VENDOR SCORECARDING DiCentral

 VENDOR SCORECARDING DiCentral Steve Babbi7 and Mary Kleespies Directors of Supply-­‐Chain ConsulDng VCF & DiCentral SCORECARDING •  In late 2011, DiCentral in conjunc4on with VCF conducted a survey of retailers to be?er understand how vendor scorecards are used today. •  It sampled many of today’s leading retailers, 2/3rds of which represent public retail en44es with 90% of those public companies enjoying revenue in excess of $1B. •  Collec4vely, the par4cipants of the study represent nearly $600B in revenue resul4ng from cross-­‐channel sales. •  Of the par4cipants of the study, 62% compile and present their vendors with scorecard results. VENDOR SCORECARDING •  Par4cipants of the study represent approximately $600B in revenue. •  A mix of both public and private companies, but majority of companies par4cipa4ng are public. •  Almost all retailers par4cipa4ng enjoy revenue in excess of $1B Sample of ParDcipants in Study Department Stores Mass Merchants Automo4ve Spor4ng Goods Specialty Apparel / Fashion Electronics Survey Specialty -­‐ Other Key Reasons WHY retailers use Vendor Scorecards Over -­‐Arching RaDonale Compare vendor performance against retailers goals. Compare vendor performance against each other Types of Data Collected In A Vendor Scorecard Receipts and Deliveries Environment
al and Social Impact Customer Complaints Quality Vendor Scorecard Service and Response Sales and Inventory Performanc
e Cost ReducDon and Savings What is Collected Receipts and Deliveries •  On-­‐Time Delivery •  % Delivered Early, % Delivered Late. •  PO’s and By PO Line Item. •  Did the product deliver per the vendor’s lead-­‐4me. •  Number of Deliveries per DesDnaDon •  How many 4mes to handle, # of receivers per PO/PO-­‐Line •  Receive in full, first delivery. •  Replenishment back-­‐orders. What is Collected Receipts and Deliveries •  ASN Receipt •  Referen4al Integrity: Store, PO, PO Line, Product Iden4fier matches what was on the PO. •  ASN missing or delivered late (a^er physical delivery). •  Shortages and SubsDtuDons •  Cases/Containers have product and quan44es as iden4fied. •  Product matches what was purchased, both what and how many. •  Fill-­‐Rate. What is Collected Quality •  Invoice Integrity •  Invoice match rate for 3 or 4 way matching. •  Timeliness of delivery, invoice w/o receipt, receipt w/o invoice recon. •  Carton / Container Markings / Packaging •  Product and carton easily iden4fied •  Meets documented requirements •  Good not floor ready – hangar errors, labels •  Receipt DefecDves or Damages •  Product characteris4cs match •  Defec4ve or damaged products WHat is Collected Quality •  SKU StaDsDcs •  % of goods being supported by replenishment •  Ac4ve and discon4nued merchandise •  RTV and Returns •  Returns reques4ng return authoriza4on •  % and $ Returns – my key reason. •  % and $ receipts in trouble. •  Catalog §  Seeds retailer’s catalog with accurate pricing. §  Maintains accurate pricing, product status, availability What is Colllected Sales and Inventory Performance •  IMU and Maintained Margin •  Historical trend, by product and by category •  Stock-­‐To-­‐Sales •  Sell-­‐in vs. Sell-­‐Thru •  Inventory levels and recent sales in line, future turn supported •  Discounted Merchandise •  Age of inventory. •  Markdowns and related markdown performance, % of goods at full-­‐price What is Collected Cost ReducDon and Savings •  Cash Conversion Cycle •  Days sales outstanding con4nue to reduce. •  Days purchase outstanding con4nue to improve. •  Days inventory outstanding con4nue to meet retailer’s goals. •  Markdowns and Discounts •  Provided credits or allowances to offset the retailers discounts or markdowns. What is Collected Cost ReducDon and Savings •  Purchase Terms •  Payable terms and discounts. •  New store discounts •  Damage or defec4ve allowance •  RouDng •  Freight Expense •  Receipt tracking and acknowledgement •  Returns Enablement •  Merchandise On Wheels – what doesn’t sell is returned to vendor. What is Collected Service and Response •  Accommodates PO Change •  Handled emergency changes to PO -­‐ Qty, Delivery •  Handles requests for product change •  Partnership •  Likely to be more subjec4ve, overall impression of responsiveness. •  Commitment to problem solving and improving processes. •  Driving business through brand equity, opening new markets, innova4on. •  Incident Response •  Responsiveness to delivery incident •  Amount of 4me merchandise sits in trouble. •  Challenges to previous charge-­‐backs. What is Collected Customer Complaints •  Call-­‐Center •  Number of calls and costs associated with handling product-­‐specific issues. •  Costs and charges for recalls. •  DefecDve Returns by Customer •  Returns and reasons for returns What is Collected Environmental and Social Impact •  Environmental Impact / Green / Organic –  Amount of waste to produce product and trend •  Green packaging and containers. •  Biodegradable •  Organic •  Social Impact •  Factory compliance with worker laws and standards •  Minority-­‐owned Key Reasons Retailers Use Scorecards Ranked by recipient response ) •  Proac4ve tool to drive vendor performance and improve growth. •  Vendor ra4onaliza4on and vendor ranking. •  Drive supply-­‐chain compliance, supported by charge-­‐backs. •  Improve or support process improvement. •  Buyer nego4a4on / impact on purchases. •  Promo4onal ac4vi4es and supported funding How do Scorecards Benefit Vendors Obvious Reasons for Compliance •  Avoid Chargebacks •  Develop a good partnership with Retailer •  Cut cost of manually receiving orders and keying in paper invoices •  Track documents and have complete visibility of merchandise that is shipped to Retailer •  Reduc4on in 4me calling about invoice payments How do Scorecards Benefit Vendors •  Hidden Reasons for Compliance •  Great Compliance grants you the privilege of geing your shipments cross docked •  Cut risk of geing a charge back due to items that was subs4tuted •  Move you to the top of the buyers list •  Opportunity to nego4ate be?er terms with the buyer Improve Internal Processes •  Decrease in paper invoices decreases manual labor costs. •  Decrease in data entry errors causing over/under payment to suppliers . •  Improve internal and external services levels. •  Improve visibility of business process and transac4ons . •  Establish automated workflow. Key Benefits Realized When Deploying (In order of frequency in response) •  Improvement in receipt metrics – o^en ci4ng double-­‐digit gains •  Improved awareness and communica4on in both merchant and vendor communi4es •  Improvement in retailers’ internal processes and data integrity •  Reduc4on of inventory investment •  Improved financial performance (sales, margin) Metrics for ASN •  ASN store number is a mismatch to PO store number •  Items on the ASN were not on the original PO •  Item quan44es on the ASN do not match what the received on carton •  Invalid Item or UPC number •  ASN is late or missing Metrics for Invoices •  Mismatched Purchase order number •  Mismatch terms between invoice purchase order •  Mismatch document type between purchase order and invoice •  Incorrect Freight code on invoice •  Mismatch unit of measure between invoice and purchase order The Cost of Non-­‐EDI Compliance -­‐ example Invoice Processing •  2600 vendors – 10 % non-­‐compliant = 260 vendors •  260 vendors – 10,000 Invoices handled manually •  10,000 Invoices cost $10.00 per invoice to handle manually =$ 100,000 per month •  In reality, it’s not just invoice processing that costs the retailer: –  Crea4ng and maintaining SKU’s. –  Crea4ng receivers. –  Alterna4ve transmission and follow-­‐up of orders and related order changes. –  Latencies in payment. –  Follow-­‐up from errors. Build a Scorecard to reflect compliance Goals •  Iden4fy key areas in organiza4ons that are causing financial pain due to low performance or lack of performance •  Key stakeholders must buy in to implemen4ng a compliance program •  Communica4on to vendor community on mandate will be enforce and reason for mandate How To Build a Scorecard that reflects your compliance Goals •  Educate vendors on what you will require of them before ini4a4ng a compliance program •  Clearly state that your goal is to receive the correct merchandise on 4me and not to make money off of charge backs. •  Educate your Distribu4on / Warehouse personnel emphasize that you are working to get vendors to ship correctly and need their help to accomplish this goal •  Provide a concise list of penal4es for non-­‐compliances, including metric weights and priori4za4ons. What Makes Scorecard IniDaDve Successful •  Have a strong integra4on with your suppliers – B2B / EDI. Ensure a strong, cross-­‐func4onal team is properly engaged. Test your scorecard and ensure data integrity before rolling out. Be focused on the specific outcomes you want, resource the ini4a4ve appropriately. Best PracDces •  Focus on the behavior your trying to improve, manage, or encourage. •  Not all criteria are equal, create a weighted set of metrics. •  Make scorecards easy to compile and produce. •  Have cross-­‐func4onal partners engage in the development of a scorecard. •  Pilot the scorecard before a supply-­‐chain wide roll-­‐out – ensure accuracy. •  Lead the ini4a4ve with a proac4ve, posi4ve intent to improve behavior, but... Best PracDces •  Prepare to take ac4on if reasonable improvement is not achieved. •  Over-­‐communicate with vendors what you’re doing and why. •  Try to minimize “subjec4ve” influence of a scorecard result. •  Guard against unintended consequences, evaluate behavior with results. •  Produc4on and distribu4on to all par4es is a discipline, not an event. •  Don’t let the lack of systems or IT priori4za4on keep you from doing this. In Summary Why retailers compile vendor scorecards. What data is oYen compiled in the scorecard. Key benefits of compiling a scorecard. What factors make a scorecard iniDaDve successful. Key Metrics Retailers Use In Scorecarding OpportuniDes for scorecard improvement. THANK YOU! •  Mary Kleespies askmary@dicentral.com 713.298.3332 •  Paul Wagner pwagner@dicentral.com 425.780.0957 Q&A