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Scorecard for the Sustainable Supply Chain What is a Scorecard?
Scorecard is a tool that helps measure the strategic plan. This means that a Scorecard is composed of several metrics or KPIs (Key Performance Indicators). These metrics/KPIs should be defined in such a way that measures the success of the strategic plan. A strategic plan has various components for each area of the organization. Therefore the Scorecard should also have metrics for each of those areas. Scorecard is a tool that helps monitor the strategic plan. This means that we should also define the frequency of measurement and reporting of the metrics. This will help in tracking a company’s progress to meeting the objectives set forth in the strategic plan. Scorecard is a tool that helps communicate the strategic plan. Scorecard as a tool should be easily accessible to all the members of the organization so that each can understand their role in achieving the targets and see their progress as well. Each employee of an organization has a role to play in achieving the targets set forth in the strategic plan. It is the responsibility of the senior management to define that role and assure each employee understands it.
In previous edition of KNOWledge, Douglas Kent in the article “Supply Chain Sustainability - Take Responsibility to Ensure Your Future” defined what a Sustainable Supply Chain means. He describes that a sustainable supply chain is one that He further explains that three main components of Sustainable Supply Chains - Economic, Ecologic, and Service cannot remain as considerations in isolation. Rather they should be an integral part of company’s strategic objective. It is a well-known management fact that what gets measured gets managed. And what gets managed is what is improved. Thus for a supply chain to provide value to the business in a sustained manner, a scorecard needs to be created that measures and monitors the performance. In this scorecard, everything should be linked to reap the benefits. Strategic goals define the objectives for the three areas; objectives define the measurements in form of metrics/KPIs and each metric should have a target. Once we know the current state of the supply chain for each of the metrics, gaps can be identified with the desired “to be” state. This helps in defining initiatives that a supply chain should take up in order to close the gap as much as possible enabling the supply chain to meet the strategic goals.
Here we present an example of a Sustainability Scorecard that companies can use as a starting point.
Metric Definitions These metrics have been taken from the Supply-Chain Council’s SCOR® model version 9.0. The definitions for the various metrics are as follows. Cost of Goods Sold - The cost associated with buying raw materials and producing finished goods. This cost includes direct costs (labor, materials) and indirect costs (overhead). Total Supply Chain Management Cost - The sum of the costs associated with the SCOR Level 2 processes to Plan, Source, Deliver, and Return. Cost of Raw Material and Make Costs are generally accounted for in COGS. It is recognized that there is likely to be overlap/ redundancy between supply chain management costs and COGS. Some of the activities to be taken into account are order management (Deliver), material acquisition (Source), inventory carrying (Indirect Plan), planning/finance (Plan), and information technology costs (Indirect Enable).2 Cash-to-cash Cycle Time - The time it takes for an investment made to flow back into a company after it has been spent for raw materials. For services, this represents the time from the point where a company pays for the resources consumed in the performance of a service to the time that the company received payment from the customer for those services. Return on Supply Chain Fixed Assets - Return on Supply Chain Fixed Assets measures the return an organization receives on its invested capital in supply chain fixed assets. This includes the fixed assets used in Plan, Source, Make, Deliver, and Return. Return on Working Capital - Return on working capital is a measurement which assesses the magnitude of investment relative to a company’s working capital position verses the revenue generated from a supply chain. Components include accounts receivable, accounts payable, inventory, supply chain revenue, cost of goods sold and supply chain management costs. Carbon Emissions - This is the unit of measure used for green house gas emissions and is a measure of the climate impact from CO2 and other global warming air emissions. Air Pollutant Emissions - This includes emissions of major air pollutants (COx, NOx, SOx, Volatile Organic Compounds (VOC) and Particulate). These are the major emissions that U.S. EPA tracks. Liquid Waste Generated – This includes liquid waste that is either disposed of or released to open water or sewer systems (these emissions are generally listed on water emissions permits). % Recycled Waste – The percent of the solid waste that is recycled. Environmental Non-Compliance Cost - The cost impact of compliance violations with environmental regulations and policies as a percent of total supply chain costs. Codes of Conduct – Number of violations of company defined code of conduct. Value at Risk (VaR) - The sum of the probability of risk events times the monetary impact of the events for all the supply chain functions (e.g. Plan, Source, Make, Deliver and Return). Perfect Order Fulfillment - The percentage of orders meeting delivery performance with complete and accurate documentation and no delivery damage. Components include all items and quantities on-time (using the customer’s definition of on-time), and documentation – packing slips, bills of lading, invoices, etc. Order Fulfillment Cycle Time - The average actual cycle time consistently achieved to fulfill customer orders. For each individual order, this cycle time starts from the order receipt and ends with customer acceptance of the order. Upside Supply Chain Flexibility - The number of days required to achieve an unplanned sustainable 20% increase in quantities delivered. Upside Supply Chain Adaptability - The maximum sustainable percentage increase in quantity delivered that can be achieved in 30 days. Downside Supply Chain Adaptability - The reduction in quantities ordered sustainable at 30 days prior to delivery with no inventory or cost penalties.
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