Category Archives: Supply Chain Strategy

‘The Johnny Tightlips’ and Two Other Popular Approaches to Supplier Relations

“Before you send that email, there are a few lines I want to take out. We don’t want to share that information with that supplier.”

“Really? But this supplier has done so much for us – shouldn’t they know what’s going on?”

“Not yet. Maybe later – but we don’t want to put any tension on our relationship right now.”

Three Approaches to Supplier Relations

Most companies have a list of key suppliers that you just couldn’t live without. Your dependence on them reminds you of the support you get from best friends, siblings, or even your spouse. But sharing personal information with family and close friends is often easier than sharing business information with your suppliers. What if they take advantage of you? What if they share that information with your competitors? What if they become your competitor?

Navigating your supplier relationships depends a great deal on your business model and the character of the suppliers you work with. Perhaps you could benefit from increased information sharing. Or – perhaps you should hold back a bit more. Here are three approaches to supplier relationships to consider.

The Johnny Tightlips

Johnny Tightlips

Johnny Tightlips is one of my favorite characters from the Simpsons. His catchphrase, “I ain’t sayin’ nothin’,” characterizes the attitude that a surprisingly large number of businesses take. While this arms-length relationship seems cold, it also has served many companies quite well.

The stories of suppliers moving upstream and becoming a direct competitor with their customers are numerous and instructive. For example, Asus was Dell’s supplier when they announced their own brand of personal computers that would compete directly with Dell.

If you’re a fan of poker-like negotiations, then keeping your cards close is highly advisable. Millions of dollars have been won by letting the other party speak while you sit quietly and listen. In fact, using a “pained pause” may be a great tactic to try next time you’re in negotiations. This tactic is described as, “When your negotiating partner makes a too-low offer, sigh, look him or her in the eye and say nothing.” Your silence puts pressure on them to do better, negotiate with themselves, and make a better offer without a word from you. For more on the Pained Pause, check out this Lifehacker Article.

However, relationships with Johnny Tightlips suppliers are only good as good as the benefits they bring. Unless you have most of the power in a supply chain, it’s unlikely that your suppliers will sacrifice much for you. When hard times come, they’ll more likely to switch to your competitors since there’s no loyalty or relationship in place.

Here’s a couple of my favorite Johnny Tightlips appearances:

The Open Book

The Open BookOn the opposite end of the spectrum is the open book approach. Your suppliers provide valuable services to your company – much like your employees. Treating them the same as employees, especially in regard to information, makes a lot of sense.

Being open has a myriad of benefits. Suppliers are able to collaborate with you on new ideas. Because they’re higher up the chain, they bring valuable insights about what efforts they’ve seen previously work or not. They also may have innovative ideas that they’re more likely to share with you because of your relationship with them.

An open policy also can be lifesaving when the road gets bumpy. Suppliers are much more patient when they know what is going on – why payment is delayed or orders are down. Though the rough spots are often the most difficult times for honest communication, that’s when it’s most impactful. A detailed email explaining the situation openly can open the door for more lenient payment terms and with the relationship intact.

Before your open your books completely, here are some important questions to ask:

  • Has your supplier proved their trustworthiness yet?
  • Is there any specific information that poses an unusually high risk if shared?
  • Have sufficient contracts been signed to prevent unauthorized sharing outside the business?
  • If you are a public company, are SEC guidelines – especially insider trading rules – being followed?
  • Have we sufficiently explained the policy to those who interact with our supplier?
  • Are your instincts prompting you to hold something back? Why?

Despite the risks, opening up communication often yields impactful results.

The Game of Kingdoms

The Game of KingdomsA middle ground is a philosophy I call the game of kingdoms approach. Imagine your company as a kingdom – complete with a castle and city walls. Your suppliers and customers are also kingdoms. Some are bigger than you, and some smaller. Just as a king engages with other kingdoms, you work with other companies.

The much larger kingdoms – the ones you’d like to have on your side if a war starts – merit investment in open communication. You want to build those ties in diplomatic ways by sending emissaries and fortifying trade routes. The smaller kingdoms may require less work. Taking a diplomatic game approach and envisioning various castles often helps me make better decisions on supplier relations.

Besides, “inter-kingdom diplomacy” just sounds more fun than “supplier relationship management.”

What’s Your Weapon of Choice?

Which approach do you currently use with your suppliers? How might you benefit from adjusting your communication style?

Share your thoughts in a comment, and be sure to check out our recent podcast where we talk with the former VP of Operations at Skullcandy about vendor relationships and metrics.

[Image Sources: Johnny Tightlips (modified) | Open Book | Castle]

How Skullcandy Rocked S&OP

How Skullcandy Rocked S&OPI’m excited to share with you the first episode of the Supply Chain Cowboy Podcast. I had a great interview with Mark Kosiba, former VP of Operations at Skullcandy. He shared his experience with forecasting, S&OP, and vendor scorecards – all very popular topics on our website right now.

I used to hate forecasting. I thought it took as much skill as tossing a dart at a bunch of post-it notes with numbers on them. But after talking with Mark Kosiba, I can see how a truly collaborative S&OP culture can transform a company. He took Skullcandy from just one spreadsheet to a set of world-class processes that earned Target’s ‘Vendor of the Year’ award. If you want to improve how you forecast, then you’ll definitely want to check out this episode.

You can listen or download the podcast from the link above or check out the full transcript. The podcast will also be available soon on iTunes for subscription.

I’d love your thoughts on what you’d like to hear more of as we record future shows.

Build an Awesome Vendor Scorecard Program in 4 Easy Steps

Vendor scorecards measure and track supplier performance on various dimensions that are important to your organization. At first, I was reluctant to start a scorecard program because I thought our company was too small and too busy. However, after eventually beginning our program, I saw powerful results that freed up time and helped the company grow.

Vendor Scorecard Example

Vendor Scorecard Template with ExamplesVendor scorecards strengthen supply chain relationships and help focus your suppliers on what matters most to you. Scorecards set goals for your vendors to reach for so they can become your vendor of choice. You can clearly see where each vendor ranks against each other, which helps you decide which supplier to work with on complex projects. This article outlines the four steps I took in building our company’s vendor scorecard program. I have attached a Excel Vendor Scorecard Template that I put together as a starting place for your own scorecard.

1. Decide What Matters

The first step in creating a vendor scorecard program is to define what your ideal vendor would look like. For me, it would be someone that communicated clearly 100% of the time, shipped quality products for free, and had a lead time of 15 minutes. Although those requests are a bit ridiculous in my industry, it does highlight what matters to me in my vendors: communication, quality, pricing, and lead-time. Together with my team, we took my brainstorm farther and came up with four categories that matter most to us with our vendors:

  • Pricing/costs, including payment terms
  • Production and Supply chain, including communication and lead-time
  • Quality
  • Product Development

Essentially, if our vendors could continually improve on these four points each year, our organization would benefit immensely.

2. Measure the Metrics

Having defined the broad categories, we now have to build the nitty-gritty of the scorecard. You need to build specific, measurable metrics for each category. Specifically, what exactly will you measure, and more importantly, how? For example, a pricing metric could be a comparison of costs between all capable vendors. A quality metric might be the percentage of orders with quality defects.

Good scorecard metrics should clearly define what is good, acceptable, and bad performance in each dimension. Your metrics should be a score for how your vendors are doing in aspects that matter most to you. They should be easy to understand, and if possible, easy to calculate. Unfortunately, building the perfect metrics often takes some deep thought to get them right.

Nailing the Details is Key

Many metrics were much more complicated to fully define than I thought they would be. For example, lead time is an excellent metric that I use. Tracking the time from when you place an order to when it gets delivered is a great way to compare vendors and encourage reductions in lead time. However, measuring this can be tricky when you get into the details. Should you track the time until delivery at to your location or delivery at port? If you ask a vendor to delay a shipment, will their lead-time artificially inflate?

For most quantitative metrics, your accounting system should have the records you need. However, based on the specific things you want to measure  you also might need to start tracking new events or information. For both of the above lead-time questions, I had to change our receipt processes to account for how we wanted to measure that metric. Despite the added work, tracking more data allowed us to trust our metrics and better compare our vendors apples to apples.

A Note on Subjective Scores

When hard data is unavailable or impossible, use a subjective grade. For example, “This Vendor is Flexible in Requests to Alter Production” is a difficult metric to track in our ERP system. Instead, at the end of each quarter, our supply chain team fills out a survey for each vendor that rates them on several dimensions such as flexibility. Rating vendors on a scale is the best way to get a good score from a soft metric. Even better is when the survey has an example for a top, middle, and bottom score for the metric so that scoring is more consistent across teammates. Recording everything in a free Google Form that you send out to your team is even better.

Google Doc Questionnaire 2

Weight What Matters

Once you have the metrics you want to measure (I have 4-6 in each category), it’s time to weight them. Start by rating the overall categories. The pricing category may be 25% of the total score, quality 40%. When your categories equal 100%, weight the individual components of each category. For example, if the quality category is weighted at 20% and has three metrics, then those three metrics could be 5%, 12%, and 3%, which adds up to 20%. The Vendor Scorecard Template shows my weighting.

Example Weighting

Pull Out the Gradebook

Maybe it’s from the report cards I received every semester in public school, but the A through F scale carries a lot of significance to me. That’s why I like to use that scale for each of my metrics. Some can only receive an A or F, or A, C, or F, but they all have the same percentage score. Based on their grade, vendors receive a percentage of that metrics weight as follows:

  • A – 100% A metric with 10% of the total scorecard weight would be 10% with an A
  • B – 75% (7.5% with the same metric)
  • C – 50% (5%)
  • D – 25% (2.5%)
  • F – 0%

Color-coding the scale adds the final touch of understanding so that it translates well and conveys the message clearly.

Example Weighting

Build the Document

Finally, once you’ve figured out your categories, metrics, and weighting, put it all together in a spreadsheet scorecard. You can use my template as a starting point to build your own.

3. Roll Out the Program

Once your scorecard is complete, implementation is your next bull to lasso. You’ll need to devise a plan to clearly communicate what, why, and how you are measuring your vendors. Depending on your suppliers, your experience could be much different, but here’s what I did.Why a Vendor Scroecard?

First, I put together a presentation with one or more slides explaining the following. It was detailed and thorough so that our vendors could clearly understand each score. Specifically, the document had the following:

  • A detailed explanation of each category and metric
    • For complex calculations, I included an example slide
    • Explanation of weights were also included
  • Reasons why we were beginning the vendor scorecard program
  • The implementation schedule (trial and full launch)
  • Our commitment to our vendors

Armed with a document that clearly defined the program, our CEO emailed the presentation and the scorecard spreadsheet to the leadership of our key suppliers. He asked them to review it and then meet with us in a video conference discussing the program. During the meetings with our six key suppliers, the CEO expressed support of the program and our supply chain team explained the details. Most vendors appreciate being measured on more than just price, and so all of our vendors were excited about the program as a chance to prove their holistic value to our company.

We designated the first month as a trial period where we would track performance, iron out issues, and report scores but not take action based on their results. After meeting at the end of the first month to discuss the trial run, we began the program in earnest.

4. Review and Reward

What will make your vendor scorecard program truly succeed is your diligence after implementation. I strive to send out scorecards on-time at the end of every quarter. My team schedules meetings via Skype or in person to review the scorecard each quarter and discuss ways to improve. The communication is two-way – we want all our vendors to reach perfect scores. That is why we council openly about what each of us can change to improve the metrics.

Another big decision to make is what you’ll do because of the scores. Will vendors with consistently high scores obtain a preferred status? Will quality checks or audits happen less frequently? Will you distance yourself from vendors who are very cheap, but fail in every other category? Will you reward contracts based on scores?

If you find yourself rewarding higher scores with more business, then your weighting is probably correct. However, if more and more business is still going to vendors with lower scores, then consider revising your scorecard to better reflect your company’s true priorities.

A great and relatively inexpensive way to encourage scorecard improvement is a vendor of the year program. This could involve a personal meeting, dinner with the CEO, and a plaque for the winning company. When I watch the “Walmart Vendor of the Year” award go to one of my competitors, I find new motivation to improve. Your suppliers may feel the same.

Bonus Step – Survey Your Vendors for Improvement Tips

If your vendor scorecard program is chugging along, then consider asking your vendors to score you. Sending a quarterly feedback survey to your vendors to discuss at the same time as their scorecard can bring insights into how you can be a better customer. Some questions could be:

  • What good practices do your other customers do that you wish we did?
  • What can we do to help you reduce lead-time?
  • What was an example of a project that went well? What about that experience can we recreate for all future projects?

If you make it clear they won’t be penalized for honesty, then you may be lucky enough to get great feedback on how to truly improve. Becoming a better customer can help your vendors better service you. In addition, you may pick up some best practices from their other customers or resolve root causes of your own deep problems. Address these issues in the scorecard review meetings and make commitments to improve when possible. We received a lot best practice tips from our vendors when we said, “we’re really bad at forecasting, so we’ve brought on staff with forecasting experience and invested in the software we needed.” They detailed how their other customers forecast and recommended we try the same.

Final Thoughts

As I talked about in my article on supply chain gamification, games have a way of bringing out our passion and motivation. A vendor scorecard brings the power of game mentality to supplier relations. “Just keep everything green and keep out reds” becomes the goal of your vendors. “Work with the highest scoring vendors” becomes your vendor selection shortcut. Measuring progress brings improvement that both your vendor and you will enjoy.

From the success I’ve seen from the program, I wish I had started it years ago. This quickly brought to mind the mantra of a friend of mine in process improvement. “There’s two good times to plant a tree: twenty years ago and now.”

If you haven’t started a program yet, begin today. If you have one already, take a look at how you can improve. Either way, share your experience in a comment below.

Update – Learn More about Vendor Scorecards in our Podcast

In our podcast interview with Mark Kosiba (former VP of Operations at Skullcandy), Mark talks about vendor scorecards and their effect on his company. The above model was based on his help, so it definitely applies to anyone wanting to implement a vendor scorecard program similar to the above.

Check out the podcast to learn more: How Skullcandy Rocked S&OP (and Vendor Scorecards)

“He Ships, He Scores!” Improving Your Supply Chain with Games

Mario Fork Lift
Friday evening had arrived, and I was very excited to be on my way home. My wife and I were going on our first date in over four months – the first time we would leave our new daughter with family as we had some fun. After dinner, we went to one of my all-time favorite places: The Nicklecade. The Nicklecade is an arcade full of older games that each only cost $0.05 to play. Ten dollars can keep two people playing the gaming classics all evening. As we played Ski-ball, Dance Dance Revolution, San Francisco Rush racing, and even Guitar Hero, I was struck by how motivated I was on a Friday night.

I had just spent an entire week in typing emails at a computer and occasionally helping with repetitive physical tasks in the warehouse. Now, on a Friday night, I was in front of computers again pressing buttons and tossing ski-balls up the ramp over and over to try and beat my wife’s high score (which I was unable to top). How could the similar skills and activities be so fun and motivating as I worked for tickets, and less so as I worked for paychecks?

The Game of Work

My question caused me to recall a business book classic called The Game of Work by Charles Coonradt. Written in 1984, before a generation was raised on videogame achievements and scores, Coonradt was struck by a similar question to mine regarding construction workers. They would slowly plod along building a house, but during lunch time, they’d run to a local basketball court and give everything they had to obtain 4-on-4 lunchtime victory. Realizing that the principals of games could increase motivation and productivity in the workplace, Coonradt defined five rules of gamification – harnessing the power of game thinking in traditionally non-game work.

  1. Clearly defined goals – Put the basketball through the basket
  2. Better scorekeeping and scorecards – The score is 87 to 89, our team is down by two with a minute left in the game.
  3. More frequent feedback – The scoreboard tells you immediately if you made a goal, and a referee’s whistle will sound every time you break a rule
  4. A higher degree of personal choice of methods – Score points; it doesn’t matter if they are lay-ups, dunks, field goals, or 3-pointers
  5. Consistent coaching – whenever I have a question, I can look over to my coach for guidance or call a time out for more detailed help

Supply chain and operation works lends itself directly to this type of job enhancement. Below are some examples of how gamification has helped boost productivity.

Charles Schwab Throws Out a Challenge

In Dale Carnegie’s book, How to Win Friends and Influence People, the story of Charles Schwab keeping score is a fun example of early gamification.

“Charles Schwab had a mill manager whose people weren’t producing their quota of work.

“How is it,” Schwab asked him, “that a manager as capable as you can’t make this mill turn out what it should?”

“I don’t know,” the manager replied. “I’ve coaxed the men, I’ve pushed them, I’ve sworn and cussed, I’ve threatened them with damnation and being fired. But nothing works. They just won’t produce.”

This conversation took place at the end of the day, just before the night shift came on. Schwab asked the manager for a piece of chalk, then, turning to the nearest man, asked: “How many heats did your shift make today?”

“Six.”

Without another word, Schwab chalked a big figure six on the floor, and walked away.

When the night shift came in, they saw the “6” and asked what it meant.

“The big boss was in here today,” the day people said. “He asked us how many heats we made, and we told him six. He chalked it down on the floor.”

The next morning Schwab walked through the mill again. The night shift had rubbed out “6” and replaced it with a big “7.”

When the day shift reported for work the next morning, they saw a big “7” chalked on the floor. So the night shift thought they were better than the day shift did they? Well, they would show the night shift a thing or two. The crew pitched in with enthusiasm, and when they quit that night, they left behind them an enormous, swaggering “10.” Things were stepping up.

Shortly this mill, which had been lagging way behind in production, was turning out more work than any other mill in the plant. The principle?

Let Charles Schwab say it in his own words: “The way to get things done,” says Schwab, “is to stimulate competition. I do not mean in a sordid, money-getting way, but in the desire to excel.”

Quoted from Dale Carnegie’s How to Win Friends and Influence People

A Jewelry Manufacturer Keeps High Scores

A factory that made recognition jewelry created a very simple computer program in the 1980s. The employee would log in his or her manufacturing job, say polishing 100 medallions, and the computer would time him. After the employee completed the work, he or she would see how quickly he or she had accomplished the work. The computer then ranked him or her against personal past records as well as everyone else. The program let the employee know whether the score was above or below average – and by how much. This simple program quickly increased efficiency of the entire factory as everyone tried to beat their coworker and their own records.

Real-time Shipping Dashboard Focused our Warehouse

A couple years ago, as our company quickly grew, we felt a need for better visibility to our warehouse operations. I had worked at Sonic in high school where little TV screens showed each order and helped me know how many hamburgers to make. Could we make a dashboard that showed us what orders we had to ship? With some VBA coding, I was able to create a real-time shipping dashboard that did just that. Every ten minutes, the computer would automatically update from our system database and show the orders we needed to ship and had shipped already that day. If an order went late, it would show up in red. As long as everything was green on the dashboard, we knew we were shipping on time and winning for the company. The dashboard was so effective that I was able to completely step away from warehouse operations as the team worked together to keep the dashboard green – or score points –rather than a manager directing every step.

Ideas for Gamifying Your Supply Chain

Having a better grasp of the principals of gamification, how can you better apply them in your supply chain? Here are some ideas:

  • Vendor Scorecards – We’ve been working extensively on a comprehensive vendor-scoring program. We are giving quarterly feedback on how key vendors are doing on dimensions important to our success. We also hope to build a “Vendor of the Year” award to reward good scores. Without the scorecard, however, our vendors can’t be confident in how they can better serve us as their customer.Crosstraining
  • Cross-training Achievements – An easy way to turn long-term training into a game is to create a grid of people and processes. As employees learn new processes, they receive a sticker that becomes a badge of cross-training achievement. Fast-food restaurants do this all the time. When we put this together in our warehouse, I was amazed by how quickly people began asking their supervisor to train them on new skills so that they could mark it off on the grid.
  • Pick-to-voice Warehouse Picking Systems – Wearing a headset that tells you where to pick your next order is a popular technology in large warehouses. These pick-to-voice systems often track efficiency and set goals for each picker. Taking that technology a step further, you could keep score on a large screen or let pickers “level up.” As employees reach certain scores, they could be rewarded with more difficult orders to pick – or move into new zones of the warehouse. Even adding the “1UP” sound from Super Mario and other video game trademarks could make order picking more engaging.
  • Pallet Wrapping Competition – If you have 30 pallets to wrap by hand, divide everyone into three teams and see who can wrap 10 in the shortest amount of time. Whenever students from local colleges tour our company, I ask them to compete in a “warehouse Olympics” game to see how they fare with the most basic of supply chain tasks. I quite enjoy watching college students race, and often struggle, to tape boxes, sort returns, and wrap pallets.
  • Vendor Terms Competition – Our CEO created a list of vendors that he wanted a dozen employees to contact and ask for extended payment terms. Each Vendor had an employee assigned to it. The list was in a Google spreadsheet we all shared, which allowed us to see each other’s progress in real-time. We could approach the request any way we wanted, and we even received a small gift card when we achieved our goal.
  • Real-time Dashboards and Metrics – Building on our shipping dashboard, we now have a large handful of other real-time dashboards. Purchase Orders, Accounts Receivable, and Accounts Payable are just a few examples of how we keep score. Our jobs become a game of keeping the dashboards free of red lines, which helps us focus on activities that help the company.

Supply chain is the ideal place to apply gamification principals. Large amounts of real-time data make keeping score much more achievable than in other less data-driven disciplines.

Whether it’s PlayStation 4, the NFL, or Monopoly, everyone on my team has a passion for games. Tweaking processes to channel that passion has helped my company in powerful ways. Applying Coonradt’s five “Game of Work” principals helps everyone better achieve results that help the company and enjoy their work more. Most importantly, that increase in motivation helps us become a stronger company and a more competitive supply chain.

Now instead of getting back to work, get back to gaming.

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If you’d like to learn more, please check out the below sites that were a source for parts of this article.

Five Supply Chain Mistakes that Kill Companies

Supply Chain Epitaph
Any good cowboy knows to be wary of rattlesnakes and stampedes, but the wild west of supply chain also has some precarious situations to avoid. A great supply chain strategy can help you dominate the market over time, but big mistakes can destroy your company in just days. Dozens of smart managers have unintentionally killed or maimed their businesses from these five blunders.

1. Automation – Too Much Too Soon

Supply chain professionals face strong pressures to reduce cost, and automation is an attractive option to accomplish that goal. However, jumping into a new technology without thinking through the strategic process could blur the fundamental problems and goals you face, which often results in investment misalignment. Seven of the incidents described in Supply Chain Digest’s 2006 list of the 11 Greatest Supply Chain Disasters involve poor implementation of new technology and automation. Specifically, the systems were unjustifiably large, unhelpful, or just didn’t work. Sometimes in our zeal to reach the shiny future, we become overly optimistic. Whenever I hear that investing in a new system will, “solve all our problems,” I pause and remember how many failed firms came to that same conclusion. The harsh truth is that the implementation of a new system is much more difficult than is usually anticipated. Furthermore, all too often, companies purchase a system before the demand justifies the investment.

How to Avoid the Mistake:

Don’t use technology as a replacement for a sound strategy and profitable processes. Instead, look to people and processes before technology to solve problems. If you determine that a new system is your best option, be sure to pilot it thoroughly before full implementation so that you don’t make unnecessarily large and risky jumps.

2. Trying to Do Everything Great Results in Doing Nothing Well

As customer needs diverge, you can quickly find yourself trying to provide a wide range of products through many different channels. Lacking a focused strategy can lead your supply chain down the dangerous path of trying to do too much. Richard Rumelt of UCLA compares this lack of a clear, focused strategy to an inept quarterback. If a quarterback were to conduct every huddle with nothing more than the words “let’s win,” then I doubt that team would score many touchdowns. Instead, by narrowing focus and developing a specific strategy of what your supply chain will do – and more importantly, what it won’t do– you can become great at a few objectives instead of being good at nothing.

How to Avoid the Mistake:

Create a supply chain strategy with focus. Strive for a few objectives with which to excel. Avoid vague, all encompassing “let’s win” goals and coaching.

Note: More thoughts on Rumalt’s strategy advice applied to supply chain available at Vivek Sehgal’s Supply Chain Musings.

3. Death by Inventory

Companies die when they run out of cash, and inventory has a nasty habit of eating cash faster than the cookie monster eats cookies. Small companies are especially vulnerable to stock piling inventory in anticipation of opportunities for growth. Never wanting to stock out, some businesses consistently over-order and over-build to capture all remote chances of demand. However, warehouses soon fill with obsolete or expired inventory that is essentially pallets of cash that you can’t use to pay the bills. Small companies aren’t the only ones with inventory issues; big businesses make similar mistakes. For example, Cisco took a $2.2 Billion write-down on obsolete inventory in 2001. More recently, Toyota, a company that prides itself on lean inventory, found itself with too many Trucks and SUVs that it couldn’t sell because demand for those vehicles dropped after the 2008 recession. However, less inventory isn’t always the answer either. Having too little inventory, or having the inventory in the wrong place, can quickly cut your market share and create angry customers. In reality, inventory is a complex creature that requires diligent attention to master.

How to Avoid the Mistake:

Don’t be afraid of politely turning away a few, less-profitable customers and custom items if it means freeing up significant amounts of cash through less inventory. Utilize data to back your decisions to avoid emotional purchasing. Build your company’s sales and operations (S&OP) process to ensure all departments are working on the same realistic forecast

4. Single Sourcing – “Help Me Supplier One, You’re My Only Hope!”

As supplier relationships become more collaborative, having only one primary vendor for key products can make financial sense. However, when your company’s destiny becomes married to your supplier’s future, you’re taking on unnecessary risk. Using one supplier for most of your business often makes good financial sense, but you must also stay vigilant in maintaining good back-up sources. Natural disasters, political unrest, or bankruptcy can quickly make your only supplier unavailable, leaving you in an uncomfortable predicament.

How to Avoid the Mistake:

Always have one or two back-up vendors for critical parts and services – preferably in different geographic locations or countries. Even if they are more expensive, give them a small percentage of your business so they stay engaged with you.

5. Complacency – If It Ain’t Broke, Why Fix It?

Last on the list of supply chain mistakes is complacency – getting too comfortable with a good solution. As Alex Rogo learns in The Goal, it’s difficult to push for improvements without a crisis encouraging change. However, remaining stagnate on a profitable model invites competitor disruption. New business models and supply chain improvements frequently disrupt the dominant firms in a market. Clayton Christensen, in his book The Innovator’s Solution, talks in detail about this phenomenon and offers advice on how to survive and prosper from disruptive innovation. To help our supply chains from losing their advantage, we should strive to improve and innovate before our competition forces us to do so.

How to Avoid the Mistake:

Become passionate about continuous improvement. Keep an eye on competitors, new business models, and emerging best practices. Work today to address risks your supply chain will face in the near and more distant future.

Which of these mistakes could your supply chain be facing – and what can you do to help avoid it? What other advice do you have to avoid these mistakes? Share your thoughts below, and be sure to subscribe free to receive future articles by email.