Newsroom Notes: In search of the formula for supply chain success

Not all that long ago, I wrote a column in this space titled “What is the correct formula for supply chain success?” The premise for that column was based on a research note from Thom Albrecht, a transportation analyst for BB&T Capital Markets, that highlighted his firm’s “Transportation & Logistics Conference” earlier this year.

One of the takeaways was based on a presentation by XPO Freight president Tony Brooks. According to Albrecht: “Brooks suggested success in supply chains is measured wrong. It’s all about cost reductions when it should be measured by inventory, working capital and time. Many shippers have told us that they agree with Brook’s statement and wished someone could create the right supply chain formula, instead of just transport savings.”

Albrecht told me that Brooks’ point was that transportation gets measured just as a cost rather than what it does for the rest of the organization in terms of managing inventory properly, ensuring that lost sales are minimized, and that the supply chain is efficient by mode, transit times as well as cost.

“Done properly, transportation and supply chain is invisible within a good company, which keeps the focus on what that company makes and not how they get it to the stores,” said Albrecht.

It compelled me to search for another way of thinking that might constitute the correct formula for supply chain success. And based on the feedback I received, a definitive answer is likely to remain elusive for a while. I received replies from shippers, transportation and logistics services providers, consultants and analysts types. But regardless of their occupation, there was one consistent theme across the replies: there is no one definitive formula.

A consumer packaged goods shipper explained that whether or not a company is experiencing sales growth, maturity in metrics and the ability to fully understand their impact from a performance perspective is limited. And having moved from a large company to a smaller one, this particular shipper explained that one major advantage for achieving supply chain success is the breadth of ideas and creativity one can inevitably “borrow” from counterparts and implement.

“One that was already in place prior to my arrival was ‘perfect order,’ a combination of on-time delivery, case fill and inventory on hand,” he explained. “Though probably not a perfect formula, it certainly allows us to focus on building out a viable supply chain while not solely focusing on cost-cutting measures. Although a growing company often overlooks cutting fat.”

Preston Charles, a consultant at Worldwide Advancement Consulting, said that finding the formula for supply chain has to do with perspective and overcoming the challenges in gaining a consensus among management.

Obviously, a logistics manager is going to look at on-time performance, and they are going to look at cost, noted Charles. “A facility manager is going to look at on-hand inventory and inventory turns. A sales manager is going to measure success by availability of product and the ability to sell it at a competitive price. The danger comes when one of these perspectives dominates the others to the detriment of the business.”

Charles agreed with the original theme that transport savings can’t be the only measure of success, explaining that one of his supply chain professors was correct in saying, “You get what you pay for.”

An exclusive dependence on the lowest cost providers or the lowest cost available modes without regard to service or total financial health is dangerous, said Charles, adding that this mindset could easily result in lost customer goodwill that negates the work of sales— or in the other extreme, a bloated inventory that negates the diligent work done by the warehouse managers.

Charles added that a company that takes a little too much pride in a metric, like inventory turns, can create a distorted need for speed and timing. “The net result of this thinking leads to erosion of operating income because the cost of goods sold has exploded due to unnecessary freight expediting and poor modal selection,” he said.

Again, lots of great thoughts and insight here, but the final verdict remains elusive. In some ways, finding the correct formula for supply chain success is akin to a chef looking for the perfect recipe—sometimes you think you have it and sometimes you don’t.