Episode 3 – 5 Questions on How Startups Should Begin Improving Their Supply Chains

Improving Your Supply Chain

Show Transcript

Today we’re tackling five questions on the first steps on supply chain improvement. Now the inspiration behind these questions are a series of conversations I’ve had over the past couple weeks with some friends that are new to operations or in small companies that are growing – just starting to ramp up operations.

The questions have come up again and again of, “What do I do when I’m new to operations, or I’m new to a small business that’s growing? What are the first things I can do? What are the first steps to really taking my operations up a notch? Where are some low-hanging fruit for improvement?” So taking that vein, we’re going to address five different angles of what are those easy wins or next steps to go from a garage business to something much more respectable – moving toward a higher playing field of supply chain management and operations.

So question number one:

What are some ways to reduce costs and improve performance without sacrificing quality?

So reducing costs – improving performance – and not sacrificing quality at the same time.

I’d say two things that I’d highly recommend for this are first, learn how to keep score, and then learn how to open up communication.

Keep Score

Keeping Score – that’s a concept I picked up from a book I really liked called The Game of Work. In that book, they talk about how if you’re watching a basketball game, if you don’t see the scoreboard – you’re really just seeing people run up and down the court throwing the ball. There’s not a lot of enthusiasm or excitement. But as soon as you see the score, and you see that there’s a few seconds left in the game – the away team has 74 points and the home team has 71 points, down by three points – suddenly it becomes a lot more exciting. People get up on their feet. There’s a lot more cheering and more enthusiasm for what’s going on.

With the same principle, if you don’t know what’s going on – what the score is at work – it’s hard to get really enthusiastic about it. It’s hard to get those creative solutions that push it to the next level.

The way you do that is through metrics and keeping score of different things – specifically what you want to improve. They can be anything. The more creative they are, sometimes the more effective they are. There are basic ones like on-time shipping percentage, or how many mis-ships you’ve had, but depending on what you’re trying to change, that’s what you want to measure.

The Loose Pallet Metric

I went into a messy warehouse once and was in charge of turning it around. One thing I noticed was there were lots of loose pallets everywhere. They were just not up in their correct place. The whole place was messy, and that was slowing down operations a bit.

I created a metric of how many loose pallets were on the floor. At the end of each day I would walk around with a tally, and tally up how many were not in their designated racking. I posted it up – didn’t say anything, didn’t set any goals or anything – just put the number up there. Everyone talked about it – how high it was. We were all surprised of how many pallets were around. We talked a little bit about what that does to slow down operations.

Every day I’d take that number. Slowly, that number would tick down. We got excited that we were making good progress. We’d work a little bit harder to find better ways to put pallets away. As they started getting off the floor, things moved faster because there was less obstacles. We were able to reduce costs a little bit – man hours, we were able to get more done with the people we had – and just improve everything overall. It was a fun metric, and once we were used to putting everything away – we had a good process for that – we didn’t need that metric anymore, so we got rid of it.

A Caution on Metrics

That leads into a caution with metric – not having too many. You can measure tons of things, and you should. But as far as reviewing them with everyone, really three, four, five key metrics are all that anyone is going to really pay attention to. If you go over five, my experience is that people just start not paying attention to any metrics. So the fewer, the better. Focus on what’s the main issue right now – what are you trying to improve?

Improving Communication with the Miracle Question

The second part of reducing costs and improving performance – I see the way to do that is through creative suggestions – is more communication. Especially with the team members working with you, around you, under you, above you. There’s a question that I really, really like – and I got this from a book called Switch, and it’s about change.

It’s a question that a psychologist would ask married couples. He would say, “If you woke up tomorrow morning, and your marriage was fixed perfect – there was a miracle overnight and everything is fine – what would be the thing that would tip you off that everything was fixed. What would you see differently because of this miracle that happened overnight?”

The wife would say, “Oh, he would listen to me,” or, “He would kiss me good morning,” or something like that. Just small things that would show that things were different.

I really like this miracle question. If there’s a big issue we’re facing, I would ask people, “Ok, if you came in the next morning and this issue is fixed, what would things look like? What would the ideal solution look like? What little things would you notice?” This brings out a lot of great suggestions that previously might not have been heard. A lot of creative ideas come from this question.

Asking this question and just generally opening up the communication – sharing the problem with everyone – and saying, “What kind of creative ideas can we get?” Whether it’s calling a meeting after a hard day’s work and asking for suggestions on what we can do better tomorrow, or asking across departments, “How can we serve you better? What can you do better for us?”

Treat Suggestions as Gold

Now if you haven’t been doing something like this – asking for suggestions – sometimes it takes a while to get them. You have to treat those suggestions like a gift, like gold, and try to implement some of them right away so people gain confidence that their suggestions are heard.

Moving on to question number two:

How can a small business use technology to improve its efficiency?

What is the role of technology in small businesses? When do you invest in the next level? This is a difficult question, and it depends on your business model and where you’re at – what your funding level is. What does the next couple of years look like for your growth?

Eventually, as you grow, you’ve got to make that investment – you’ve got to buy those really expensive programs. The problem I’ve seen with a lot of companies is that they make that investment too quickly. Their previous stuff probably could have worked. They just weren’t using it fully or didn’t know exactly all the functionality of it.

A couple specific things to look at – first, learn the programs you have really well – learn all their functions.

When Do I Start Using Barcodes?

Next, there’s a difficult question of when to start using barcodes, especially for small, product-based businesses. At some point, you need to make that barcode jump. That’s actually one that a lot of companies do push off probably too long. There is a high return for improved tracking, improved visibility as soon as you start scanning everything and keeping track of individual products by barcode. That’s one that I would look at closely and think about doing sooner than other big investments.

The hard part about that is if your products haven’t been barcoded, it might involve some stickers on a lot of products. So even if you don’t have barcodes yet, but you see that potentially there could be someday. I would suggest start making packaging with the barcodes already on them. Even if you know you’re not going to scan them, have it on there so down the road you don’t have to put stickers back on.

Get to Know Excel Really Well

Using technology to improve efficiency – I would say I’m a huge Microsoft Excel fan. Now I’m nervous to say use Excel for everything, because there is a point where Excel has limits and it’s time to move past it. Use cloud-based software, use ERP systems, use databases. But you can do quite a bit in Excel, and I’d say your best bang for the buck is learning how to use Excel really well. If you personally know it, learning how to train others on it or getting training for others in the supply chain department. That’s really going to move things far very quickly with minimal investment.

Dashboards Make the Difference

The next thing to look at is dashboards. Something that I’ve seen really turn around operations for companies are dashboards. Whether its weekly, manual dashboards on how we’re doing on inventory levels, how we’re doing on early POs, late POs, on-time shipping. If you can go a step further, real-time dashboards are an amazing asset to have. That relates to keeping score. If you have a real-time score right there, it really pushes things forward.

If you’re interested in that, I’m really passionate about real-time dashboards, so I’d love to talk more about if you see a possibility for that working in your company. There are not a lot of vendors out there that offer real-time dashboards, so it’s definitely an opportunity. I have some experience with them, so I’d love to talk more about that.

Moving on to question number three:

How can small business owners get employees and others to buy into managing their supply chain better?

Not just small business owners, but really anyone within the supply chain, how do you sell that to the rest of the company? How do you create value? And more importantly, get people to buy into your initiatives.
There are three things to get buy in from others. The first is to get small wins. Next is to keep track of results. Third is to really add value to other departments.

Small Wins Bring Success

So making small wins – as you make changes, as you do new processes, really go for those quick changes that you can show others. Those quick wins. I wouldn’t say, “Hype it up,” but definitely show people that the changes they’re making really do have an impact. If in the first couple of days of going down a process – or the first couple of weeks depending on the scale – if you can show real results quickly, it’ll really get buy-in from a lot of people to keep moving that forward.

Track that Success to Build Credibility

Next is keeping track of results. Not just those quick wins, but long term, what are all these initiatives doing? I like to keep a small Excel file that I pop up and add to every couple weeks of, “What have been the results of our changes?” It really helps build credibility for what all these initiatives, all these efforts, make.

You’ll be amazed that if you save a few dollars there, a couple hundred dollars here, that total really adds up. You can look back at the end of the year and say, “Look, these initiatives increased our bottom line by 10%, or 20%.”

The year that I helped save a small company over a million dollars with all the different initiatives going in – and not that we were a million dollars more profitable – but had we not done these initiatives, we could have easily lost an extra million. That’s some credibility to move forward and say, “Look what we’ve done. This is what we can do moving forward.”

Ask, “How Can We Serve Others Better?”

Finally, working with other departments on how to add value to them. Not getting trapped in that silo, but really going to marketing, going to sales, even going to customers and going to vendors, and saying, “What can we do for you? What initiatives will help you?” That’s a great way to get their buy-in and their support.

Now question four is kind of related to that concept of working with other departments, other parties in the supply chain. Specifically, question four is:

How can a small business oversee and boost the performance of their supply chain partners?

This is downstream customers and upstream vendors. How can – no matter where the power is along the supply chain – what can I do to improve the supply chain overall. It relates back to keeping score, but vendor scorecards are a great tool to put in place if you haven’t already. That’s one of the most popular articles on our site, so there’s definitely a lot of interest of how do we do this. It’s really not anything crazy. It’s very basic, very easy to put in. It just takes a little discipline.

How to Implement a Vendor Scorecard System

You start measuring performance. Specifically, you say, “What is important to me for a vendor?” What do they do besides price – that’s part of it – but in addition to price, what do they do that I value? I’m going to start measuring that. I’m going to give a grade for that.

It’s a great conversation of, “Here’s what I would love you to be able to do. We could increase business with you – we could succeed – if you are able to do this.” If that’s cutting lead times down from 90 days to 60, to 30, to two weeks, or whether it’s payment terms, or if it’s more creative ideas coming upstream from the vendors of things they’ve seen, or market research. Really, a whole host of things. Taking what we value and letting them know how they’re doing in our eyes really, really helps.

Learn from How Customers Measure You

On the flip side, a lot of customers will do this with you. So it’s really just following their example. If you work with big retailers like Walmart, or Walgreens, Target, they have very, very specific metrics that they’re measuring you on. On-time shipping, fill rate, specific sales, inventory turns – those kinds of things. That’s what’s important to them. If we can help them improve those metrics, we make them look like a rock star, and they like us even more. You’re able to build that relationship.

Get a 360 Degree Company Review

It’s not just putting this in place, but then really working toward improving them both forward and backward. It’s kind of like in the HR world, they rave about the 360 degree review at the end of the year. You get coworkers, subordinates, and managers to give feedback on how you’re doing. For the company, it’s really the same thing. How do we get a 360 view of how we are with all these other companies?

Look at Other Companies as Kingdoms

It’s like we’re this little kingdom, our little castle is what I envision. And there’s all these other kingdoms all around. We all work together. Whether we’re a customer this day or a vendor this day. Some of the small kingdoms, you don’t have to worry too much. Some of the big ones you do. Lots of little small ones, you can build an alliance with. It’s managing those relationships – even if they’re small parties along the supply chain – how can we make them happy? How can we measure them, reward them, and encourage them to help us out as well?

From there we’re going to move on to the last question, number five:

What are some of my best suggestions for making the management of a supply chain more efficient?

Overall, what’s the best things you can do along the entire value chain to create more value and more efficient delivery of that value. Again, there’s three things you want to consider if you’re looking at the chain-wide view. First, is face time (and not the Apple program), having face-to-face communication. Second is really understanding problems you’re up against and being very honest about those problems. The third is fanatic discipline, and I’ll explain that in just a second.

Face-to-Face Beats the Pants off of Email

Going back to face time, when we put in these vendor scorecard programs, we also had a commitment to the vendors that we will talk once a month, even if everything is going well, even if we haven’t been doing a lot of business, let’s talk once a month and just catch up on what the state of affairs are. What’s going on that we have? A lot of them were international partners, so we couldn’t visit them every month, but we at least had a very high level Skype call or video conference with them.

They started out pretty formal, but they became a little less formal. It was more of building the relationship. We got beyond the emails. So many times in supply chain, you just get caught up in emails and that’s the only way you communicate. But the more you can pick up the phone, or even better video conference – or if it’s in your budget, actually visiting – that solves so many problems. It builds that relationship. Suddenly, you’re dealing with friends instead of names in the “To” and “CC” box of your Outlook. The more you can interact with these partners and talk with them face-to-face as best you can, that’s really going to create synergy within the supply chain.

Be Brutally, Painfully Honest Right Away

The next way to add value along the chain is to be very honest and open about problems when they develop. This is really, really hard. A couple examples:

Messing Up 50,000 Times

The first one – we had sent 50,000 units of a product to a customer, a retail customer across the country, and after a couple weeks, we began hearing reports that perhaps some of these were labelled incorrectly. We were getting a couple stores calling us up and saying, “There’s something weird with this. It’s ringing up incorrectly.” So, after a couple stores contacted us, we looked into it. Right away, within a couple hours of looking into this, I realized it was a major issue and all 50,000 pieces were barcoded incorrectly. This was a big deal. This is the type of problem I lost sleep over, that can really damage relationships.
I spent some time really gathering the facts. Saying, “What are we really up against?” Luckily, I was able to really figure it out and paint the entire truth, as ugly as it was. We communicated that with our partner.

That day was just a bad day. There was frustration, yelling, anger – not a good day. But, it was kind of like pulling the band aid off quickly. After that day, everything just switched into, “Ok, how do we fix it now?” The blame went away because we accepted blame.

We were able to move forward quickly, solve the problem, mitigate the damage. Even though there was penalties and monetary fines, it was very, very insignificant to what it could have been. It was the monetary equivalent to a slap on the wrist. Had we not been so forward and direct, and quickly bring that issue to light, I think it would have been a lot worse.

Depending on your relationship, you might want to address it differently, but most of the time, being very straightforward and saying, “This is what we’re up against, this is the ugly, naked truth – warts and all – how can we fix it?” It’s when you don’t give the truth that people start working on solutions to things that aren’t the problem. That’s what really creates problems along the value chain. Encourage your vendors to do the same.

New Products Shredded Right Away

Another fun example that’s happened recently that I just heard about, we had a bunch of packaging produced at a packaging company and it was ready to ship. It was finished on Tuesday. On Wednesday, they couldn’t find it. It turns out that some new employees had put it in the wrong space. They’d actually put all the new printed packaging in the area to be shredded. So all this packaging that had been made was instantly shredded. That’s a bad day. Luckily, we had a backup supplier, so it won’t be a huge consequence, but still, a really bad day.

The fact that they were very honest and straightforward, and said, “This is exactly what happened,” at least we can call on our contingency plans right now instead of waiting on them to look into it further and make up excuses or whatever. So, really honesty and calling out the problem as it is, is the way to build long-term relationships.

Fanatic Discipline Brings Long-term Results – A Tale of Two Hikers

Finally, there’s a concept that I really, really like called fanatic discipline. This comes from Jim Collin’s book, Great by Choice, one of my favorite books. He talks about how there’s three things that great companies do, specifically companies that don’t get lucky but are great because they choose to be great. The first one of those is fanatic discipline.

He gives an example of two people that are starting on one side of the US, I believe it’s California, and they’re going to walk to Maine, the other side of the US. So the first cross-country walker gets up, he’s really pumped, and he walks 40 miles the first day. He’s pumped the next day and he walks 60 miles. But he kind of gets tired, so the third day he does 5 miles. His feet kind of hurt, so he waits a little bit. But then Friday he does another 40-50 miles, and then 20 miles, then 40 miles, then 3 miles. Eventually he’s at the Rockies in the US, and it’s really cold – it’s winter – so he hunkers down for a while. He just rests for a couple weeks.

Now there’s another hiker. He starts at the same place – they start together – and he marches 20 miles each day. He marches 20 miles the first day. He could have gone farther, but he says, “No, I’m going to stop there. I don’t want to push myself.” He does 20 miles the next day, 20 miles the day after that. And every day, no matter what, whether it’s in the mountains or whether its on the nice plains, 20 miles every day.
It’s almost like the tortoise and the hare, but the guy that every day marches 20 miles, he’s going to beat the one with sporadic mileage by many months. It’s that idea of constant returns.

He likens it to companies that always have a 20% return, versus competitors that have 60% one year, then 3% the next year, then 10% – just all over the place. The companies that have consistent returns that aren’t spectacular, but are good, those are the ones that over a long time, really, really outpace their competitors or peer companies.

Set Aside a Small Amount of Time Every Day

I love that concept of every day, making a little bit of progress. Something I really like to do when I have a new goal or a new initiative, or something that needs to happen along the supply chain, is to have disciplined improvements. Taking a few minutes every day and scheduled away to just work on one thing. So if there’s a big problem that we need to tackle, if I can reserve 30, and be very discipline about reserving, 30 minutes each day to just work on that, then in a few days I’m going to make way more effort than if I’d just blocked off one afternoon.

Consistent Half Hours Add Up

Having that fanatic discipline of these small improvements, but over time they really add up. That’s the whole idea behind Kaizen or continuous improvement. If you can install that within your culture, within your own department, start there. Well, before that, install it in yourself. Then within your department. Then within your company. And then with your vendors, and their vendors, and if you’re lucky, within your customers, depending on where you sit in the relationship within the supply chain. Those small, disciplined improvements each day are really where big improvements come from.

Final Thoughts

So there are my thoughts on those five questions. A lot of what the conversations I’ve had in the last couple weeks. If we got close to something you’d love to talk more about, please reach out to me. You can reach out to me through the Contact Us link – there’s a quick form that you can send and that will get emailed to me. I’d love to talk about how this relates to your company, if you have further ideas, further comments. If you have anything to add to the show, throw that in the comment section.

What Are You Up Against?

If there’s something that you’re really facing in your company that you’d love to get thoughts on – not just from me but I can talk with other colleagues I have and get some advice to you – please let me know what those issues are and what your company’s up against. It’s not just you out there – there’s lots of other people facing the exact same things. That’s really what I’ve found, there’s very few problems that 100 other companies aren’t facing right now with you. And especially if you’re not competitors, why not share with each other and help each other along. Reach out to me, contact me, and I’d love to talk more with you. Maybe some of those questions will make it into the next show or other articles upcoming.

Most of all, I’d like to thank you for listening to the Supply Chain Cowboy podcast. I want to wish you good luck, and happy trails. Go get ’em.

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    One thought on “Episode 3 – 5 Questions on How Startups Should Begin Improving Their Supply Chains

    1. John

      Alex, I just found you through a bit of random surchaing on supply chain information and loved the pod cast, great insight and very well broken down and informative. I have a response in regards to getting employees etc. to buy into better managing the supply chain. I work for a security software company and as a subordinate employee I see some things that should be improved upon and I have ideas on how to fulfill this. My question is how do you get management to buy in to the idea of improving on communication and task completion flow. This is specifically centered to implementing an affordable task management system for the various employees who handle various different types of request on a daily, even hourly basis. Operating just purely based on handling requests through numerous inboxes in Outlook is just cumbersome, lackluster and inefficient at times. I know cost issue comes up as an excuse but for what we need out of a task management system, it is very affordable for licensing. It’s frustrating to me because I know this would improve our efficiency as whole as well as improve cross dept. communication and response time.

      Also I would love to hear your thoughts on who offers the best supply chain certifications for your money. Currently looking at APICS CSCP. This would certainly boost my career abilities but I need to be sure I make the best choice. Please email me back when you have time.

      Reply

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