Daily Archives: July 11, 2008

Is Your Supply Chain “Ugly”?

A provocatively titled article in Supply & Demand Chain Executive that stated that No One Wants to Hear They Have an “Ugly Baby” recently caught my attention. Maybe it’s because, as the article points out, our economy is in trouble, your supply chain is crucial to your organization’s success or imminent failure, and, as the article deftly noted, your warehouse is about to make or break you! Or maybe it’s just because I liked the title. Either way, it was a good article.

It is a down-cycle, and that means, for those of you who aren’t innovating, and instead making the 10 Worst Innovation Mistakes that you can make during a recession, and who are unable to provide the customer what they want, when they want it, and at a price they can afford to pay, you may soon find yourselves out of business.

This means that if your supply chain is an “ugly baby”, that if your distribution is slow, that if your products are unpopular due to quality issues, and, most importantly, that if your warehouse is in shambles, you need to face facts, admit it, and do something about it.

How do you know if your distribution is slow? If it takes your competitor an average of 18 days to get product from Shanghai to their Chicago warehouse, and it takes you 27 days, your distribution is slow. If your closest competitor’s product sells out 3 days after it hits the shelves, and half of your product is still there 30 days later, your product is unpopular. And if received products take 2 days to be put away, if returns sit unattended for weeks, and if your personnel spend more time checking stock than they do processing it, your warehouse is in shambles.

When you consider that inventory can be as much as 20% of top-line sales, that many companies pay 20% to 35% of stock value to store inventory, and that certain types of products may decrease in value as much as 3% a month, it becomes easy to see that a $100 million company could be losing $3 million to $6 million a year with poor warehouse management that keeps too much stock on hand for too long by the time storage, depreciation, loss, and final disposition of remaining, unsalable, inventory is taken into account. (Heck, 5% inaccuracy on your inventory alone will cost you $1 million a year!)

Thus, if your warehouse is operating at anything less than 99% of optimal efficiency, you should do something about it sooner, rather than later, as the investments you make will quickly pay for themselves many times over in reduced inventory related costs. Not to mention the improvements it will generate in employee morale and customer satisfaction. As the author astutely points out, a warehouse laborer making $10 an hour can now spend as much as $100 a week for gas to travel to a job they likely hate. That’s one quarter of their take home income! If they’re not already looking for a job closer to home, unless your job is the best job in the world, they’re going to be very soon. In addition, every time a shipment is late, mixed up, or lost, your customers get a little more irate. They’ll only put up with so much, given all the other stresses they have to deal with in today’s economy, before they go elsewhere.

So if your supply chain’s ugly, admit it, and give it a makeover!