Customer Satisfaction Begins and Ends with Your Supply Chain

Prime Advantage, a leading group purchasing organization for mid-sized manufacturers, recently conducted a survey revealing the financial projections and top concerns of manufacturing executives.

Items topping the priority list for 2016 have shifted from 2015, with 68% of respondents mentioning the importance of growth in existing markets (up 8 points from 2015.) 63% said success is likely to come from new products and services. And cutting operational costs rounds out the top three at 54%. Yet cost cutting is down 5 points from 2015. And upon further review, the focus on cost cutting has been in steady decline since 2013 when it peaked at 68%.


Twenty years ago, when the term “supply chain excellence” first hit mainstream vernacular, the function was more or less linked to the cost of getting the company’s product into the customer’s hands. Most thought of the logistics and supply chain functions interchangeably. However, as commerce has become more competitive following the Great Recession, an organization’s supply chain is arguably its biggest secret weapon. But not for the usual reasons.

Ultimately, it is the supply chain that keeps or loses customers. CEOs are baking this truism into their corporate strategies by taking a broader definition of the supply chain—one that includes planning, decision analysis, and value-adding activities from end to end, rather than just logistics.

A different point of view

However, there are a few inherent reasons that real supply chain excellence remains elusive in most manufacturing industries. For one, the term “manufacturing” by itself implies a high intensity of fixed costs, which encourages high volumes and inhibits production flexibility. Secondly, some chains are part of a global supply network with complicated communication channels that tend to mask the root causes of hiccups and impede coordination activities. Thirdly, pressure is growing from an increasingly impatient customer base that wants its products faster and cheaper- with diminishing lead times granted to the manufacturer.

Despite these obstacles, the business case for improving the supply chain’s reach is an attractive one. Exhibit 1 below contrasts the customer experience between a low and high performing manufacturing supply chain. Based on client experience in the building materials industry, improvement in customer service levels can lead to increases in revenue by up to 10%. Examples of improved service include a) new order confirmations within a few hours, b) trackable order status, c) differentiated delivery options depending on criticality of supply need, or d) early warnings of potential delivery delays coupled with mitigating suggestions.

On the cost side, some producers with integrated visibility can toggle between product formulations based on the fluctuating cost of received materials. And from a working capital perspective, some market leaders in the U.S. have reported 20% reductions in inventory holding costs resulting from better forecasting processes. In the Exhibit 2 example, an integrated fulfillment schedule utilizes economic order quantity intelligence which results in the on-hand reduction of slow-moving products. Not only does this help on turning the inventory, but the freed-up schedule can be allocated to the production of more urgent or growing demand. It’s not hard to imagine what sort of strategic opportunities this creates for a business competing in a low margin, highly fragmented competitive environment.

Exhibit 1.

dec-2016_nle_blog-graph1

So why don’t more producers reap these rewards? The status quo exists, in part, because of how most measure supply chain effectiveness. In the past, cost leadership was a legitimate lever to pull; now technology has most everyone running pretty lean. Does it still make sense to continually view cost reductions as THE benchmark in supply chain excellence when there is real market-moving potential to be had? Measuring supply chain success purely on cost-per-ton-mile or on-time delivery might leave your business exposed to three deadly issues:

  1. Over-generalized customer segmentations impair the ability to uncover disparities in value/work ratio and which customer types would pay premiums for specific add on services.
  2. Guessing on what’s best. What impact would closing a distribution center or supplying a customer from a different source have on the rest of your network? When is the best time to switch transport modes on which route? Who should be favored in times of allocation and what inventory levels should the plants be run to prior to annual shutdowns? These decisions should and can all be optimized.
  3. Low forecasting accuracy is a symptom of insufficient customer collaboration, disconnected processes and incenting volume over credible estimates. The results can mean whip-saw inventories and customer defections.

Exhibit 2.

dec-2016_nle_blog-graph2

Separating Excellence vs. Merely Good

Improved performance in these three categories is the surest way for companies to redefine their customers’ expectations of service and preserve working capital cash, thereby turning their excellence in supply-chain execution into a powerful source of competitive advantage. But the well-known business axiom states that you can’t improve what you can’t measure. In the event your operation’s metrics aren’t aligned to achieving market growth, consider harvesting these best practice measures from the supply chain champions:

  • Product mix forecast accuracy (3-month window)
  • Stability of supply for “A” products and key customer SKUs
  • Distribution excellence for new products
  • Agility in scaling up or down in market volatility without bullwhip effects or disrupting key customer segments
  • Differentiated service levels with targeted upgrade options

If you are an executive exploring whether or not supply chain excellence will help your company raise its level of competitive play, there’s no need to sign up for a crash course in supply chain management. Begin by asking a few qualifying questions, such as:

  • For which specific customers, segments, and products do you reserve the best services?
  • Where do you optimize for cost rather than service?
  • How does a customer’s experience with your order process differ from that of your biggest competitor?
  • Is your network agile enough to respond to or take advantage of changes in demand? How sensitive are your costs to rail car availability or variability in trucking companies?
  • When and how are you forecasting? How accurate are the forecasts?
  • How would your competitors answer these? Where do your customers wish you would answer differently? Market share is in play.

Sustaining growth in existing markets is the number one concern among manufacturing companies, with new services and products leading the way. A company that improves the reach of its supply chain can certainly deliver superior performance and capture this growth. What are you doing today to turn your supply chain into a powerful source of competitive advantage?

It’s Your Supply Chain that Keeps (or Loses) Your Customers

Prime Advantage, a leading group purchasing organization for mid-sized manufacturers recently conducted a survey revealing the financial projections and top concerns of manufacturing executives.

Items topping the priority list for 2016 have shifted from 2015, with 68% of respondents mentioning the importance of growth in existing markets (which is up 8 points from 2015.) Success is likely to come from new products and services, according to 63% of those responding. Cutting operational costs rounds out the top three at 54%, which is down 5 points from 2015. The focus on cost cutting has been in steady decline since 2013 when it peaked at 68%.


Twenty years ago, when the term “supply chain excellence” first hit mainstream vernacular, the function was more or less linked to the cost of getting the company’s product into the customer’s hands. Most thought of the logistics and supply chain functions interchangeably. However, as commerce has become more competitive and customers more demanding, an organization’s supply chain is arguably its biggest secret weapon. But not for the usual reasons.

Ultimately, it is the supply chain that keeps or loses customers. CEOs are baking this truism into their corporate strategies by taking a broader definition of the supply chain—one that includes planning, decision analysis, and value-adding activities from end to end- rather than just logistics.

A different point of view

However, there are a few inherent reasons that supply chain excellence in remains elusive most manufacturing industries.  For one, the term “manufacturing” by itself implies a high intensity of assets, which means there’s an ever- present element of fixed costs that encourages high volumes and less flexibility.  Secondly, some chains are part of a global supply network which makes identification of hiccups less apparent and slows down coordination activities.  Thirdly, there’s pressure from an increasingly impatient customer base that wants its products faster and cheaper- with diminishing lead times to the manufacturer.

Despite these obstacles, the business case for improving the supply chain’s reach is an attractive one. Based on client experience in the building materials industry, improvement in customer service levels can lead to increases in revenue by up to 10%.  Examples of improved service includes new order confirmations within a few hours, trackable order status, differentiated delivery options depending on criticality of supply need, or early warnings of potential delivery delays coupled with mitigating suggestions.  On the other side of the ledger, market leaders in the U.S. have reported 20% reductions in inventory holding costs and working capital from better forecasting processes.  It’s not hard to imagine what sort of market opportunities this creates for a business competing in a low margin, high volume operating environment.

So why don’t more organizations reap these rewards? The status quo exists, in part, because of how most measure supply chain effectiveness.  In the past, cost leadership was a legitimate lever to push; now technology has most everyone running pretty lean.  Does it still make sense to continually view cost reductions as THE benchmark in supply chain excellence when there is real market-moving potential to be had?

Measuring supply chain success purely on cost-per-ton-mile or on-time delivery might leave your business exposed to three deadly issues:

  1. Over-generalized customer segmentations impair the ability to uncover disparities in value/work ratio and which customer types would pay premiums for specific add on services.
  2. Guessing on what’s best. What impact would closing a distribution center or supplying a customer from a different source have on the rest of your network? When is the best time to switch transport modes on which route? Who should be favored in times of allocation and what inventory levels should the plants be run to prior to annual shutdowns? These decisions should and can all be optimized.
  3. Low forecasting accuracy is a symptom of insufficient customer collaboration, disconnected processes and incenting volume over credible estimates. The results can mean whip-saw inventories and customer defections.

Separating Excellence vs. Merely Good

Improved performance in these three categories are the surest ways for companies to redefine their customers’ expectations of service and preserve working capital cash, thereby turning their excellence in supply-chain execution into a powerful source of competitive advantage.  But the well-known business axiom states that you can’t improve what you can’t measure.  In the event your operation’s metrics aren’t aligned to achieving market growth, consider harvesting these best practice measures from the supply chain champions:

  • Product mix forecast accuracy (3-month window)
  • Stability of supply for “A” products and key customer SKUs
  • Distribution excellence for new products
  • Agility in scaling up or down in market volatility without bullwhip effects or disrupting key customer segments
  • Differentiated service levels with targeted upgrade options

Sustaining growth in existing markets is the number one concern among manufacturing companies, with new services and products leading the way.  A company that improves the reach of its supply chain can certainly deliver superior performance and capture this growth.  What are you doing today to turn your supply chain into a powerful source of competitive advantage?

7 Pitfalls to Problem Solving

I was in Texas recently and served as a witness to a traffic accident on one of the busy highway outlet roads.  A man was turning into the intersection and ran into a pickup truck hauling a horse trailer. Unfortunately, there was a horse in the trailer at the time, and the carrier was overturned.  Traffic was building up quickly on both sides.

An officer arrived at the scene and quickly surmised that the horse had broken its leg.  Seeing no other alternatives for the animal, the officer pulled out his gun and shot it.  We all grew very quiet.

Then, turning his attention to the man in the other vehicle, he asked: “So… are you OK?”

At work, we all have to solve problems on a regular basis.  It seems like once one is resolved, another few immediately take its place.  At some point early in my career I came to the realization that none of my schoolwork had prepared me for solving ambiguous, thorny issues. This sort of problem solving is a new skill most of us have to pick up- and is arguably more important than anything taught in our English, math, science or social studies classes.  Once I hit “the real world”, there was little reason for me to spend any more time learning things that didn’t help me with my number one objective: to solve business problems (and stay employed.) Through my journey from employee, to consultant, and then to business owner, I learned how consulting firms operate, how they think and what they teach when it comes to solving problems. Much of this via live experience and trial and error.  In other words, I learned the hard way.

Below are 7 common pitfalls to problem solving that I found most valuable not to do. How many of these do you recognize?

  1. Not thinking 80/20- The Pareto Principle basically says that 80% of the outcome is often caused by 20% of the potential causes. Put another way, 80% of the benefit can be captured with less than 20% of the effort. Which of the contributing factors is causing the most impact? Target those.
  2. Assuming you understand the objective/ starting with a bad problem statement– Let’s assume your company has asked you to improve profit.  But what you assume they mean is cutting costs.  These are different objectives, albeit related. In most cases, cutting costs too much will hurt overall profitability.  Problem statements should have two key ingredients, if nothing else: an object to improve and the measured performance “deviation”.
  3. Overlooking what the problem is NOT– Being willing and able to eliminate key areas of analysis that do not pertain to the problem is key to isolating the root cause. For example, if your hypothesis depends on raw material costs having increased but the data says costs have decreased, you need to tweak your hypothesis. The human mind is second to none in its ability to rationalize, however, and we have a strong urge to make things fit (even when they don’t.) Another everyday example: the power to your house goes out, yet the rest of your neighborhood is brightly illuminated.  What potential cause does this one fact eliminate?
  4. Wasting valuable time with unneeded analysis– Most companies outside of Google or Apple do not have unlimited resources to work on things, so conducting all the analysis you want on a problem is not going to be a practical endeavor.  Therefore, prioritizing what data you do need is very important to solving the problem in a reasonable amount of time.  There’s a very well-known phrase called “boiling the ocean” that describes this notion well.  As the metaphor goes, there are two ways to get a cup of hot water: 1) Get one cup of water, put it on the stove and boil it and 2) Boil the entire ocean and scoop one cup of the boiling water. What key information is needed to solve the problem? Be as efficient as possible.
  5. Using the wrong mix of quantitative vs. qualitative questioning– Quantitative analysis deals with math and understanding numerical relationships. Qualitative analysis explains why the numbers are what they are.  You will need a healthy mix of both, probably at a ratio of 70:30. For example, quantitative analysis tells us our selling price erosion is the reason for shrinking revenues.  Qualitative analysis tells us it’s because we have a new competitor that is servicing the same market for less with an optimization technology. Too much reliance on either one of the analysis types will always give you an incomplete answer.
  6. Deploying the wrong framework- Starting with the wrong approach is akin to building an apartment complex on top of a house foundation: it just won’t fit and somewhere on down the line the structure will fall over.  Questions to ask yourself is: am I dealing with an actual unknown cause or do I need to make a decision on an action to take? If it is indeed a problem, is it a profitability issue or a strategic business situation (new market, acquisition, repositioning, etc.)? Or maybe the problem is a performance issue with an asset not running at the same level as before. It could be neither of these and more of a process improvement problem that involves variation control and 6 Sigma technologies.  Apply the right tool and the right answer is a lot more forthcoming.
  7. Forgetting to “destructively test” the potential root cause– Going back to the resource limits addressed in #4, if you have unlimited time and money, ignore this last rule.  For the rest of us, this easy trick will make a difference. Prior to launching into an experimental fix- but after you have a favorite root cause theory- mentally test how that root cause specifically accounts for the defect or deviation, how it explains when it occurred when it did, why it occurs where it does and if it explains the patterns that it leaves behind. If it can’t explain all of the known facts of the problem, then either your theory needs revising or the “facts” are not really facts.  This exercise is called destructive testing and is one big, logical time saver.

People love to solve problems. However, people will avoid problem solving situations when they are unsure of how to approach the issue. If we keep in mind the practical rules of problem solving, we shouldn’t shy away from any business puzzle.

Just don’t put the cart before the horse.