We suspect our procurement manager is gaming our weekly inventory carrying cost and supplier lead time metrics by placing smaller, more frequent orders that drive up shipping costs. How do we spot this and what should we track instead?

Question

Tyler Smith · Accepted Answer

People will always optimize for the exact metric you measure, even if it hurts the rest of the business. If your procurement manager is judged solely on keeping inventory levels low and supplier lead times short, they will naturally place micro-orders. This makes their specific Scorecard numbers look great while silently destroying your margins through ballooning freight and shipping fees.

To stop this behavior, you must create a healthy tension on your Scorecard. You cannot look at inventory levels or lead times in isolation. You need a balancing metric that exposes the hidden costs of those decisions.

Replace or supplement the current metrics with two specific numbers. First, track total freight-to-revenue ratio on a weekly basis. Second, track average order size or purchase order processing costs. When you place these metrics side by side on your weekly Scorecard, any attempt to game the inventory levels by over-ordering will immediately cause the freight metric to flash red.

Review these numbers during your weekly Level 10 Meeting™. If your freight costs spike while inventory stays green, you have the data right in front of you to run the IDS process. This forces your procurement manager to manage the total cost of ownership rather than just manipulating a single, isolated data point to look good.