Why Your Supply Chain Isn’t Best in Class

Why aren’t you there yet?

We constantly strive for Best in Class Supply Chain performance, but only 20% of companies ever achieve it. And only 2% ever reach that exclusive ‘club’ of offering best in class service at much lower costs than their competitors! More on that in a moment.

The sad truth is, that most Supply Chains tend to remain right where they are, without significant performance improvement. Do you really want that?

Take a look at this simple pyramid diagram. Where do you think your Supply Chain sits?

Which of these 4 levels do you think you’re on:

Blissfully unaware? These are companies where they think their performance is OK, because they simply don’t know any better! Their performance in terms of cost and service put them at a real competitive disadvantage sadly.
Good Enough? So what does that mean? Maybe your service is OK and your costs are not ‘too’ high. This is a really dangerous level to be at for some organisations, because there is no incentive to strive for improvement. Again, these organisations can be missing out against the competition, but the ‘pain’ isn’t severe enough to focus on improvement.
Best In Class? If you’re here, well done! Best In Class Supply Chains are recognised as being the top 20% of performers. (An Internationally Accepted Definition) We all know lots of Best In Class companies and these are the ones who are always talked about and always seeking innovation and improvement.
The Top 2%? If you are here, you are really doing a fantastic job. You are truly a market leader. You are delivering outstanding levels of service, the best in your industry. And you are doing it, at close to half the cost of the industry average! How that is possible is a whole story in itself. But it’s certainly possible. (If you want to hear how it’s done, just comment below and I’ll write an article on the topic)

So how do you move up the Supply Chain Performance Pyramid?

Does it need a new dynamic Supply Chain Director to drive change? Or perhaps there is some new IT System that will provide the connectivity to help achieve your goals? These things can certainly be key enablers. But the reality is far more simple. All you need to do, to start climbing the Performance Pyramid is to focus on a couple of key functional areas at a time, and improve them. Just a bit. The compounding effect will then start to take over.

And if you are one of those people that when faced with a seemingly insurmountable task, struggles to gain traction, I’ll add a link below that might help.

OK, you ask, so what are those key functional areas to focus on? That’s going to vary from company to company based on your existing performance of course. And there are easily 25 key areas to look at. But right now I’m going to suggest 8. Why 8? Because these are some of the most common areas I see where improvement can be easily gained.

So here are my Top 8 Supply Chain Tips

Feel free to suggest others below, based on your own experience. As I said, there are at least 25 I can think of, but these are often the most common. I’ll make these tips simple, and add some videos, so we don’t end up with a 20,000 word article, but you’ll find lots more detail on each one in this Blog if you use the search box.

I’m actually going to go into each of these 8 Tips in a lot more detail at our next Free Breakfast Seminar. So if you are in Sydney or Melbourne, check out the registration link below.

1 – Getting Your Supply Chain Strategy Focused

Do you know that over 60% of businesses do not have a documented Supply Chain Strategy! And of those that do have one, many of the ones I have seen were so complicated that no one understood them. I’m a great believer in ‘one page’ strategies. If it takes more than one page, you have too much information on the page. And don’t like one company I saw, use an A3 page and tiny text to fit it all in! Start from the top and work down.

What are the goals for your business?
From that derive the 3 or 4 Supply Chain goals that will best support the business.
Then from that, think about 3 or 4 key ‘enablers’ that will help you achieve those goals.
And lastly pick a couple of KPIs for each goal, so you’ll be able to track your progress.

That’s it. And when you come to the wording of your Supply Chain goals, make it so simple that everyone in the business knows what you are trying to achieve.

2 – Identifying Profit Leakage

All Supply Chains ‘leak’ profits. All of them. Do you know where the leaks are in your Supply Chain? One of the simplest ways to identify and fix these leaks is to conduct a very high level Cost to Serve’ analysis. You need to establish the real costs of servicing your customers from an individual customer and product perspective. You’ll easily uncover:

Customers who are unprofitable.
Products that are unprofitable.
And processes that drain profits.

The good news is, that many of these leaks are very easy to fix. Do you realise that most ‘blissfully unaware’ companies have up to 30% of customers and/or products that are unprofitable!

Do you know which yours are? Check out this 2 minute video for some more tips: https://www.logisticsbureau.com/saving-distribution-costs-in-2-minutes-or-less/

3 – Improving Outsourcing Benefits

Most companies outsource some aspect of their Logistics. 85% do! And they still keep doing it even though the ‘divorce rate’ is so high (34%)… Yes, Customers and 3PLs fall out of love on a regular basis.

And like marriage, the common reason for the breakdown of the relationship is a lack of communication. Before and during the marriage. So if you are embarking on an Outsourced Logistics relationship, think about these key areas of communication:

Your reasons for Outsourcing. What you hope to gain.
The specific tasks you want to outsource. All of them!
Your concerns about Outsourcing.
The details of your current operations. All the details, good and bad!
What type of relationship you are looking for.
Your previous relationships, and what went wrong….
Your expected time frames for selection and contract commencement.
How you would like to measure and manage the relationship.

These are just a few of the ‘ground work’ essentials in Outsourcing, but you would be amazed at how many of these get missed.

4 – Fixing Warehouse Capacity Issues

Many companies start to worry that as their warehouses start to reach capacity, that they’ll need to start planning for new ‘larger’ facilities. But this is not always the case.

Here are a couple of videos with one of our warehousing experts Mal Walker where he shares a few useful tips that will help you.

Video – Running out of warehouse space: https://www.logisticsbureau.com/running-out-of-warehouse-space/ Video – Common Warehouse Design Mistakes: https://www.logisticsbureau.com/warehouse-design-mistakes/

5 – Ensuring your Distribution Network is Cost Effective

Most Distribution Networks grow up over time. Very few are actually ‘designed’. What that means of course, is that most Distribution Networks become miss-aligned over time and this leads to excess inventory, excess costs and poor customer service. One of the easiest things you can do is to make sure your network is ‘balanced’. That means checking that:

Stock is balanced across the network in terms of the slow movers and fast movers. Do you need all locations to be full range?
Customers are allocated to the most logical warehouse / DC to minimise delivery costs, taking into account #1 above.

Here’s a quick video (5 min) for those new to the design concepts of Distribution Networks: https://www.logisticsbureau.com/the-right-distribution-network/ And some more detailed explanation in a 16 minute Video: https://www.logisticsbureau.com/distribution-networks-can-make-or-break-your-business/

6 – KPIs – Getting it Right

Do you think most people have too many KPIs or not enough? Certainly too many. Remember what the K stands for. If you have developed a clear and concise one page strategy, you’ll certainly be very focused on making sure you are using the right KPIs. Try to stick with 5 or 6 at each level of management. For example:

The CEO will want to see Supply Chain Costs as a % of Sales. But maybe not the picks per direct labour hour.
The DC Manager will want to see picks per direct labour hour. But maybe not COGS as a % of Sales. (The CEO will want that one though)

It’s a question of matching the right level of KPIs, to the management level in the organisation. So do you have a KPI ‘dashboard’ or a ‘book’? Believe me, I have seen 100 page ‘books’ of KPIs that no one except the author reads. Make sure you work top down, to develop KPIs that directly measure your Supply Chain goals and their key enablers.

Would you like to see one of the Best Supply Chain KPIs ever? It’s called the probability of the perfect order. It’s described in detail on this link. The Best KPI ever! https://www.logisticsbureau.com/supply-chain-levers-part-5/

7 – Freight Transport – Service v Cost

The first thing to understand about freight rates, is that it’s not about the rate! OK, let me explain that. It’s not really about the dollar rate.

Imagine you are paying for freight on the basis of a pallet rate, or a carton rate or even a full truck load (FTL) rate. Freight transport is extremely competitive and it’s unlikely that you are being charged an excessive amount. Although I have seen a few exceptions! No, it’s not really about how much you pay per pallet, or carton or truckload. What it IS all about, is the rate ‘structure’.

Is a carton rate,a pallet rate or some other unit rate actually the most suitable rate for you and your products? Coupled with that, is the service level. Express v Road v Air for example. Is the freight service you are paying for actually in alignment with your customer service needs?

Freight can be a bit complicated if you are new to it, so I’ll provide a range of links here if you want to delve into it more.

Freight Tips part 1 – https://www.logisticsbureau.com/freight-part-1/
Freight Tips part 2 – https://www.logisticsbureau.com/freight-part-2/
And some “Freight 101” thoughts from me on the Hume Highway (4 min video): https://www.logisticsbureau.com/paying-too-much-for-freight/

8 – Customer Service – What Customers Want

What do your customers want in terms of service? Have you conducted surveys and interviews to find out? I have. And I’ll tell you what most customers in most industries want.

And it’s not fast service and it’s not cheap service. It’s reliable service! The product needs to arrive in good condition, on time and in the right quantity.

That’s it. OK, if you are in the medical devices industry and distribute hip joints, I might give in and say speed of service could be a critical factor.

But think about it for a moment. If you can deliver the product reliably and consistently, and the client (Hospital) shares their surgical list with you……maybe it doesn’t actually have to be ‘fast’ except in a very few emergency cases. So have a look around your business. Can you find a customer service policy that is documented?

Can you find reports on your customer service performance? Have a look at the service offer.

Does it offer the same service to all customers? Do all customers want the same service? Getting this right is an essential component of reaching Best in Class Supply Chain Performance.

Video – Some further thoughts on Customer Service: https://www.logisticsbureau.com/customer-service-the-8-noble-truths/

Summary

I’ve only shared 8 common areas of Supply Chain ‘failure’ that you might want to take a look at. I’m sure in the comments below we’ll see some other suggestions appearing too which will be great to add to the debate. But the most important thing in my mind, when trying to improve overall Supply Chain Performance is to take it step by step. Make it manageable. I’d suggest this approach:

List these 8 critical areas and others you think of.
Rank each in terms of the potential benefit of improvement. 10 = Large immediate benefit.
Then rank each in terms of the ease of improvement. (effort, resources, funds) 10 = Easy
Pick the three with the highest scores.
Decide what ‘fixing’ these will look like. (the desired outcome)
Set yourself a target date for completion.
Get started on the one with the biggest score!

Insurmountable tasks? How to Get Stuff Done in bite sized pieces (at 5:18).

A short Video. That Free Breakfast Seminar. Details and Registration are right here.