COORS BALANCED SCORECARD: A DECADE OF EXPERIENCE
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
ISSN 1940-204X
COORS BALANCED SCORECARD:
A DECADE OF EXPERIENCE
Hugh Grove
University of Denver
Tom Cook
University of Denver
Ken Richter
Coors Brewing Company
Introduction that provided the financial and materials planning software
modules. The SAP planning software became Coors load
By the end of 1997, Coors had finished the implementation configurator software that takes distributor demand forecasts
of a three-year Computer Integrated Logistics (CIL) and the production schedule and creates a shipping schedule
project to improve its supply chain management. Coors for the following week. The following major supply chain
defined its supply chain as every activity involved in moving problems were corrected by this CIL project:
production from the supplier’s supplier to the customer’s 1. meeting seasonal demand,
customer. (Since by Federal law, Coors cannot sell directly 2. meeting demand surges from sales promotions,
to consumers, Coors customers are its distributors whose 3. supporting the introduction of more than three new
customers are retailers whose customers are consumers.) brands each year,
Coors supply chain included the following processes: 4. filling routine customer (distributor) orders,
purchasing, research and development, engineering, 5. filling rush orders, and
brewing, conditioning, fermenting, packaging, warehouse, 6. moving beer from production through warehouse to
logistics, and transportation. distributors before the beer spoiled. (The shelf lives for
This CIL project was a cross-functional initiative to Coors products were 60 days for beer kegs and 112 days
reengineer the business processes by which Coors logistics for all other beer packages.)
or supply chain was managed. This reengineering project
improved supply chain processes and applied information Matt Vail, head of Coors Customer Service department,
technology to provide timely and accurate information to had been the CIL project leader since the inception of this
those involved in supply chain management. The project project. He had developed such expertise with supply chain
objective was to increase company profitability by reducing management that he had just been hired by a supply chain,
cycle times and operating costs and increasing customer consulting firm. In early 1998 on his last day of work for
(distributor) satisfaction. Coors, he was talking with Ken Rider, head of Coors Quality
The software vendor used for this project was the Assurance Department.
German company, Systems Applications & Products (SAP),
IM A EDUCATIONA L CA S E JOURNAL 1 VOL. 1, N O. 1, ART. 5, MARCH 2008Ken had just been placed in charge of the new balanced to use the following crisis motivation. At that time, Coors
scorecard (BSC) project at Coors. The initial motivation could not support all the new beer brand introductions
for this project was to assess whether the supply chain proposed by our marketing people, due to the antiquated
improvements were being maintained. However, the 1970’s software that was then being used for our supply chain
project was broadened to become a company-wide BSC. management. The marketing people wanted to introduce
Accordingly, the project strategy was to implement a three new brands each quarter and we could only support
performance measurement process that: 1) focused upon three new brands each year! We also learned that we needed
continuous improvement, 2) rewarded reasonable risk to get more employee involvement in the project.
taking and learning to improve performance and 3) enabled Ken: That’s a good idea. In fact, I have already
employees to understand the opportunity and reward for developed a list of the most frequently asked questions
working productively. (FAQ’s) about the balanced scorecard from initial meetings
Matt: The supply chain management project was really with employees involved in the supply chain.
challenging and rewarding. I hate to leave Coors but the Matt: You have lots of challenges awaiting you.
consulting firm made me such an attractive offer that I could Good luck in your new project. Make sure that today’s
not refuse it. I hope you have such positive experiences with improvements in supply chain performance don’t become
this follow-up balanced scorecard project. tomorrow’s problems!
Ken: This new project will be a real challenge. We
need to build upon all the improvements made by your Balanced Scorecard Background
supply chain project.
Matt: My project team was excited to see that The balanced scorecard is a set of financial and non-financial
our CEO discussed the supply chain project in his 1997 measures relating to the company’s mission, strategies, and
shareholder letter. He said that significant productivity gains critical success factors. The balanced scorecard puts vision
in 1997 were due to our project that streamlined purchasing, and strategy at the center of the management control system.
brewing, packaging, transportation, and administration of the Vision and strategy drive performance measures, as opposed
supply chain. to the traditional performance measurement systems that
Ken: Perhaps an economic value added (EVA) analysis provided their own, limited measures to management
could be done to assess these supply chain productivity whether they were needed or not. The goal is to maintain an
gains. alignment among an organization’s vision, strategy, programs,
Matt: That’s an interesting idea to analyze performance measurements, and rewards.
in the financial quadrant of the balanced scorecard with EVA. An innovative aspect is that the components of
Ken: Another challenge for my project is how to the scorecard are designed in an integrative manner to
translate the Coors vision statement and related business reinforce each other as indicators of both current and future
strategies into operational performance measures. prospects for the company. The balanced scorecard enables
Matt: You also need to identify any gaps between management to measure key drivers of overall performance,
the vision statement, business strategies, and current rather than focusing on short-term, financial results. It helps
performance. management stay focused on the entire business process and
Ken: Do you have any experiences from your project helps ensure that actual current operating performance is in
that I could use? line with long-term strategy. Kaplan and Norton (1992) are
Matt: Well, we did obtain some benchmarking data generally given credit for creating the balanced scorecard in
to develop targets for some performance measures for our the early 1990’s.
supply chain project. I can give you these measures but they One survey found that found that 60% of the Fortune
are limited due to confidentiality problems in obtaining 1,000 companies have or are experimenting with a balanced
such data. Maybe Coors should join one of the commercial scorecard (Silk 1998). Such changes have been driven
benchmarking databases. by the evolving focus on a team-based, process-oriented
Ken: Thanks. I am also aware of certain employee management control system. There are four perspectives
resistance to developing a new set of performance measures or quadrants in the balanced scorecard that generate
for this balanced scorecard approach. performance measures to assess the progress of a company’s
Matt: We had similar employee resistance to changes vision and strategy as follows:
in the business processes of the supply chain. We were able
IM A EDUCATIONA L CA S E JOURNAL 2 VOL. 1, N O. 1, ART. 5, MARCH 20081. Customer perspective: how do customers see us? In the mid-1970’s Coors was a regional brewery with an
2. Internal business perspective: what must we excel at? eleven-state market, selling one brand in a limited number
3. Innovation and learning perspective: can we continue to of packages through approximately two hundred distributors.
improve and create value? Traditionally, Coors beer had been a non-pasteurized,
4. Financial perspective: how do we look to shareholders? premium beer. (However, with a recently developed
sterilization process, its products now have the same shelf
The BSC is a set of discrete, linked measures that life as its competitors’ pasteurized products.) Coors plant in
gives management a comprehensive and timely evaluation Golden, Colorado was its only production facility and it had
of performance. The BSC tries to minimize information no other distribution centers.
overload by providing a limited number of measures that Over the next 25 years, Coors changed dramatically by
focus on key business processes by level of management. expanding into all fifty states and various foreign markets.
For example, top management needs summarized, By the end of the twentieth century, Coors had production
comprehensive monetary measures while lower levels of facilities in Golden, Colorado, Memphis, Tennessee, Elkton,
management and employees may need both monetary and Virginia, and Zaragoza, Spain. It had expanded to using
non-monetary measures on a more frequent basis. Also, such twenty-one “satellite redistribution centers” in the United
measures need to track progress concerning the gap between States before the CIL project reduced this number to eight.
a company’s performance and benchmarked targets. Beer shipments were made by both truck and railroad cars.
The BSC considers frequency of measurement Coors had approximately 650 domestic beer distributors
depending upon the type of measure. Generally, non- although about 200 of them accounted for 80% of Coors total
monetary measures are reported more frequently than sales. Coors also had several joint ventures and international
monetary measures. For example, non-monetary, operating distributors in Canada, the Caribbean, Latin American,
measures, such as machine downtime, percentage of capacity Europe, and the Pacific.
used, and deviations from schedule, may be measured Coors had sixteen beer brands, including a specialty line,
daily. Other non-monetary measures, such as manufacturing Blue Moon that competed with the domestic micro brewing
cycle time, delivery accuracy, customer complaints, and industry.However, Coors continued to focus upon its four key
spoilage, may be measured weekly. Some non-monetary premium brands, Coors Light, Original Coors, Killian’s Irish
and monetary measures, such as inventory days, accounts Red, and Zima. Coors Light was the fourth largest selling
receivable days, product returns, and warranty costs, may beer in the U.S. In packaging, Coors had to compete with
be measured quarterly. Other non-monetary and monetary the major competitors’ value packaging, such as twelve-packs
measures, such as new products introduced, market share, and thirty-packs. In 1959, Coors introduced the nation’s
total cost of poor quality, return on investment and employee first all-aluminum beverage can and in the late 1990’s, it had
training, may be measured annually. introduced a baseball bat bottle and a football pigskin bottle.
There were also numerous state labeling laws to meet, such
Company Background as returnable information, and packaging graphics to reinforce
the Rocky Mountains image for Coors beer.
Coors had been a family owned and operated business from
its inception in 1873 until 1993 when the first non-family Competition
member became President and Chief Operating Officer.
However, Coors family members still held the positions of Competition in the beer industry was strong, especially in the
Chairman of the Board of Directors and Chief Executive United States. Anheuser-Busch (A/B) was the market leader
Officer and all voting stock. Only nonvoting, Class B common with approximately 50% of the U.S. market, 80 million barrels
stock was publicly traded. Coors has been financed primarily sold, $8 billion beer sales and $1 billion net profit. Due to its
by equity and has only borrowed capital twice in its corporate size, A/B was the acknowledged price leader in the industry.
history. The first long-term debt, $220 million, 8.5% notes, A/B also had thirteen domestic production plants, including
was issued in 1991 and the final $40 million of principal will one in Ft. Collins, Colorado, to achieve its customer service
be repaid by the end of 1999. The second long-term debt, goal of having no major domestic distributor more than 500
$100 million, 7% unsecured notes, was issued in a 1995 private miles away from one of its beer production plants.
placement. $80 million of this principal is due in 2002 and the Number two in this market was Miller, owned by Philip
last $20 million is due in 2005. Morris, with approximately 20% market share, 40 million
IM A EDUCATIONA L CA S E JOURNAL 3 VOL. 1, N O. 1, ART. 5, MARCH 2008barrels sold, $4 billion beer sales, and $460 million net profit. fundamentals in the future:
Miller also had seven domestic production plants. Coors 1. baseline growth: we will profitably grow key brands and
was number three with an 10% market share, 20 million key markets,
barrels sold, $2 billion beer sales, and $80 million net profit. 2. incremental growth: we will selectively invest to grow high
Coors had three production plants in the United States. Its potential markets, channels, demographics, and brands,
Colorado plant was the largest brewery in the world and 3. product quality: we will continuously elevate consumer
served 70% of the U.S. market with its ten can lines, six perceived quality by improving taste, freshness, package
bottle lines, and two keg lines. integrity, and package appearance at point of purchase,
There were no other domestic brewers with market 4. distributor service: we will significantly enhance
share in excess of 5%. In the late 1990’s, there had been distributor service as measured by improved freshness, less
consolidation of the larger companies in the domestic beer damage, increased on-time arrivals, and accurate order fill
industry. The most recent example was Stroh Brewing at a lower cost to Coors,
Company (SBC) with about 5% market share. SBC had 5. productivity gains: we will continuously lower total
signed agreements to sell its major brands to Miller and the company costs per barrel so Coors can balance improved
remaining brands to Pabst Brewing Company and exited the profitability, investments to grow volume, market share,
beer industry by 2000. and revenues, and funding for the resources needed to
From 1983 through 1998, Coors was the only major drive long-term productivity and success, and
U.S. brewer to increase its sales volume each year although 6. people: we will continuously improve our business
industry sales had grown only about 1% per year in the performance through engaging and developing our people.
1990’s. Coors had outpaced the industry volume growth
rate by one or two percentage points each year. Coors had The Operations and Technology (O&T) department of
accomplished this growth by building its key premium Coors was in charge of the supply chain management and
brands in key markets and strengthening its distributor had developed its own vision to elaborate the overall Coors
network, recently with improved supply chain management. vision statement as follows:
We are partners with our internal business stakeholders,
Coors Vision Statement and Business with our suppliers and with our communities. With our
Strategies partners, we have developed an aligned and integrated
supply chain that delivers our commitments and meets the
Coors Vision Statement was as follows: requirements that delight our distributors, retailers, and
Our company has a proud history of visionary leadership, consumers, establishing our company as the supplier of
quality products and dedicated people which has enabled us choice. The processes required to design, safely produce,
to succeed in a highly competitive and regulated industry. and deliver great tasting beer at its freshest, with superior
We must continue to build on this foundation and become packaging integrity, competitive cost, are well-defined,
even more effective by aligning and uniting the human, understood, consistently followed, and continually improved
financial and physical aspects of our company to bring by every person in our organization. The quality and
great tasting beer, great brands and superior service to our innovation we employ in all we do encourage beer drinkers
distributors, retailers and consumers and to be a valued to seek out our brands and make Coors the envy of our
neighbor in our communities. Our continued success will competition. Our use of current, accurate information
require teamwork and an even stronger dedication by every and appropriate technology enables all individuals in our
person in our organization to a common purpose, our Vision. organization to monitor and control their work, be flexible
Achieving our Vision requires that we begin this journey and move with speed. We value learning and exercise a
immediately and with urgency for it will require significant tenacious approach to eliminate waste and reduce cost. We
change for us to thrive and win in our industry. realize that in a competitive world, we must bring value
Using this vision statement, top management had to our brands and continually aspire to a higher level of
decided to focus on four fundamentals: improving quality, performance to compete successfully.
improving service, boosting profitability, and developing The O&T department had also adopted and extended
employee skills. In the 1997 Coors annual report, both the following supply chain guiding principles from the
the CEO and the President discussed the following work of the CIL supply chain project team to create its own
general business strategies or “six planks” to drive these business strategies:
IM A EDUCATIONA L CA S E JOURNAL 4 VOL. 1, N O. 1, ART. 5, MARCH 20081. Simplify and stabilize the process Thus, Ken’s project team had already added three
2. Eliminate non-value added time and waste new non-monetary performance measures as described
3. Relentlessly pursue continuous improvement below and created challenging performance targets for
4. Inventory is a liability, not an asset these measures to track anticipated additional efficiencies
5. People doing the work are critical to lasting improvement from the CIL project. Also, top management had created
6. Short cycle time + reliability = flexibility financial goals for the following key monetary performance
7. Find and fix the root cause measures in an attempt to become more competitive. These
8. Know your costs key performance measures indicated the following gaps in
9. Know your customers’ expectations current performance at the end of 1997:
10. Make decisions where work is performed
11. Balance and optimize the overall process Table 2
12. What gets measured gets done Key Performance Measures
Benchmarking and Performance Gaps CIL Project Performance
Performance Measure Pre Post Target Gap
Only limited benchmarking information was available since Non-Monetary
Coors had not yet decided to join any of the commercial Load Schedule (1) 30% 60% 100% 40%
benchmarking databases. (The largest one in the United Load Item Accuracy (2) 90% 95% 100% 5%
States, the Hackett Group Study, sponsored by the American Production Stability (3) 25% 50% 100% 50%
Institute of CPA’s, has about 700 participating companies.) Monetary (per barrel)
Performance gaps with Coors two major competitors were Manufacturing Cost $56 $55 $53 $2
noted by the following financial information obtained from S, G & A Cost $30 $29 $27 $2
annual reports: Net Profit $3 $4 $6 $2
Notes (these non-monetary performance targets are based upon weekly schedules
generated by the supply chain software):
Table 1 (1) Truck or rail car loaded on time: within two hours of scheduled lead time
(2) Commitments to distributors: exact product and exact quality
Benchmarking Analysis (3) Production of scheduled product and quantity: at planned time
Beer Industry Manufacturing S,G & A Net Profit These performance gaps indicated problems with Coors
Competitor Cost per barrel Cost per barrel per barrel traditional, cost-based performance measures. For example,
Anheuser-Busch $48.00 $27.50 $12.50 direct labor variances were becoming less important due to
Miller $50.00 $27.00 $11.00 the highly automated nature of the beer production lines.
Coors $55.00 $29.00 $4.00 Also, current performance measures were fragmented and
inconsistent between plants, unclear, not linking the separate
There were insignificant differences in price per barrel as business processes to the organization goals, not balanced to
A/B was the industry price leader and the other competitors prevent over emphasis in one area at the expense of another,
closely followed A/B’s pricing decisions. A/B had this pricing not actionable at all levels, and used to punish rather than
power since its domestic market share was more than twice incent continuous improvement.
that of Miller and more than four times that of Coors.
The major motivation for the CIL supply chain project Balanced Scorecard and Change
came from the deficiencies in the supply chain performance. Management Issues
The CIL project had become fully operational by the end of
1997 but more time was needed to realize the full benefits Ken was thinking that he could develop a crisis motivation
of such a project. There was still a significant amount of for his balanced scorecard project, similar to the strategy used
volatility in the production process that contributed to the by Matt for his CIL project. Ken knew that Coors traditional,
Colorado redistribution center being the largest bottleneck cost-based performance measures were not driving desired
in the supply chain. For example, Coors often could not results as indicated by the various performance gaps. From the
meet its goal to load beer product directly off the production vision statement and business strategy analysis, he thought
line into waiting railroad cars. that long-term sustainability and improvement in performance
IM A EDUCATIONA L CA S E JOURNAL 5 VOL. 1, N O. 1, ART. 5, MARCH 2008could be achieved by linking the balanced scorecard to the 12. How can you hold me responsible for a measure when I
annual strategic planning process. He thought that continuous am not the only one who can affect it?
improvement required clearly defined, aligned business 13. How often will the scorecard be updated?
process and activity measures that support a BSC. 14. Will the scorecard be used as a club?
Ken had already had preliminary meetings about this 15. Who will put together this scorecard?
BSC project with employees who were involved in supply
chain management. He had developed a list of frequently Balanced Scorecard Project: Additional
asked questions (FAQ’s). He thought that these FAQ’s might Thoughts
help guide him in implementing a balanced scorecard for
Coors. These key FAQ’s are listed here: Ken was wondering whether he should do an EVA analysis
to demonstrate its potential for a BSC financial performance
1. Will the balanced scorecard be linked to any incentive measure. Coors net operating profit before income taxes
plans? had increased from $75 million in 1996 to $105 million in
2. What if a measure does not drive the correct behavior 1997. According to both the CEO’s shareholder letter and
after implementation? What process will be used to a Value Line analysis, the major reason for this increase
evolve the scorecard? How will my input be heard? was the productivity improvement from the supply chain
3. Won’t the measures reduce our ability to be flexible with management project that cost $20 million. This $30 million
our distributors and make last minute changes for them? improvement in net operating profit before income taxes was
4. Why is the window on the Load Schedule Performance also predicted to become a permanent improvement for both
measure so tight? What difference does it make if we 1998 and 1999 operations.
get a load out within plus/minus two hours? If we get it Ken’s project team had compiled the following five
out the day it is scheduled, won’t the load arrive at the annual adjustments (all increases) and other financial
distributor as planned? information just in case Ken decided to do an EVA analysis.
5. We already have plant measures that are working. Why
would we want to change them? Table 3
6. The Production Stability Measure does not incent the EVA Adjustments
production lines to run ahead. Doesn’t it make sense to
allow us to run ahead on major brands as a cushion for Adjustments (in millions) Capital Income
those times when we have problems? So what should we Advertising costs (three year life) $ 900 $300
do when we are more than an hour ahead, shut the line LIFO reserve 45 3
down? Deferred income tax liability 65 10
7. Why would you base Production Stability, Load Schedule Capitalization of operating leases 30 5
Performance, and Load Item Accuracy on the initial Net interest expense 0 12
weekly schedule? The schedule changes constantly. Why
measure me against a weekly schedule that has changed
as a result of something I had no control over? At the end of 1997, Coors had total stockholder equity
8. Will the balanced scorecard be used to compare the of $730 million and total liabilities of $670 million. Total
performance of the three U.S. plants? Since each plant liabilities included $170 million of interest bearing debt as
is different, how can we be expected to use the same well as current liabilities, deferred income taxes, and pension
scorecard? liabilities. Coors weighted average cost of capital was 10%.
9. Product mix can adversely affect the cost per barrel. Will Ken was curious about what gaps might exist between
this be taken into consideration in this measure? vision statements and current business strategies for both
10. There may be some important measures excluded from Coors and the O&T department. However, he did not
the scorecard. If so, will they eventually be added to the want this gap analysis to wind up overloading the BSC with
scorecard? too many performance measures. He was also concerned
11. Will there be a throughput measure on the scorecard? I about what performance targets and reporting frequencies
cannot affect the number of barrels coming through my to establish for various BSC performance measures. Other
plant. That is determined by sales and scheduling that challenges were how to link BSC performance measures and
shifts production between plants. how to gain employee acceptance of the BSC.
IM A EDUCATIONA L CA S E JOURNAL 6 VOL. 1, N O. 1, ART. 5, MARCH 2008Ken realized that he had some serious challenges ahead than 500 miles away from an A/B brewery. SABMiller had
of him in order to create and implement a balanced scorecard nine U.S. beer plants. At the time of the case in 1998, Coors
for Coors. It was now January 1998 and top management was had three U.S. beer plants. Its Golden, Colorado brewery
pressing for a quick installation of the balanced scorecard in remained the largest one in the world. In 2005 Coors
order to use it for evaluating performance in 1998. closed its Memphis, Tennessee plant due to continued
inefficiencies in brewing Coors non-pasteurized beer. (The
Beer Industry: Decade Updates Memphis plant was originally purchased from the Stroh’s
beer company which did not brew non-pasteurized beer.)
Over the last ten years, Anheuser-Busch (A/B) has To help offset this loss, in 2005 Coors expanded its existing
maintained its dominant market position in the U.S. operations at its Virginia brewery. In 2006 and 2007 Coors
beer industry at approximately 50% market share in the expanded its beer production capacities with joint operations
face of many mergers and acquisitions (M&As) by its at various Molson’s Canadian breweries.
major competitors. In 2004 the Miller brewing company Coors has estimated that each new brewery cost about
was acquired by South African Breweries (SAB) and $200 million to construct and was reluctant to commit such
has maintained about a 20% U.S. market share. In 2004 resources on its own prior to any mergers. Thus, on average,
Coors acquired the Carling & Bass Brewery in the United Coors has had to ship its beer eight to nine times further
Kingdom. In 2005 Coors merged with the Canadian Molson than its competitors. Also, Coors only has a maximum
company and has maintained about a 10% U.S. market share. warehouse capacity in Golden, Colorado of 600,000 cases
The 1,500 U.S. craft brewers, other small U.S. brewers, and of beer which is equivalent to one 8-hour production shift.
foreign brewers have the remaining 20% U.S. market share. Thus, Coors has had to load per week about 1,500 beer
The Coors merger with Molson has produced trucks from 68 truck docks and about 400 railroad cars from
approximately $175 million of cost savings or synergies 22 rail docks. This worked out to a beer shipment volume
annually in 2006 and 2007, primarily from consolidating of about 60% trucks and 40% railroad cars. This information
duplicate support functions (eliminating jobs) in the reinforced the importance of Coors supply chain project and
information technology, administration, finance, accounting the need to track such production and shipping performance
and tax areas. In 2007 a proposed joint venture of SABMiller with Coors balanced scorecard project.
and Molson Coors was announced for their North American
operations (for a combined 30% U.S. market share) to
be effective in 2008, pending U.S. Justice Department
About IMA
approval concerning antitrust regulations. Ken and his fellow
With a worldwide network of nearly 60,000 professionals,
employees were coping with such M&A uncertainties by
IMA is the world’s leading organization dedicated to
following the guideline: “the nearer to the beer”, the safer
empowering accounting and finance professionals to drive
their jobs will be. SABMiller was a fully unionized company
business performance. IMA provides a dynamic forum for
while Coors had no labor unions. Also, SABMiller has been a
professionals to advance their careers through Certified
strong U.S. competitor to Coors over the years while Molson
Management Accountant (CMA®) certification, research,
has not really been a direct U.S. competitor.
professional education, networking and advocacy of the
To serve the U.S. market, A/B had thirteen U.S.
highest ethical and professional standards. For more
breweries with no major distributor customer being more
information about IMA, please visit www.imanet.org.
IM A EDUCATIONA L CA S E JOURNAL 7 VOL. 1, N O. 1, ART. 5, MARCH 2008You can also read
