what we have here is a failure to communicate

Editor's Note: No two successful performance management programs are the same, but all successful performance management programs share common principles. To shed some light on what separates a good company from a great company with regard to performance management, DC VELOCITY will publish a column on one of the 12 Commandments of Successful Performance Management each month. This month we will drill into the eighth commandment: Listen.

The Eighth Commandment
Listen: Find out what your customer wants (not what you think it wants)

The distribution director for an office products supplier had been eagerly awaiting the arrival of his suppliers' scorecards. He had worked long and hard to put what he thought were customer-focused metrics in place and couldn't wait to see how his customers—retailers like Staples, OfficeMax and Costco—rated his team's performance. He was confident he'd like what he saw.

But when the scorecards began to roll in, he was shocked. Not only were the customers' ratings wildly out of whack with his internal performance stats, but the scores themselves were downright terrible.

The distribution exec was totally bewildered. "We didn't understand why they said we were executing poorly," he remarked. "We knew we had product in stock and [that we] were shipping on time."

A team was formed to look into the situation. What it found was a classic failure to communicate: "Our customers were measuring on-time delivery," lamented the distribution exec, "and we were measuring on-time shipments."

Another sore point was the supplier's tendency to split orders. If it ran out of an item, the supplier simply shipped what it had on hand and expedited the rest of the order later, assuming that's what any customer would want. Trouble was, that wasn't what customers like Staples wanted at all. "We thought we were meeting [our customers'] needs, but, in reality, we weren't," the director said. "When we began looking at our processes from the customer's point of view, it opened our eyes." So how do you make sure that you're delivering what your customers want? The first step is to define our terms. Nine times out of 10 the problem can be traced to something as simple as the two parties' defining their terms differently. To minimize confusion, ask your customer exactly what it expects and how it will assess your performance. Then get it in writing.

An alternative approach is to use Service Level Agreements (SLAs) or Statements of Work (SOWs). While SLAs and SOWs have been a key component of third-party business arrangements for years, they have yet to gain widespread acceptance outside the 3PL industry. But even they don't guarantee satisfaction. More often than not, they simply state the metric and the target—but don't explain how they define their terms and how they assess performance against the target.

Happily, operational performance standards are starting to emerge. The Supply Chain Council has developed a comprehensive list of metrics definitions (www.supply-chain.org). And recently, APQC and the Council of Supply Chain Management Professionals issued a robust set of performance metrics standards (visit www.cscmp.org or www.apqc.org).

But whatever metrics you choose, bear in mind that you must measure not what you consider important, but what the customer considers important. In the end, there's only one voice that really matters: the customer's.