying decisions,

progress is slow. If scorecards were more of a carrot than a stick, the progress would be faster.

Figure 4. A Contrast of Retailer and Supplier: Importance versus Performance of Retail Scorecards

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How Suppliers Use ScorecardsThe majority of suppliers share scorecard information cross-functionally within their organization with

at least five internal groups. While the groups may vary, as shown in Figure 5, the average

manufacturing company is attempting to share this data cross-functionally.

The most significant dialogue is face-to-face between a supplier and a retailer. The majority of

suppliers meets with their primary retail relationship 16 times a year, and hosts cross-functional

meetings within their own organizations to heighten the awareness of retail feedback.

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Figure 5. Sharing of Retail Scorecards within the Supplier’s Organization

How Retailers Share DataScorecard interpretation is a data-driven activity for both the retailer and the supplier. To drive

improvements, both parties have to understand the root causes and the trends. This requires data

analysis and analytics.

As can be seen in Figures 6 and 7, the primary sharing of data by the retailer is via a portal with a

focus on sharing the retail forecast. Unfortunately, the portal is one of the most ineffective ways to

share data, and the retail forecast is less important to the supplier than warehouse withdrawal data

and the perpetual inventory signal. A more effective method of data sharing for the supplier is the use

of retail private networks.

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Figure 6. Data Sharing by Retailers

Figure 7. Methods of Data Sharing by the Retailer

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While the retailer has more power in the channel than the supplier, they are behind the supplier in

sharing of data and building effective value networks. It is also ironic that the most common data

shared by the retailer is often the least useful, i.e. the forecast error of the retailer is just too high for

forecast data sharing to be meaningful. A greater value for the supplier occurs when the retailer

shares actual take-away from the store via point of sale purchases. The second most valuable data

element is warehouse perpetual inventory (PI) levels. The lack of a good, and more widespread,

capability for perpetual inventory is a barrier to retailer and supplier collaboration.

The Use of Scorecards in Reward SystemsMost scorecard interactions today are more focused on the “stick” or penalties, than the “carrot” or

joint benefits for a collaborative relationship. As shown in Figure 8, there is a strong emphasis is on

deductions.

Figure 8. Scorecard Reward Systems

The retailer normally budgets deductions and manages them as a cost of doing business.

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Figure 9. Retailer Budgeting Processes for Deductions

Advice for the RetailerAs the brick-and-mortar retailer is attacked by e-commerce pure plays—Amazon in North America,

Alibaba in China, and Flipkart in India—assortment and excitement in the store become paramount to

lure customers. There is a need for the supplier to drive more excitement in the store. Based on what

is happening in the industry, and the need to drive excitement and assortment in the store, there are

three recommendations:

1. Share Data Freely and Openly through a Private Network. Today, as shown in Figure 7, most

retail data is shared through a portal. The most effective way to share data is through a private

network. Portals do not enable effective data sharing and the support of collaborative practices. When

data is shared through a portal it lacks persistence: there is no common system of record.

2. Focus on Clean Data. Replenishment is fueled by an effective perpetual inventory signal. It

anchors optimization engines for replenishment. The supply chain needs it. Without a perpetual

inventory signal, the retailer will not be able to manage out-of-stocks and promotions. Today, there

needs to be an accurate signal reflecting real-time changes as orders are shipped throughout the

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day. So, to be a collaborative trading partner, build a good perpetual inventory signal. There is no

substitute for an accurate PI signal in supply chain excellence.

Additionally, get good at forecasting. Measure the Mean Absolute Percentage Error (MAPE) of your

forecast and focus on driving improvement. Today there are only two retailers that have forecast

accuracy that is good enough to drive value downstream for trading partners. Drive a difference. Own

your data.

3. Take Your Hand Out of the Supplier's Pocket. For many, deductions and penalties for

performance have become a budget line-item (often a profit center). And 84% of retailers charge for

deductions with 1/3 of retailers having a budget for deductions with many taking them into income. As

a result, it has become a systemic way of making money for the retailer which is a lose/lose situation.

In this relationship no one wins. Suppliers cannot get to the root cause to solve problems, and

revenue recognition is delayed. Instead, it becomes waste, or Muda, in the supply chain to track and

manually audit. Instead, focus on clean transactions. Carrots drive better performance than sticks.

Advice for the SupplierFocus on bringing value and excitement to the retailer through assortment and sharing of demand

insights to drive lift. Realize that we are very early in the development and execution of retail

scorecards and help retailers understand how scorecard measurements tie to the metrics that matter

—basket size, inventory turns, and net sales—to drive maturity. Here are three recommendations:

1. Use Retailer Data. While data sharing practices today are not perfect, they are a start. Redesign

supply chain processes to use data outside-in to better sense and shape demand and improve the

response of replenishment to retailers.

2. Give Retailers a Reason to Share Clean Data. Use retailers’ data to identify new opportunities;

possibilities are collaborative logistics, inventory reductions, improved shelf assortment and

specialized offers. Use network design and inventory technologies to unearth new opportunities.

3. Pay for Performance. Actively monitor deductions and ask for a detailed accounting of deduction

types. Where possible, tie promotion performance to incentives to try to focus more on the carrot than

the stick.

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SummaryRetail scorecards are fundamental to retailer and supplier collaboration. They help to bridge the gap

between partners and forge unique value. Today, the relationships and the use of scorecards are

maturing. While the impact has been great in improving on-time shipments, it is only the tip of the

iceberg.

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Appendix: Demographic DataIn this section, we share the demographic information of survey respondents and additional charts

referenced in the report to substantiate the research findings.

The participants in this research answered the surveys of their own free will. There was no exchange

of currency to drive an improved response rate. The primary incentive made to stimulate the

response was an offer to discuss the survey results in the form of Open Content research sharing at

the end of the study. Each participant was offered an hour call to discuss the findings at the end of

the survey.

The names, both of individual respondents and companies participating in this study, are held in

confidence. It is our policy to never share the names of the respondents or the identity of the

companies where they work.

The demographics are shared to help the readers of this report gain a better perspective on the

results. The demographics and additional charts are found in Figures A–L.

In summary, the average respondent’s company had slightly more than five years of experience in

the use of retail scorecards, and the participants were almost equally divided between retailer and

supplier. The average respondent does not work with just one scorecard; instead, it is two to three.

The most common are supply chain, customer service and finance/accounting.

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Figure A. Survey Respondent Overview: Type of Company and Revenue

Figure B. Respondent Demographics: Experience with Retail Scorecards

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Figure C. Respondent by Role

Figure D. Type of Scorecards

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Figure E. Types of Scorecards Used by Suppliers vs. Retailers

Figure F. Connection between Scorecards and Face-to-Face Review

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Figure G. Criteria for Face-to-Face Meetings

Figure H. Product Category for Primary Relationship

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Figure I. Number of Retailers Having an e-Commerce Presence

Figure J. Types of Perpetual Inventory Signals

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Figure K. Primary Relationship Elements

Figure L. Top Three Impactful Elements

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About Supply Chain Insights, LLCFounded in February, 2012 by Lora Cecere, Supply Chain Insights LLC is focused on delivering

independent, actionable, and objective advice for supply chain leaders. If you need to know

which practices and technologies make the biggest difference to corporate performance, turn to us.

As a company dedicated to supply chain research, we focus on sharing insights on supply chain

trends, evolving technologies and the relationship between supply chain excellence and corporate

performance. For more information visit www.supplychaininsights.com.

About RVCF

Driving Continuous Innovation, Collaboration and Perfect Execution

RVCF promotes best practices, trading partner alignment, collaboration, and technology solutions to

streamline operations, lower costs and speed goods to market throughout the retail value chain. For

more information, visit www . rvcf . com .About the Author Lora Cecere

Lora Cecere (twitter ID @lcecere) is the Founder of Supply Chain Insights LLC and

the author of popular enterprise software blog Supply Chain Shaman currently read

by 6,000 supply chain professionals. She also writes as a LinkedIn Influencer and

is a contributor for Forbes. Her book, Bricks Matter, (co-authored with Charlie

Chase) published on December 26th, 2012. She is currently working on two new

books, Metrics That Matter and The Shaman’s Journal to publish in Q4 2014.

With over ten years as a research analyst with AMR Research, Altimeter Group,

and Gartner Group and now as a Founder of Supply Chain Insights, Lora understands supply chain.

She has worked with over 600 companies on their supply chain strategy and speaks at over 50

conferences a year on the evolution of supply chain processes and technologies. Her research is

designed for the early adopter seeking first mover advantage.