A common performance management mistake made by supply chain operators is trying to maintain and monitor too many KPIs. This can easily lead to the condition that’s sometimes known as analysis paralysis. I’ve seen it happen more times than I can count. A company decides they’re going to get serious about measurement, and six months later they’ve got 47 metrics on a spreadsheet that nobody looks at.
If you are just starting out with the implementation of KPIs and want to avoid this particular pitfall, you might consider utilising the “balanced scorecard” methodology, developed in the 1990s by Robert Kaplan and David Norton.
What is a Supply Chain KPI Scorecard?
Before we get into the balanced scorecard specifically, it’s worth being clear about what we mean by a supply chain KPI scorecard in the first place.
A supply chain KPI scorecard is essentially a structured framework for organising and presenting the metrics that matter most to your operation. The thing is, it’s not just a list of numbers. A well-designed scorecard groups related KPIs together, shows how they connect to your strategic objectives, and makes it obvious at a glance whether performance is improving or declining.
The difference between a scorecard and a dashboard is subtle but important. A dashboard tends to be more operational, showing real-time or near-real-time data for day-to-day decision making. A scorecard is more strategic. It’s what you bring to your monthly management meeting or quarterly business review. It’s the tool that helps you have meaningful conversations about whether your supply chain is actually delivering what the business needs.
The Balanced Scorecard Methodology
Kaplan and Norton’s balanced scorecard was not specifically intended for use in supply chain. However, this model of performance measurement has proven to be of value in just about every industry imaginable. In fact today, the balanced scorecard methodology has evolved beyond use as a measurement tool into a full-blown operational management model.
That doesn’t mean you can’t simply apply the measurement aspect of the balanced scorecard though. The methodology is ideal as a framework for companies new to the implementation of KPI dashboards.
In the balanced scorecard model, four sets of KPIs are linked to the strategic objectives of an organisation. The four areas targeted are:
- Financial performance
- Customer service
- Internal business process
- Education and learning/training
In case you’re wondering what the balanced part means, it’s the fact that rather than just measuring financials (which is what a lot of companies were doing prior to the development of the balanced scorecard concept), the three other quadrants of the scorecard focus on measuring the non-financial aspects of a business operation.
Monitoring these other operational elements is important because financial indicators tend to offer a delayed view of performance. By measuring the other three areas, you will see problems much sooner. Therefore you can address the issues before they impact your organisation financially.
Applying the Balanced Scorecard to Your Supply Chain KPI Scorecard
So how does this translate into practice for a supply chain operation? Let me walk through what each quadrant might look like.
Financial performance in a supply chain context typically includes metrics like total supply chain cost as a percentage of sales, inventory carrying costs, freight cost per unit shipped, and warehouse cost per order. These tell you whether your operation is running efficiently from a cost perspective.
Customer service maps naturally to metrics like perfect order rate, on-time delivery, order fill rate, and customer order cycle time. These are the numbers that tell you whether your customers are actually getting what they need, when they need it.
Internal business process covers the operational metrics that drive the customer-facing results. Think picking accuracy, inventory accuracy, supplier on-time performance, forecast accuracy. These are the leading indicators. If they start to slip, you’ll eventually see it show up in your customer service metrics.
Education and learning is probably the quadrant that gets neglected most often in supply chain. But it matters. Staff turnover rates, training hours completed, safety incident rates, continuous improvement projects implemented. These metrics tell you whether you’re building the capability to sustain and improve performance over time.
Building Your Supply Chain KPI Scorecard: Practical Considerations
Honestly, the hardest part isn’t choosing which metrics to include. It’s keeping the list short enough to be useful.
I worked with a distribution company a few years back that had 60 different KPIs they were supposedly tracking. When I asked the operations director which ones actually influenced his decisions, he could name maybe five. The rest were just noise. They were collecting the data because someone had asked for it at some point, but nobody was actually using it.
A good supply chain KPI scorecard should have somewhere between 12 and 20 metrics total. That’s roughly four to five per quadrant if you’re using the balanced scorecard structure. Any more than that and you’re probably tracking things that don’t really drive decisions.
The other thing to consider is who the scorecard is for. Your executive team doesn’t need to see the same level of detail as your warehouse manager. The balanced scorecard works well at the strategic level, but you’ll likely need more granular, function-specific scorecards for your operational teams.
Common Mistakes with Supply Chain KPI Scorecards
A few things I see go wrong regularly:
Measuring what’s easy instead of what matters. Some data is simple to pull from your systems. That doesn’t mean it deserves a spot on your scorecard. Choose metrics based on their relevance to your strategic objectives, not their availability.
No targets or benchmarks. A number on its own doesn’t tell you much. Your supply chain KPI scorecard should show not just current performance, but also the target you’re aiming for and ideally some sense of how you compare to peers or past performance.
Updating too infrequently. A scorecard that only gets refreshed quarterly isn’t really driving performance. Monthly is the minimum for most metrics. Some should be weekly.
No ownership. Every metric on your scorecard should have someone’s name attached to it. Not a department. A person. Someone who is responsible for understanding why the number is what it is and what’s being done to improve it.
The Balanced Scorecard: Worth a Closer Look
The balanced scorecard methodology comprises a lot more than can be detailed in this blog post. Suffice to say though, if you’re concerned about setting up a supply chain KPI scorecard structure that provides meaningful measurements without overwhelming you and your team with data, you should certainly take time to explore this particular management model in more detail.
There are plenty of books and resources available on the balanced scorecard. Kaplan and Norton’s original work is still worth reading, even though it’s over 30 years old now. The principles haven’t changed much.
And look, if you’re struggling to figure out which metrics actually matter for your operation, that’s exactly the kind of thing we help clients with at Benchmarking Success. Sometimes it takes an outside perspective to cut through the noise and identify the handful of numbers that will actually move the needle for your business.
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