The Scotts Company (B):

Developing a Supply Chain Balanced Scorecard

03/2015-5062

This case was written by Margaret Vaysman, Research Associate, under the supervision of

Luk N. Van Wassenhove, the Henry Ford Chaired Professor of Manufacturing, and Regine Slagmulder, Associate

Professor of Accounting and Control, all at INSEAD. It is intended to be used as a basis for class discussion rather

than to illustrate either effective or ineffective handling of an administrative situation.

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Scotts Europe’s Balanced Scorecard Initiative

Roger Bloemen, Vice President of European Supply Chain Operations for The Scotts Company, exited the monthly managers’ meeting feeling more upbeat than he had in some time. After many months of discussion, senior management had finally approved the implementation of Scotts Europe’s long-awaited integrated information system. Although the new information system would require a substantial amount of work up front, there was now unanimous agreement that it would be well worth the effort. At last, Scotts Europe would have an integrated source of pan-European sales, supply chain, manufacturing, and accounting information. This common data platform was essential to transform Scotts Europe from a fragmented group of local chemical, fertilizer, and peat plants into the European leader in lawn-and-garden products.

The decision to implement a new enterprise-wide information system had led directly into the meeting’s primary order of business: Scotts Europe’s new Balanced Scorecard initiative. “In the past, our lack of detailed, reliable information was the biggest obstacle to using a Balanced Scorecard management system,” Scotts Europe’s Managing Vice President admitted, “but with the new system we’ll have access to all the information we need to make such a program work!”

“We’ve all heard about the benefits of a Balanced Scorecard program. A Balanced Scorecard can help us align our goals with our strategy, define which activities are critical to achieving those goals, and also give us a more robust way to measure our performance and monitor whether we are moving in the right direction than traditional financial reports. To me, one of the major benefits of the Balanced Scorecard is that it is an excellent strategy communication tool. By using a well-designed set of key performance indicators, every employee in every department will be able to see how his or her contributions are helping Scotts Europe achieve its strategic goals.”

“I think a strategy-focused performance measurement tool like the Balanced Scorecard will be especially helpful to us at Scotts Europe. For the last few years following the new acquisitions across Europe, most of us have focused almost exclusively on keeping up with our daily jobs, chipping away at problems when we can. But we all know that there is more to running a business than just keeping up with day-to-day operations and evaluating our success by what comes out of the accounting system every month or quarter – yet this appears to be our primary focus. We’ve been so inwardly focused that we tend to forget that we need a long-term strategic direction too. We all need to focus on: what is Scotts Europe’s strategy? And how can we make sure that the company achieves sustainable growth in economic profit?”

Scotts Europe’s Strategy

“As I see it, it makes most sense for Scotts Europe to pursue a two-stage strategy,” the VP continued.

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“The first stage should focus primarily on getting our act together and streamlining the businesses we’ve currently got. We’re making gradual improvements but many of our operations are still just too complex and too inefficient to be competitive. We cannot hope to win any new customers or launch any new market initiatives until we are able to get our costs under control and make our existing customers happy. We need to prove that we can fill orders on time, reliably, and at a competitive price. It’s not glamorous, but we first need to get ourselves to a state of operational stability if we want to grow in the future.”

“Once that goal is accomplished, we can move onto the next stage. We all know that Scotts has been extremely successful in the U.S. by creating strong consumer demand for lawn and garden products through heavy advertising. Scotts has managed to grow the entire U.S. market, using highly effective, regionally-targeted commercials. On top of that, the company has managed to build a premium brand there – consumers ask for our products by name and they’re willing to pay a nice premium compared to other brands. We should now try to replicate that success in Europe. Once we’ve gotten our costs down, we can devote those savings to advertising. That way we will be able to grow the whole European market, as well as our share of it – now there’s a strategy to get excited about!”

“With this two-tiered strategy in mind, we can now start thinking about developing a Balanced Scorecard. First, we need to define which goals and value drivers are central to Scotts Europe’s success. Then, we need to identify actions to support those value drivers and key performance indicators that we can use to measure our progress on those actions. So, since we want to get the project rolling right away, let’s meet again next Tuesday and see what ideas you’ve all come up with for developing a Balanced Scorecard for Scotts Europe.”

Developing a Balanced Scorecard for the European Supply Chain

Scotts Europe’s rapid growth through acquisitions in the late 1990s had resulted in a highly fragmented and inefficient supply chain.

1 Because of the diversity of European markets and

the fact that Scotts had acquired several leading regional brands, every country had its own version of very similar products – as opposed to the U.S., where the Scotts brand name extended across product lines and markets. Scotts management planned to keep promoting these regional brands, but standardize formulas and packaging to the extent that only the name on the label would differ between countries. Roger Bloemen had been hired to cut costs and streamline the European supply chain operations. He was well aware that implementing the first stage of Scotts Europe’s strategy would rely heavily on increasing the efficiency of the European supply chain. More specifically, he knew that standardization, simplification, and rationalization of the newly acquired product lines and operations would be among the primary goals.

1 A more detailed description of the supply chain problems is given in the accompanying case The Scotts

Company (A): Transforming the European Supply Chain.

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Roger mused over potential Balanced Scorecard measures for Scotts Europe’s supply chain.

“One possible way to cut costs in the supply chain is by lowering inventory levels, but then we run the risk of reducing our customer order fulfilment rates even below today’s unsatisfactory levels. Alternatively, we could track order fulfilment levels and establish a target of 100% On-Time-In-Full, but then we might be faced with more excess manufacturing capacity or higher distribution costs. What a balancing act this will be,” he thought, “but at least having a clearly defined strategy helps set the right priorities for managing our supply chain!”

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