Companies can also weigh these metrics and then compute a weighted-average ranking for a supplier based on its performance on each of these criteria. This tool helps a company identify which suppliers require attention - such as a supplier that falls in the bottom 50 percent on one of the particular metrics noted above, or overall in the weighted average ranking. Additionally, when a supplier is told it ranks poorly, e.g., 290th out of a customer’s 300 largest vendors and that it is dead last on two of the metrics, there is a clear and compelling message for the supplier to improve.

Improvement on the above metrics can have a significant impact on a company’s financial performance. Shortening the lead time by a day can reduce cycle stock by over five percent for a company carrying approximately two weeks of inventory. Staying within planned lead times or improving fill rate can reduce cycle stock and safety stock by a significant amount and result in substantially less inventory, as well as lower administrative costs since rush shipments are reduced. High item-fill rates and on-time orders can reduce stock-outs and thereby increase sales, or avoid production disruptions in the case of raw material or component supplies. Reducing damages and invoice errors have a meaningful impact on handling and administrative costs. Collectively, I have seen companies add a full percentage point or more of margin to their bottom line through improvements in these metrics.

Conceptually, this scorecard is easy to envision. The challenge that most companies face is having the resources and time required to assemble the above information and operationalize the vendor scorecard. Most companies go through a very cumbersome and labor-intensive process to collect this information; therefore, most companies only assemble this information on a periodic basis, often just annually when they have a negotiation or major performance review with a supplier. Very few companies are able to reliably create these scorecards on a weekly, monthly or quarterly basis, or actively use them to manage their supplier base and achieve margin improvements and other benefits. For example, among food retailers, only a handful of companies proactively use this vendor scorecard to manage their suppliers - most notably Wal-Mart, Publix and Wegmans, who happen to be among the best-performing food retailers!

The encouraging news is that the wider use of business intelligence tools for operations and supply chain management - particularly a new breed of rapid deployment solutions that have evolved in recent years - makes it much easier and much more efficient to deploy these types of solutions.

Other opportunities for collaboration across the supply chain include customer service metrics such as the perfect order. The perfect order received wide acclaim when it was created over two decades ago as a single metric for measuring multiple dimensions of customer service performance. I am proud to have been one of the initiators of this tool. There are many versions of it, but it generally measures the percentage of orders that meet multiple criteria such as orders shipped complete and delivered on time, with no damages and with fully accurate delivery and invoicing documents. When this was first applied by food retailers, less than 10 percent of orders met the above criteria for a perfect order. Moreover, it was very difficult for any company to use this metric because the data was so difficult to collect. Only a few companies annually or semi-annually conducted the arduous and cumbersome manual audits to generate this metric, so it was rarely used. With the advent of rapid deployment BI, we are seeing more companies able to efficiently and effectively now use this powerful metric.

Similarly, BI solutions are now being used in other extended supply chain applications such as the sharing of operational metrics across the supply chain. This has included a view of the full channel inventory; the status of orders and/or deliveries; a view of cycle times for cross-company processes such as order to receipt; capturing the reasons for a stock out; preempting a stock out by monitoring inventory and order status, and suggesting actions in exception reports; the analysis of the total cost to serve; and analyses of product, customer or channel profitability. BI solutions are often most insightful and valuable when data needs to be assembled from multiple source information systems - either from distinct transaction systems within a company (such as orders, sales and selected cost items from an ERP system), combined with budgets or plans kept in an Excel spreadsheet, along with customer information from a CRM system, and/or other information from the source information systems for customers and partners across the channel. And therefore, BI solutions particularly add value for cross channel applications.

In summary, business intelligence is an ideal tool for supply chain analysis because, by definition, supply chain management involves integration across cross-functional processes or across processes that span the channel. And because of the significant impact these activities have on a company’s cost, customer service and asset productivity performance, we will be seeing more and more companies turn to BI to provide a level of diagnosis and insight that has been unavailable in the past. This will also enable them to measure and monitor operational status, and ensure collaboration of cross-functional processes and activities that span the extended supply chain. Forward-thinking companies that use business intelligence to engage their customers and suppliers across the extended supply chain will gain substantial competitive advantage.

By William Copacino
Supply Chain Management Review