SUPPLY CHAIN

Common Supply Chain Mistakes to Avoid

I see these same mistakes, day in day out,

Across all industries, across all countries, and it has been that way for as long as I can remember…  So let me share some thoughts that might help you avoid these mistakes and boost your Supply Chain performance.

I have a ‘top 10’ list of common Supply Chain mistakes. But let’s not call them mistakes, because that sounds too negative.

We’ll call them ‘missed opportunities’. And generally they are really expensive missed opportunities—expensive in financial terms, as well as in poor customer service and reduced sales!

So out of my top 10, let me share three that should be really easy for you to fix. Consider your own organisation as I describe these, and how my ideas might be put to good use.

 1. Cost Reduction

All organisations struggle to reduce costs. Moreover, as time passes it gets harder and harder to reduce costs, because all the easy cost reduction has already been gained. So we need to get a bit smarter.

Ask yourself how many times do you “touch” your products? 

By that I mean, how many times a product is handled between being received from your factory or supplier, to being delivered to your customer.

Think about it now. Unloading, checking, moving to storage location, put-away in storage, picking as part of an order, checking, packaging, loading. Is the product handled more than ten times? If so, that’s not good. If it’s only six or seven, you are doing well.

So why is this important to costs? It’s simply because every time you touch a product you incur costs. Equipment costs, labour costs, damage costs… and so it goes on.

Don’t be so Touchy

So now think about how you can reduce the amount of touches. Can you go straight from unloading to the storage location? Perhaps you can introduce some automation in product handling. Maybe there are some unnecessary ‘touches’ that can be totally eliminated.

As an example, I was at a client’s warehouse this morning where they operate a Ro-Ro (Roll On-Roll Off) system at the receiving dock. Full truck loads arrive from the factory and 20 pallets “slide” off the truck in one go, using the Ro-Ro system. The driver does all this. The forklift drivers then scan each pallet and take them away to storage. One touch!

Touch Fewer as Well as Less

Also related to the number of touches is the “amount” you touch. By this I mean, are you mainly handling product by the pallet load, the layer, the carton, or by eaches (An ‘each’ being an individual item or unit of sale)?

For example we might have bottles of water (eaches), that are stretch wrapped in sixes (an inner), and then four of these “inners” are on a stretch-wrapped base or in a carton (an outer), of which 40 fit on a pallet. Obviously the larger the unit we handle, the lower are our handling costs. That’s why managing customer order sizes is so important!

What could you do to encourage your customers to order in larger quantities, or at least to order by pallet, layer, or carton, rather than “eaches”? Of course there are other easy targets for cost reduction that we might discuss at a later date—but this one is often an overlooked ‘opportunity’. 

2. What do you Measure?

Key Performance Indicators (KPIs) are vital to managing anything effectively. What’s that great acronym for KPIs? They need to be Smart.

• Specific
• Measurable
• Achievable
• Relevant
• Timely

The common mistake in using KPIs is to have too many! I have seen businesses that produce monthly Supply Chain KPIs that resemble the New York Phone Book! (OK, for anyone under 35, go and Google ‘Phone Book’)

Sure, within a business lots of different KPIs are required, but try to ensure you customise the KPIs for each ‘level’ of management within your business. Also make sure that your KPIs drive the right behaviours!

The chart below highlights what for me, constitute some of the most important supply chain KPIs.

The following additional KPIs are really useful in helping you reduce costs (because they highlight areas where costs are inordinately high):

• Cost per Order Processed
• Cost per Order Handled
• Cost per Unit Delivered
• Average Order Value (track this to look for low value / high cost orders)

3. How well do you manage your Customer Service?

Among the most important elements of good Supply Chain management, are an understanding of customer needs, development of appropriate customer service offers and policies, and effective management of the service offer.

At our seminars I often share case studies demonstrating the impact of not getting this right. The lost sales, the wasted money; all because supply chain management takes a back seat and is overlooked as a driver of business value.

This post was first published back in 2014 and since then, things have been slowly changing, with more enterprises leveraging supply chain capabilities to improve customer service, but there are still plenty of organisations that miss important opportunities by remaining too inwardly focused.

For example, many companies believe they know what their customers need, yet they never actually ASK those customers for an evaluation of supply performance. By simply including logistics activity in the rating criteria for customer service surveys, more companies would realise that some of their customers are being over-serviced while others feel that customer service in logistics is poor.

There’s just no place for a one-size-fits-all approach to outbound distribution any more. Such an approach achieves nothing but increased supply chain cost and an erosion of business profitability.

 Don’t Make the Mistake of Missing Opportunities

Aside from reducing excess inventory touches, improving supply chain performance measurement, and getting your logistics function more customer-focused, you might also be able to find supply chain improvement opportunities by exploring…

• Your supply chain strategy and its alignment with business goals
• The possibilities of outsourcing some or all of your logistics activity
• The structure and efficiency of your distribution network
• The prices your company is paying for freight transportation
• The layout of your warehouses
• Inventory levels across your business
• The impact of sales, marketing, and purchasing activity on supply chain performance