The Top Ten Supply Chain Mistakes

Why do so many companies fail to extract the full value out of their supply chain
transformation efforts? Most failures occur at the intersection points between employees,
process, and technology. From the perspective of one veteran practitioner and consultant,
here are the ten most common mistakes that companies make when trying to enact
meaningful change in their supply chains.
No one disputes the economic impact of supply chain management. Study after study has linked supply
chain performance to shareholder value and shown that total supply chain costs account for more than
half of the finished cost of a typical product. But for the most part, initiatives to improve supply chain
processes to date have fallen short of expectations. How else can you explain why inventory has
continued to grow at a 3-percent compound annual growth rate over the last decade !nd why 3"-
percent of new consumer goods products fail to meet #asic financial returns
$art of the answer may #e that the execution of these programs is flawed or is inade%uately planned #y
people who don&t possess the right training and skills. ' would also argue that in many companies(
certainly in those that ' have worked for and with(there has #een a tendency to treat supply chain
initiatives simply as cost-containment or technology-implementation exercises. )inally, many efforts fail
to reali*e their potential #ecause companies view the supply chain only as the internal elements within
their four walls. +rue supply chain management( what ' call total supply chain management ,+S-./(
goes #eyond the four walls. 't #egins and ends with the wants and needs of customers and consumers.
' have o#served many companies struggling with their initiatives and have seen certain recurring
mistakes(mistakes that if corrected could help companies reali*e total supply chain management. +his
article condenses my experiences and o#servations, #oth as a practitioner and as a management
consultant, into some guidelines that ' hope can help others as they implement their supply chain
initiatives. +he guidelines reflect many of the discussions that we&ve had here at Scotts, where most of
our revenues come from lawn and garden products that are produced and distri#uted in #ulk. +hese
guidelines have proven instrumental in improving our annual inventory turns from 0.1 to 3.2, which
freed up millions of dollars in working capital over the last three years. !nd they continue to inform our
operations3 4e expect to significantly increase inventory turns again in the next two years.
+he guidelines are not meant to constitute an exhaustive list nor are they arranged in order of
importance. 5ather, they are simply a set of concepts, expressed as the mistakes that managers often
make when attempting system-wide change in their supply chains. '&ve focused on the ten most
common mistakes '&ve seen in hopes that others can identify and avoid repeating them.
The Top Ten Mistakes
0. Believing that supply
chain management is
a#out managing a chain.
6. +rying to achieve ma7or
changes while doing
#usiness as usual.
3. Having unshakea#le faith
in the value of vertical
integration.
8. )ailing to synchroni*e
demand chains and supply
chains.
9. +alking a#out
transformation in terms of
the ena#ling technology.
2. $ursuing :real time:
visi#ility at all costs.
;. $racticing supply chain
:monotheism.:
1. .isreading employees&
skills and aptitudes.
<. -onfusing glo#ali*ation
with glo#al #rands and
cross-#order trade.
0". +hinking that supply chain
transformation is a simple
task.
Mistake ! "lways
viewing the supply chain
as a #chain#
=ictionary definitions aren&t
always helpful. .erriam-
4e#ster, for example,
defines a chain as a :series
of things linked, connected,
or associated together or a
group of the same kind or
function usually under a
single ownership,
management, or control.:
+his definition, however,
implies that a supply chain is
a series of interrelated
functions that have some
coupling governance and are
connected #y a single
process flow.
+hat view has worked reasona#ly well up to now. +raditionally, the supply chain has #een partitioned
into the :silos: of planning, procurement, logistics, and service, and many managers focused on
extracting value from their own silos. )or companies pursuing the early stages of change management(
in effect, getting their own houses in order(this approach has delivered tremendous results directly to
the #ottom line.
But as further gains #ecome progressively harder to o#tain, companies need to rethink their supply
chain perspective. 'nstead of viewing the supply chain as a series of functional activities, they need to
see it as a process that spans across functions and organi*ations. >n the surface, it may seem like a
small change to ask for, #ut for many #usinesses, it has meant an overwhelming struggle. 't&s
particularly difficult #ecause it re%uires an outward focus. 'n addition to the traditional internal activities
and relationships, supply chain practitioners now need to focus externally on #usiness-to-#usiness and
even #usiness-to-consumer processes and interactions. +his change in focus re%uires new skills and
training for many supply chain professionals as they now must now add external partnering to their skill
sets.
-ompanies in the early stages of this transformation may #enefit from using a framework that takes a
holistic view of the design-to-delivery process as opposed to the order-to- delivery mindset more typical
of conventional supply chains. ,See ?xhi#it 0./ 't calls for listening to the design and external
colla#orative :voice: of the customer and tying marketing and consumer research into the supply chain.
@sing this framework to design the supply chain strategy, we can not only get the most out of the
internal supply chain #ut also create a colla#orative structure that allows for value creation #etween
functional silos while keeping in mind the :total cost of ownership ,+->/ structure.:
4e have found that potential savings calculated in a siloed activity often su#tract from optimal savings
for the whole supply chain. +he example we use at Scotts deals with the manufacturing and inventory
management functions. +raditionally, our plants received incentives to run as much throughput as
possi#le to minimi*e the piece cost. +his practice often resulted in a huge pre-#uilding of inventory,
resulting in high storage and handling costs as well as low turns(and eventually plenty of excess and
o#solete inventory on the #alance sheet. +he planners set up schedules to come as close to 7ust-in-time
production as possi#le, #ut the plant managers& metrics and #ehaviors did not support that goal. >nly #y
adopting the framework of consumer-driven +S-., where we paid attention to demand signals from the
distri#ution channel and from ma7or customers, could we #egin to redesign our supply chain processes
and metrics. !nd only when we&d done that did we start seeing the #enefits of lower working capital
,#oth finished and raw/ and huge decreases in excess and o#solete inventory.
+he current wave of +S-. re%uirements is taxing companies whose domain or span of control is not
well-defined and whose processes are focused on silo expertise and optimi*ation. !lready another wave
is gathering, this one driven #y retail channels working to slash system-wide inventory and total landed
cost while keeping gross margin returns on inventory investment as high as possi#le. -ompanies that
continue to think in :chain: terms as opposed to em#racing the extended and dynamic supply chain will
find this wave very tough to manage.
Mistake $! %ontinuing to do business as usual
:Business as usual: is always an interesting concept. 't keeps people within their comfort *ones and lets
#usiness leaders avoid having to rearrange their market-facing strategies. +he pro#lem is that this
stance can paraly*e large-scale transformation initiatives that re%uire fundamental changes in how the
supply chain interacts with the rest of the #usiness functions and in how the supply chain is positioned to
take advantage of closer consumer interactions.
'n Scotts& case, little would have changed if we had not migrated from a shipment-#ased and centrally
controlled push system to a decentrali*ed pull-
#ased system driven #y customers& point-of-
sale signals. +he shift in strategy, from
salespeoples& dollar-#ased forecasts to
forecasts of the volumes that customers would
#uy, has ena#led us to dou#le our turns while
increasing service levels #y a factor of 0"
percent for our ma7or customers.
4e find that companies that try to use their
internal supply chain processes and metrics in
their externally oriented and consumer-driven
actions often end up failing to make the
transition and impairing their internal
processes at the same time. )or example, the
measurement around fill rates can #e viewed
as internal to the company or as an external metric for customers. But the #usiness process that
supports optimi*ation of the internal fill rate is not the same as the one that can make it #eneficial for
the end customer. )orecasting processes that are focused on minimi*ing the error in product shipments
from the factory or warehouse are not the same as the processes that utili*e point-of-sale data to drive
the supply chain.
Some years ago, ' had a discussion a#out inventory turns and service levels with the supply chain chief
of a glo#al, multi#illion-dollar consumer-goods company. Aooking at turns improvement data from a
range of peer companies, we discovered an interesting fact. -ompanies that did not su#stantially shift
their go-to-market strategies or channel strategies achieved only small delta improvements as they
traversed the inventory-vs.-service $areto curve. ,See ?xhi#it 6./ +he classic example is -ompa% vs.
=ell. -ompa% could make all the efficiency improvements it wanted, #ut unless the company changed its
#usiness model to the direct approach used #y =ell(stripping out several operational layers in doing so
(it could only reali*e incremental #enefits.
!t Scotts, we make our +urf Builder lawn fertili*er and other familiar lawn and garden products in #ulk,
and that will not change. But what had to change was the way in which we measured our success.
'nstead of gauging progress in terms of how many units we produced, we had to measure our success
as our retailer did(#y how much volume they sold. So today our forecasts rely not on shipment history
#ut on what we know customers will actually #uy.
Mistake &! 'aving the wrong idea about
#control#
'&ve 7ust finished reading +he Bame .akers,
which traces the history and growth of $arker
Brothers, the highly successful #oard-game
maker. +he era of mass production is
highlighted well in the #ook, as is the fact that
many companies #rought repetitive commodity
manufacturing in-house during the 0<6"s and
0<3"s to #etter control their own destiny.
+here is still a strong perception that virtual
companies, or companies that have outsourced
their noncore activities, give up some degree of
control. Cet the connected economy is all a#out
achieving superior results #y leveraging the
core competencies of alliance partners while
maintaining a focus on your own strengths.
! framework of leveraged value chains across an extended enterprise demonstrates the power of
virtuali*ation. ,See ?xhi#it 3./ Not every company will #e a#le to #ecome virtual in all aspects, nor
should they. ?ven a company like -isco Systems(a wonderful example of an extended supply chain
leader(still retains strategic control and planning of its overall supply chain and firm tactical control of
key elements.
4e&ve found that it makes economic sense to retain in-house control of the elements of the supply chain
that add significant value to the customer and to partner with other companies for the commodity
elements. )or Scotts, this approach has ena#led us to maintain a sharp focus on and invest significant
capital dollars in the customer-centric aspects of our supply chain.
'n the future, supply chain success will #e determined largely #y the degree of partnership #etween the
#usinesses that make up the extended value chain.
Mistake (! Failing to synchroni)e demand and supply signals
5emem#er a few years ago, when Nike suffered significant financial pro#lems largely #ecause of a poor
implementation of demand and supply planning systems and processes in its footwear division $oorly
synchroni*ed demand signals and supply signals have created more pro#lems with inventory availa#ility
across the supply chain than is reasona#le. 't #oils down to the need to match financial forecasts with
sales and marketing forecasts as well as with operations forecasts. 'n an age of scientifically generated
#aseline forecasts, the need to have three different num#ers #eing generated #y three different groups
at three levels of details and using disparate data sources is nothing #ut a waste of good corporate
resources and money. +he companies that continue to pursue operational excellence #y relying on
shipment data are left with unproductive working capital and excess and o#solete inventory. +hey need
to move closer to the actual point of consumption and migrate to using a single #aseline forecast.
+o some extent, technology advances make it less crucial to constantly synchroni*e demand and supply
signals. Aeading-edge companies already excel at tracking point-of-consumption data as well as
inventory at the last point of consumption, and they use sophisticated tracking technology to transmit
the data effectively. !s a conse%uence, their marketing functions can focus on #uilding the #rand and
ena#ling effective promotionsD sales can proactively influence customers& ordering patternD and
production, procurement, and distri#ution functions have one signal that is driven #y customer data.
!t Scotts, our consumer-#ased inventory-replenishment program relies on point-of-sale ,$>S/ data from
our ma7or customers& stores right down to the SE@ level. +his has allowed us to lower our working
capital #y many millions of dollars as well as to #ecome the #est in service for most of our ma7or
retailers. 't&s in sharp contrast to the shipment-#ased aggregate forecast that previously drove our
#usiness and which had resulted in poor service as well as extremely low inventory turns. >ur marketing
planners can now focus clearly on the impact of promotions and advertising on our $>S at the store
level. +his allows them to optimi*e the spending that ena#les our #rand to perform well.
Mistake *! +elieving that technology is the real enabler
Six times out of ten, a complex supply chain pro7ect will involve an '+ implementation. Someone once
said that every #usiness event triggers an '+ event. +his is a#solutely true. +he challenge lies in
recogni*ing that, while a ro#ust technology platform is necessary, it is not the sole condition for overall
program success.
't is all too easy to get caught up in :the S!$ pro7ect: or :the .anugistics pro7ect: and to forget that the
real change comes from the transformation of the #usiness process to which the technology is #eing
applied. !nd it&s easy to forget that it is the dependencies #etween the supply chain silos, which really
make transformations work. +hese may seem like su#tle distinctions, #ut they have powerful and long-
lasting repercussions.
!t Scotts, we have found that technology platforms have matured to the extent that ma7or software
glitches are nowhere near as prevalent as during the 0<<"s. +he importance of the fundamental
#usiness processes and the strategy surrounding the use of the technology, however, continues to #e
underestimated. Businesses often fail to appreciate the importance of the %uality of resources and
human capital that is deployed to facilitate the adoption and optimi*ation of the #usiness processes.
+he optimal scenario is the confluence of the right people with a ro#ust technology platform, which
enforce and adapt a #usiness process that supports the corporate strategy. +he least effective scenario
for a #usiness transformation !n o#sessive focus on and fine-tuning of the technology platform alone.
Mistake ,! Failing to gain real visibility
$lenty of supply chain managers want to improve supply chain visi#ility and to have their organi*ations
more effectively act on the real-time information updates that are crucial to #etter visi#ility. But few
have found a way to turn their wishes into practice.
?very supply chain has inherent latencyD it can only operate as fast as the slowest machine or process. !
#enchmark that we use at Scotts is to keep the latency to a#out a week so that component providers
can react to surges in orders.
+he practitioners of effective S-. always seek to achieve visi#ility in ways that #alance the #urden of
data collection with the #enefit of reacting in real time. 4e recommend the use of the term :near real
time: as opposed to real time. +hat perspective works well, for example, in gathering inventory data at
the store level to run an effective vendor-managed-inventory program with channel partners. 4hile it
may #e desira#le to collect the information daily, it&s more practical to do so once a week #ecause the
latency in all transportation networks is a#out three days ,two days to deliver and a day to pick and
pack/. +his not only minimi*es total cost of the infrastructure #ut also allows the supply chain function to
maintain some inherent sta#ility in its various schedules.
4e have found that enterprise resource planning ,?5$/ systems offer a de facto degree of visi#ility in
the transaction, or order, side of the #usinessD after all, ?5$ is an :enterprise recorder: of data. But
many companies make the mistake of not going to the next step. !nd as a result, they end up data-rich
and knowledge-poor. +he principle '&ve often used is that all order transaction data, as well as
production and logistical schedules, need to #e availa#le with almost *ero latency. 4hen piped into
supply chain planning tools, the data can then #e analy*ed and interpreted as useful knowledge. +oo
many companies ,including Scotts, ' might add/ have fallen into the costly trap of assuming that the
right ?5$ package from the right vendor would take care of things.
+here&s a parallel point with the introduction of radio-fre%uency identification ,5)'=/. +he 5)'= story has
produced such hoopla that you could #e forgiven for thinking that you&re #ehind the curve if you don&t
have an 5)'= pilot pro7ect well under way. +he latency argument applies here too. 'n Scotts& make-to-
stock #usiness, we could have 5)'= tags on every pallet of +urf Builder in every ma7or store, #ut we
need to understand and %uantify what that does to improve our core #usiness processes. 'f we were a
consumer electronics company, 5)'= data would #e very valua#le indeed. But in our #usiness, it&s 7ust
so much :information noise.: But the concept of 5)'= is a good one, and one that should #e piloted to
understand the #enefits of such real-time tracking data.
.y key point here3 5ich %uantities of real-time data aren&t universally #eneficial. 't is important for
companies to identify where in their extended supply chains such data can #e of #usiness value.
Mistake -! "dopting a #one.channel.fits.
all# approach#rF )or most companies today,
there is no such thing as the supply chain(as
in the one and only supply chain. 'n practice,
there are multiple supply chain designs to suit
the characteristics of the products and the
channels they are sold through. +he
distri#ution channel isn&t usually top of mind
for supply chain managers. But if supply chain
management is to #e done right, it must
extend all the way through the front office to
the customer.
.any companies continue to struggle with
integrating the supply chain&s many functional
silos under a common organi*ational and
reporting structure. +hey also have difficulty identifying metrics that tie all the functions into a loosely
coupled entity. 't&s common to apply the same supply chain techni%ues(planning, procurement,
logistics, and so on(to all products and channels. But it&s a mistake to do so. ' often refer #ack to a
seminal article in the field of supply chain management #y .arshall )isher titled :4hich Supply -hain 's
5ight for Cour $roduct.:0 )isher&s article provides an excellent framework that uses product and channel
characteristics to help determine the mode of operation for a supply chain. 't&s even more important to
get that right these days as companies mix product portfolios that often have %uite different
characteristics. )or example, they mix products with short lifecycles, such as fashion clothing or
consumer electronics e%uipment, together with replenishment-#ased products that have long shelf lives
or stock products with #uild-to-order products.
+he :portfolio mix: trend really calls for multiple supply chains. +he most practical way to run them is to
determine the points of commonality across all the chains(where there is channel convergence or
logistics convergence, for example(and then to consolidate that function as a shared service across
multiple product lines. +he arrangement can still permit locali*ation and separate management for the
disparate functions. However, it does create the challenge of decentrali*ing a previously centrali*ed
function. -reating the right cost structure for each supply chain re%uires some out-of-the-#ox thinking
as well as organi*ational constructs that don&t fit with conventional logic.
Mistake /! Misreading the people factor
How many times do we gripe that our employees aren&t adapting to the new #usiness model or that
they&re using new tools and processes in the same ways that they used the old ones +he :we&ve always
done it this way: mindset is the leading reason for why many supply chain transformations fail
misera#ly.
+he traditional change-management approaches involve plenty of training and attempts to teach
individuals new skills so they can carry out their new responsi#ilities properly. +hose efforts are
necessary, #ut they&re not enough. +he traditional approach must #e modified to suit the reality that not
every individual will im#i#e the new training and ac%uire the skill sets that management wants them to
have.
'n my experience, the #iggest challenges for employees center around rigorous analytical thinking and
technology understanding. Some people are 7ust not temperamentally inclined to such thinkingD many
others lack the technical education to operate in the new mode. +he results are discomfort for
employees and disappointment and irritation for managers. @nless dealt with swiftly, the situation can
cause widespread damage to a transformation effort.
!t Scotts, we segment employees into four categories3 ,0/ the early adopters who love change, who :get
it: and very much want to #e part of itD ,6/ the opportunists, who&ll go along with a transformation
initiative if there&s :something in it for them:D ,3/ the followers, who will wait until change is well under
way #efore they 7ump on #oardD and ,8/ the recalcitrants, who either don&t get it or don&t want to get it
and will fight the change initiative all the way. ,See the human adaption pyramid in ?xhi#it 8./ 't&s vital
to identify who will help with the supply chain transformation effort and who will hinder it. 4ith that
information, you can make informed choices a#out roles and teams in ways that will greatly increase the
chances of a successful transformation.
Mistake 0! 1ot leveraging global elements of supply chain operation
+here&s #een much talk recently a#out the need to glo#ali*e the supply chain function as a shared
service as opposed to a vertical model around geographies or #usiness units. 'n other words, to have
supply chain expertise availa#le wherever and whenever it is needed around the world. 't&s an especially
animated topic for companies that have glo#al product #rands ,think Nike or -oca--ola/ and
manufacturing that is glo#ally dispersed and interchangea#le. +he topic has drawn plenty of attention
#ecause of its promise of significant cost savings.
)or the most part, however, companies conclude that shared supply chain services won&t work. But
that&s not necessarily true. 'n many situations such services make economic sense(particularly when it
is possi#le to leverage expertise and volume across #orders and to standardi*e the mechanisms that
govern the a#ility to get product successfully to the customer. )or example, companies can leverage
glo#al procurement even in the a#sence of glo#al #rands and glo#al production. Blo#ali*ation of supply
chain functions and processes and shared leverage with partners appear to deliver productivity #enefits
of #etween 1 and 0" percent.
.oreover, shared services will #e pushed further #y ma7or customers, whether suppliers like it or not.
+he message is this3 4e should not view the presence of glo#al #rands or the cross-#order movement of
goods as necessary conditions for glo#ali*ation of the supply chain. +he reality is that glo#ali*ation of the
distri#ution channels may force us there anyway.
Mistake 2! 3nderestimating the si)e of the transformation task
't&s easy to get carried away with the potential of an S-. transformation pro7ect and to overlook the
interdependencies #etween the many efforts and process threads that make up the transformation. 4e
also tend to pay too little attention to the multidimensional skill sets so vital to pro7ects of such
complexity.
+wo #est practices that we use effectively at Scotts are the following3 a long-term success hori*on ,three
to five years/ and dedicated pro7ect teams. 4e #elieve that an effective transformation typically takes
more than two years, with many intermediate checkpoints and a range of metrics that must #e closely
monitored. 4e also #elieve that change cannot easily happen when people are only focused on and
rewarded for their day-to-day roles. So we assign dedicated teams whose core 7o# is to manage large
transformations. +ogether, those initiatives have worked extremely well for us in the last six years as we
have transformed from #eing a sleepy manufacturing company to #eing the world leader in the lawn and
garden category. 'n fact, we&ve advanced to the point where we&ve won :supplier of the year: awards
from five of the world&s largest retailers.
'earing the 4rchestra
'n this article, '&ve tried to identify some of the main o#stacles that trip up #usinesses as they attempt
large-scale transformations of their supply chains. 4hile several of the challenges ' point to have #een
addressed elsewhere, ' #elieve there is value in restating them collectively so that together they can
#ecome a catalyst for more forceful remedies.
!t Scotts, we have a strong track record of identifying and avoiding the ten mistakes ' descri#e. 't
wasn&t always easy(it still isn&t(#ut the stakes of not doing so are 7ust too high. ' know from my earlier
experiences as a consultant that that&s the case in many other industries, and ' urge others to think
through the risks of continuing to make these mistakes.
+he lessons here can #e #oiled down to two simple ideas. )irst, there is no :one si*e that fits all:
approach to supply chain transformations( particularly given the growing complexity of the supply chain
and of the customer. Second, there really are common threads around the pacing of change3 applying
sound human resource management, thinking outside the four walls of your internal supply chain, and
managing your operations to a single signal(that is #eing driven #y meaningful data from the end user.
+o emphasi*e3 Supply chain transformation is indisputa#ly difficult. But when all of the right concepts
and actions come together, it is like listening to a #eautifully composed and coordinated orchestra.
"uthor5s note! +ransformational 7ourneys always involve teamwork with a like-minded group. .y
thanks go to the following Scotts executives3 .ichael Eelty, vice chairmanD Barry Sanders, senior vice
president of salesD .ike Aukemire, senior vice president of supply chainD and =an $aradiso, vice
president of operations. +ogether, we have spent countless hours shaping the next set of initiatives to
ena#le an optimal cost and service structure for the company.
Footnotes
0
)isher, .arshall A. :4hat 's the 5ight Supply -hain for Cour $roduct,: Harvard Business Review. .arch-
!pril 0<<;.