Peeling Back the Onion on Your Supply Chain Processes

Over the years, I've come across many large, brand-name companies that have been successful by many measures, such as revenue growth and profitably, but when you peeled back the onion on their supply chain processes and capabilities, they were far from best-in-class.

Like the multi-billion dollar chemical manufacturer that had been paying market rates for ocean transportation for eight years because nobody realized that their contract, filed away in a drawer by a transportation manager who had left the company, had expired.

Or Home Depot, which until last year was still faxing orders to vendors, a manual process that introduced "a lot of opportunity for error," according to Matt Carey, Home Depot's Executive VP and CIO (see The Fax Machine: The Champ of Supply Chain Hardware).

Can you imagine how much more profitable these companies could have been, or how much more market share they could have captured, if they had been more disciplined and focused on improving their supply chain processes?

That's the question I always ask when I share these types of stories with audiences, and an article in the Wall Street Journal this week about Columbia Sportswear sheds some light on the answer.

Columbia Sportswear is a 77-year old, profitable, multi-billion dollar company and a leading brand in the global outdoor and active lifestyle apparel, footwear, accessories and equipment industry. And yet, prior to replacing a legacy inventory management system and implementing a supply chain analytics solution from FusionOps, the share of merchandise the company delivered on-time and in-full was a dismal 28 percent! According to the article:

The company says the [FusionOps] software, which tracks open purchase orders, product fill rate, sales, as well as where products are in the supply chain, helped boost the share of merchandise delivered on-time and in-full, considered a core metric among retailers, from 28% to 78%. The analytics include a diagnostic component, showing Columbia why products are late, such as a ship delay at a port…When TurboDown jackets "took off" in the U.S. in December and January, the FusionOps software automatically notified Columbia staff to order more. Such data enabled Columbia to increase supply to minimize out-of-stock issues, reducing the amount of apparel the company marked down as sales waned.

How did this vast improvement in a key supply chain metric translate into financial performance? From the article:

Columbia Sportswear added $415.6 million in net sales in 2014 over the previous year, a 25% increase to $2.1 billion in worldwide revenue. Columbia did that while expanding its inventories by only about 17% year-over-year. That was one reason the company increased its operating income 51% in 2014 over 2013, to $198.8 million and net profit 45% to $137.2 million.

This case study underscores a key point I've been making to companies over the past year: that they won't be able to "succeed despite" anymore — that unlike the past, they won’t be able to succeed despite having poor visibility and control of their supply chains; despite having outdated and inflexible IT systems; despite not taking a holistic perspective of their end-to-end processes; despite not having timely, accurate, and complete data; and the list goes on.

The sooner you recognize this hard truth and put aside your past success, peel back the onion on your supply chain processes and capabilities, and start fixing what's been broken and hidden for so long, the sooner you'll get yourself on a more sustainable path for profitable growth.

(For another example of how Columbia Sportswear is improving its supply chain, see What If the VP of Supply Chain, Treasurer, and CFO Worked Together? The Benefits of Linking the Physical and Financial Supply Chains).