Guest Feature: Keeping a 3PL Scorecard

Editor’s Note: Scorecards are widely used by shippers to monitor and grade the individual performance of their 3PLs today. But not all scorecards in the world are being designed and used to derive the best possible efficacies they are capable of delivering. This is the first of a three-part exclusive web exclusive written by David Frentzel is APL Logistics’ Vice President for Global Contract Logistics.
The article discusses the benefits that can be derived from using scorecards, shares some of the best practices in scorecarding, and highlights the common mistakes that should be avoided in deploying the scorecard system.

More than 40 years ago, golfer Roberto De Vincenzo made one of the most costly scorecarding errors in sports history. After an outstanding performance that would have put him in a two-way tie to be the 1968 Masters champion, he signed off on a score that was one stroke too high, officially making him the runner-up.

De Vincenzo’s story is a fitting parallel for what often takes place in the world of 3PL relationship management: Although a good number of shippers and their 3PLs are world-class professionals with undeniable skill, many of them fall short when it comes to measuring how well they’re actually “playing.”

I’m thinking in particular of 3PL scorecarding, the process shippers use to monitor and grade individual providers’ performance.

Anecdotal evidence suggests that most companies engage in this practice in some form or fashion. But that evidence also suggests that many companies are still less than satisfied with how well their particular approach to scorecarding is working. And like De Vincenzo (who famously said after his loss, “What a stupid I am!”), they’re wise enough to be concerned about it.

As head of a global 3PL’s contract logistics organization, I’ve had a great opportunity to see many leading companies’ supply chain scorecards up close. In addition, I’ve had a front-row seat overseeing the painstaking work that went into the recent development of my company’s own performance scorecard. In the process, I’ve been able to get a better sense than most about why keeping score truly is so important, what scorecards really need to cover (and what they don’t)—and what kinds of scorecarding practices are most likely to lead to higher quality, improved productivity, innovation and better overall shipper-supplier relationships.

Perhaps a bit of what I’ve learned will be of help to you.

Let’s start by setting the record about scorecards straight: No matter how basic these tools appear to be on the surface, keeping effective ones is harder than it looks.

For one thing, each scorecard has to include the right criteria for your particular company – with an emphasis on the term “for your particular company.” Granted, you can get some good general ideas about the possible contents of a scorecard by benchmarking against other companies (or following popular methodologies such as Supply Chain Operations Reference, SCOR). However those ideas are no substitute for the detailed analysis and groundwork that must take place within your organization – and across multiple corporate functions – in order to develop a customized scorecard or collection of scorecards that will truly be of use.

For another, a scorecard’s efficacy is directly proportional to the accuracy, timeliness and integrity of the data entered onto it; and that can easily be compromised by a number of factors. If, for example, quantitative information has to be keyed into your scorecard by already time-challenged personnel, your company may find itself experiencing everything from fat-finger errors to reporting delays. Or if the individuals responsible for inputting data stand to directly lose or gain based on what’s reported—a bonus, promotion or even “just” the chance to keep their jobs – there’s always the chance that some performance numbers could fall victim to grade inflation.

But don’t let these caveats deter you, because as this practice matures, many companies are discovering that scorecarding also has the ability to deliver an even more impressive array of benefits than originally imagined, including:

• helping direct companies’ attention to functions, facilities or providers that are underperforming, so that more attention can be devoted to bringing their performance back within range

• serving as an early detection mechanism by highlighting any performance areas that may be operating smoothly now but will ultimately decline later if they remain on the same trajectory

• giving 3PLs the insight they need to identify pockets of inefficiency at their operations that they otherwise might not discover until later down the line

• keeping companies and their providers on the same page about corporate priorities, performance standards and overall satisfaction levels

• paving the way for a more collaborative relationship between companies and their providers by serving as a springboard for meaningful dialogue

• calling much-needed attention to providers or provider operations that deserve special recognition for consistently meeting or exceeding expectations

• assisting companies in determining which provider contracts are worth renewing

• and inspiring 3PLs to perform even better by showing them how they compare to other providers that are performing similar functions.

The trick of course is figuring out how to tap into these benefits. And some companies clearly do it better than others.

Case in point: When I polled several of my company’s top customer managers (all of whom work with some of the world’s most admired businesses) to get their take on scorecarding, their responses ran the gamut. Some, such as the individual who works with a customer that represents the use of scorecarding at its best, couldn’t say enough positive things about the value these tools can bring to the table. By contrast, the ones who work with accounts that haven’t succeeded in using scorecards as consistently or strategically were anything but huge fans.

Their polarized responses echo what some academics, authors and leading industry analysts have known for years: Market leadership is not an automatic guarantee of scorecard proficiency. And simply using a scorecard isn’t the same as having one that really pulls its weight. Much like a Stradivarius violin will only sound like the masterpiece it is if it’s played by a talented violinist who has put in hours of practice each day, everything I’ve observed and read suggests that scorecards will only live up to their full potential if your company is willing to engage in best scorecarding practices such as the following.

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