JTPP: Perfect Order Index Becoming Major Component of Vendor Scorecards
By
Diane Berry
Through
a special arrangement, presented here for discussion is an excerpt of a
current article from The Journal of Trading Partner Practices (JTPP),
the official online publication of the Vendor Compliance Federation (VCF),
the Trade Promotion Management Associates (TPMA), and the Federation of
Credit and Financial Professionals (FCFP).
According
to a survey conducted by the Vendor Compliance Federation’s Perfect Order
Index Community of Practice (CoP), vendors said nearly half of their retail
customers (43 percent) use all four components of the Perfect Order Index
(POI) in the majority of their vendor scorecards. The results provided
strong validation of this index’s ability to portray a holistic view of
a trading partner’s supply chain capabilities.
The
Perfect Order Index is composed of four critical elements focusing on a
supplier’s ability to ship on-time, complete, damage free, and with correct
documentation.
Of
the more than 300 respondents, nearly 65 percent were manufacturers; 15
percent were retailers, with the balance comprised of service providers
and other organizations. The May 2009 survey was underwritten by Compliance
Networks.
When
asked which of the Perfect Order metric(s) their organizations use to measure
themselves and their trading partners, the majority (90 percent) said they
measure on-time performance. This was followed by complete (83 percent),
accurate documentation (58 percent) and damage free (52 percent).
The
survey also revealed that nearly 50 percent of respondents report the components
of the POI separately, while less than 10 percent report all of them as
a single index, the way the POI is designed to be tracked. This indicates
that a large number of companies are tracking individual metrics, but are
not gaining a holistic view of their supply chain capabilities. If one
of the four POI metrics is scoring low, it might not attract as much attention
if it is being tracked as an individual unit. But, this lagging metric
will get noticed by companies using the POI as a single measure, because
it will drag the overall score down.
In
one promising development, a vast majority of the respondents said that
the definitions of the four POI components are well aligned between trading
partners. This is crucial, because if a retailer’s definition of on-time,
for example, is when the product reaches the stores, but a vendor’s definition
is when the product reaches the distribution center there will be discrepancies
over POI scores. It should be noted that a significant number, while
a minority of the respondents, are not well aligned with their trading
partners on the definitions of the POI components, which creates an obvious
barrier to the implementation and overall value of the POI.
Discussion Questions: What
do you think of the benefits of using the Perfect Order Index (POI) for
vendors and retailers? Are
you surprised that nearly 50 percent of respondents
report the components of the POI separately, while less than 10 percent
report all of them as a single index?
The four components of the Perfect Order Index (POI) have been around individually as measures of a vendor’s effectiveness in order competition for a very long time. Our warehouse team used each of these 25 years ago, but not as a combined measured with weights assigned to each of the variables. It is not surprising that this is still the case.
Looking at the individual components, I don’t anyone should be surprised that the number one metric is on time performance–especially with more and more emphasis on turning inventory. The same is true for the other three. They follow what I would have expected based on conventional wisdom.
The Perfect Order Index shouldn’t be limited to vendors and retailers. Many other companies are involved with the placement of orders and the movement of product from point of production to point of sale. Carriers, sales agents, and others need to measure how effective they are in getting the right goods to the right place in the right condition and at the time.
The premise here seems to be that it is a good idea to combine the measures. On the contrary, combining them can conceal very bad conditions in a particular area. In order to combine them, you would have to do something to “normalize” the individual results and then weight the summation based on degree of importance. The net result is that very poor performance in one area could go unnoticed as the summation of 3 good and one really bad result looks like a bunch of average performances.
It is highly unlikely that a vendor who is doing well in other areas will fall completely flat in one, but it is possible that a vendor may be having difficulty in one area or another. Individual measurements focus the vendor on particular aspects of the delivery and can help in determining the right corrective action.
As a service provider, I’ve found it interesting that retailers put words to this set of measurements, but won’t put real dollars as an incentive to their suppliers to make it interesting. Even more interesting is that even though we’ve been able to show real dollar savings and the ability to provide real vendor score cards, vendors don’t want to do anything but pay lip service to these measurements either. This is to the point where I’ve had manufacturers or even retailers say, “we’re for measuring if you can get our carriers to agree to this.”
I understand completely the issues around the POI. What I find interesting is that no one wants to take the performance around the POI head-on with real dollars. We’ve got some small trucking firms providing on-the-spot evaluations of the POI for some carriers and when they provide information back to them, they get a collective yawn. Is this a real issue that anyone wants to really put money behind or is it something that retail just wants to use as a ranking tool? I understand somewhat the need to rank vendors, but I question the need for a measurement if no one really wants to put serious budget behind its measurement and improvement.
I’d welcome discussion on this as I may be simply un-educated.