SCDigest Editorial Staff

While a growing number of companies use scorecards of increasing sophistication to measure supplier performance, that too often lets internal procurement managers off the hook.

So say Brian Slobodow of Neways Inc., Omer Abdullah of The Smart Cube, and William Babuschak of Johnson & Johnson. In a recent article in MIT's Sloan Management Review. They promote the idea of two-way scorecards that provide accountability and improve performance by linking supplier and buyer metrics.

In a nutshell, a two-way scorecard involves linking the performance of the supplier to the buyer’s own performance evaluation, creating a “mutual accountability map.” For example, a supplier’s service level might be linked to the accuracy of the forecast provided by the buyer.

Source: MIT’s Sloan Management Review

Johnson & Johnson began putting the approach into place starting in 2003, achieving what it says have been very strong results. Similar programs have been implemented at Toyota, Home Depot, and Neways, among others.

(Sourcing and Procurement Article - Continued Below)

SCDigest Says:

In a nutshell, a two-way scorecard involves linking the performance of the supplier to the buyer’s own performance evaluation, creating a “mutual accountability map.” What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

The authors list 10 key practices for making two-way scorecarding work:

1. Rely on Senior Leadership: As usual, senior exec support is key. Senior leadership must publicly acknowledge the problems with the existing approach, and emphasize internal accountability as being just as critical as supplier performance.
2. Choose the Best Managers: Pick top performers from inside the company to lead the effort, and insist suppliers do the same on their end.
3. Focus on Critical Items: Don’t diffuse the effort by spending time on items with marginal cost or supply chain importance. Focus on items that have the biggest impact on customers.
4. Use on Strategic Suppliers: This approach only works with suppliers for which there is a long-term commitment.
5. Broaden the Involvement: Supply management touches a lot more than just the procurement function of course. J&J used cross functional kick-off meetings for the two-way scorecarding launch with each new supplier in the program.
6. Be Practical: Aim for “best fit” accuracy in the metrics, not perfection. If too much manual data scrubbing/effort is required, it’s probably time to rethink the metric.
7. Engage the Supplier: Decisions about the dual scorecards need to be made in collaboration with the supplier, in the design phase.
8. Communicate the Value: Be sure to clearly identify how the program is helping both sides and communicate those results effectively.
9. Recognize Performance: Rewards and recognition go along way – and can help recruit potential new suppliers into the program.
10. Allow for Evolution: No one gets it right upfront. Continuous improvement is also possible – J&J has evolved to Six Sigma-based statistical process control to flag any variances early.

“For many corporations, the dual accountability concept – whether evinced through the Two-way Scorecard or another method – can serve as a tangible means of revitalizing those unfulfilling supplier marriages,” the authors conclude.

Is your company using two-way scorecards? What are some additional keys to implementing them well? What are the downsides or barriers? Let us know your thoughts at the Feedback button below.