Are you content with the performance of your company’s supply chain? Most companies, it’s fair to say, are not. If you count your business among that majority, you’re probably well familiar with that sense of frustration that creeps in whenever you see a horizontal line across your supply chain KPI graphs.
It can sometimes seem impossible to gain an inch, let alone elevate performance to best-in-class levels. But why isn’t your company achieving the supply chain improvements it seeks? Let’s take a look at some reasons why you may not be reaching the levels you desire, but first, what does best-in-class really mean?
What is a Best-in-Class Supply Chain?
When we talk about best-in-class supply chains, we’re looking at the cream of the crop — specifically, the top 20% of performers in any given industry. Think of it like a pyramid where most companies are clustered at the bottom, and these elite performers are sitting right near the top.
But here’s what’s really fascinating — above even that top 20%, there’s an even more exclusive club: the top 2% of supply chains. These are the absolute masters of their craft, and they’re achieving something quite remarkable that goes against everything we traditionally learned about supply chain management.
The key distinction between a best-in-class supply chain and others falls into this hierarchy:
- At the bottom, you’ve got companies that are “blissfully unaware” of their performance
- Next up are those in the “good enough” category (which is actually a dangerous place to be, as it creates complacency)
- Then you have your best-in-class performers (top 20%)
- And finally, that elite top 2%
Why Does Being Best-in-Class Matter?
The traditional thinking has always been that better service means higher costs — it’s what we all learned in business school. But after 25 years of benchmarking supply chains across industries, we’re seeing something completely different.
Those best-in-class supply chains, particularly the top 2%, are actually operating at almost half the cost of their competitors whilst delivering superior service. Let’s put that in perspective: imagine a retail supplier where the average company spends about 11% of sales on supply chain costs, whilst the best-in-class performers are running at under 5%. That’s a massive difference that goes straight to the bottom line!
How do they achieve this? It comes down to three key factors:
- They get it right the first time, every time — which means no rework, returns, or firefighting
- They obsess over the details, focusing on those “one-percenters” — tiny improvements that add up to massive gains
- They benefit from what I call the “price-service relationship” — their excellent service makes them the preferred supplier, which drives more sales and even allows them to command premium prices
So when we talk about why being best-in-class matters, it’s not just about bragging rights. It’s about creating this beautiful virtuous cycle where better service actually leads to lower costs, more satisfied customers, and ultimately, stronger business performance. That’s why understanding where you stand and striving for best-in-class performance isn’t just nice to have — it’s becoming essential for staying competitive in today’s market.
5 Reasons Why Your Supply Chain is Not Best-in-Class
1: A Multitude of Concurrent Projects
A single supply chain project can take a great deal of time, money, and human resources to complete, yet it’s all too common for companies to be running a number of projects concurrently, with no single project relating to any of the others.
If your company is running multiple projects, your chances of successfully completing any of them are diminished — and here are some of the reasons why:
- Every project generates change, requiring efforts to reduce uncertainty and change resistance
- Projects get in the way of one another, creating confusion and bottlenecks
- It’s difficult to achieve consensus on priorities
- No project receives the focus necessary to stay on track
- Too many people are trying to juggle project work with their day-to-day duties and responsibilities
Now at this point you might be anticipating some tips for managing multiple projects, in which case I may be about to disappoint you, because there is only one tip worth following — don’t.
If your company is serious about developing a best-in-class supply chain, or even making any meaningful performance improvements, keep the number of projects down to one… or two if you have plenty of resources and at least one of the projects is critical and urgent.
Supply chain improvement is a continuous process, so instead of trying to get on top of every issue at once, prioritise according to which improvements will deliver the most benefit, and move towards supply chain excellence one step at a time — and that tip leads us nicely into discussing the next major obstacle to supply chain improvement.
2: Not Knowing Where the Value Lies
If you’re not somebody who manages supply chain improvement regularly, it can be hard to know where and how to start with improvements. Plenty of companies make the mistake of launching initiatives without really knowing what value they offer to customers or the business.
If you can avoid making this error — by first identifying where you can make the most meaningful improvements with the least amount of effort — you should start to see real results, which, believe me, is one of the very best ways to build momentum. There’s nothing quite like a few positive outcomes to fuel continued improvement efforts.
It doesn’t mean you should simply go after the quickest wins, though. Instead, try to strike a balance between the size of the prize and the effort required to attain it.
That said, there are two areas that, regardless of anything else, should be the very first targets for improvement. The first is supply chain strategy, especially in terms of its alignment with your overall business strategy. The second is performance benchmarking and measurement.
Your supply chain strategy should be closely aligned to business strategy because any improvement initiative you take should move your company closer to achieving its strategic goals. If strategies are not aligned, the time and money you invest in the supply chain may not contribute to those goals, and might even make them harder to achieve.
In other words, the definition of supply chain improvement is subjective (to a certain extent). The only way to know which way is up is to allow business strategy to guide you.
Once you can be sure that supply chain and business strategies are aligned, the next priority should be to know how your supply chain is performing, so if you haven’t benchmarked your supply chain and/or you don’t have a portfolio of objective, relevant KPIs in place, these should be your next steps on the path to improvement.
3: Lack of Performance Awareness
Here’s a quick analogy to help you understand the need to be aware of your current supply chain performance. Have you ever watched those auditions for musical talent competitions on TV?
If so, you’ve probably laughed at some of the horrendous singers who audition, and who clearly believe they have a shot at winning The X Factor or American Idol. But if you and your management team can’t say whether your supply chain is a poor, average, or great performer, you really shouldn’t laugh at those misguided would-be superstars, because just like you, they really have no clue how poorly they perform.
If you want your supply chain to perform well, you have to know what good performance looks like, which means knowing how your organisation measures up against others with similar operating characteristics. That is the purpose of benchmarking.
Once you have your benchmarks, you can use them in combination with your strategic supply chain objectives to develop a set of key performance indicators with which to measure improvement.
From that point on, as long as you continue to benchmark occasionally, you’ll always know if your supply chain performance is great, good, or bad (as compared with similar supply chain organisations), and can use that knowledge to guide improvement strategy and tactics.
4: Shortage of Resources and Experience
The majority of companies don’t see themselves primarily as supply chain operators. That’s fine because the supply chain is typically an enabler for business, except in the case of transport companies and 3PLs, which of course exist to service other companies’ supply chains.
However, this does mean that supply chain functions often struggle for resources and, in smaller businesses, may not even exist as specific business components. Human resources with the right supply chain skills and experience may not be present in abundance, making improvement efforts harder to execute.
There may also be a shortage of people available to work on supply chain projects. In the worst cases, there’s very little opportunity to even begin making improvements. If this situation applies to your company, there are a couple of ways to overcome the obstacle. Both of them cost money, but if you can finance either option, the long-term results should be well worthwhile.
One way is simply to invest more in hiring managers and staff with supply chain skills, or in developing those skills amongst your existing workforce. The other way is to bring in extra help for improvement projects. This is obviously the less costly solution of the two, since you will only be paying fees to a consulting firm on a project-by-project basis. However, you should try in any case to invest in supply chain training and education programmes for your managers and staff.
That will pay off by increasing the internal resources available for future projects and, indeed, should help with general supply chain improvement. Staff well educated in supply chain matters will be better able to drive small improvements on a continuous basis, in between the times that they’re committed to larger projects.
5: Insufficient Integration and Collaboration
As you’re no doubt aware, supply chains are complex and extend beyond the boundaries of your own organisation. In order to succeed with supply chain improvement, you need the help of all your internal business functions, along with the cooperation of business partners, suppliers, and sometimes — even customers.
Unfortunately, when supply chain improvement efforts fail to make headway, it’s commonly because collaborative challenges coalesce to become obstacles. Furthermore, these challenges all too often originate internally, as functional teams pursue their own agendas and fail to understand and support the bigger picture.
If you wish to minimise these issues, it’s vital to select the right people to participate in improvement projects. In many cases, this will mean you need representatives from each of your internal functions.
Moreover, participants should be chosen (at least partly) for their standing and level of influence within their functional teams. You need participants who will be ambassadors for the project and agents of change within their functions.
It is not sufficient to focus on collaboration merely during projects. One of the most important improvements you can make to your supply chain is to strengthen its integration, shifting from a disjointed group of silos towards a seamless, holistic entity.
It’s not an easy task by any stretch of the imagination, which is perhaps why just 20% of companies are able to claim that their supply chain operations are best-in-class. It’s also why your company should try to weave cross-functional collaboration into the very fabric of business culture.
Conclusion
There are always reasons for things to be tougher than expected, but that should never be an excuse to settle for mediocrity, or worse still, to remain unaware of what needs improvement.
Whatever type of product or service you provide to your customers, your supply chain is not only critical, but can add a lot of value — and the more you improve it, the healthier your company’s revenue and profit will be. This brings us to one final, and very important, point, and a great reason to overcome the barriers to improvement.
Companies that develop best-in-class supply chains are able to operate at a cost significantly lower than their industry average — up to 50% lower, in fact. Whilst the journey to the top may not be a walk in the park, and will certainly take time, every step will bring its rewards, and those become greater the further you get.
