Using a Scorecard to Turn Risk into Profit
Several years ago, I led a company that grew and distributed perennial plants. Located in the Midwest, our selling season was quite short, putting a premium on quick decision-making while “in-season” to maximize revenues and profitability. Hours, days and weeks mattered, not months. One of our biggest customers was a large home-improvement chain. They set very aggressive expectations for their vendors, but at the same time, they weren’t especially well-organized against the demands of a short selling season. They often made it hard for us to make the quick decisions required for us to serve them efficiently and profitably.
Leading up to one selling season, things went from bad to worse. This customer announced that instead of placing purchase orders and paying vendors like us for what we shipped them, they were moving ahead with a plan to pay us only when our product sold through their registers. In other words, we owned the inventory until it left the store in their customers’ carts. It put all the risk on their vendors, which created a significant danger for anyone who wasn’t paying close attention.
Enter the power of a well-designed Scorecard.
The new program rested on two pillars:
- Since the inventory was all on our dime, we could ship whatever we wanted to whichever stores we wanted, whenever we wanted.
- In exchange for us taking on that role, they would send us detailed daily/weekly store-by-store sales reports.
With regular sales reports coming from our customer, we established a store-level Scorecard that, for each store we served, told us:
- What and how much we’d shipped to the store in the last week
- What had sold through in the last week
- What the store had in inventory, SKU by SKU
- What had been scrapped in the store by our merchandising crew
- What had sold through the store in the same period last year
- What we projected to ship them in the upcoming week
These and a few other weekly, activity-based measurables gave us a pulse on what was happening in each of the stores, without us needing to physically be there. We knew more than their store managers about what their inventory levels were and should be.
We had built a “machine” to ship millions of plants per year. We used our Scorecard to make fine-tuning adjustments to that machine every week during the selling season. Among other things, it gave us the specific ability to:
- Adjust shipments to keep each store’s inventory at optimal levels
- Increase labor efficiency
- Reduce overtime expenses
- Minimize shipping costs
- Improve asset utilization
- Spend money on in-store merchandising where/when we needed it the most
- Keep store-manager expectations in line
This Scorecard worked exactly as it was supposed to. It kept us in control and enabled us to make daily decisions that kept our customer happy and our business running well. As a result, that year, which was shaping up to be both painful and costly, turned into the least painful and most profitable year in the company’s history.
If you’d like to learn how Scorecards, Measurables and the other tools of EOS® can help you win, let us know. We’d love to show you how.