What is the correct formula for supply chain success?

March 10, 2016

In my line of work, there is a bit of an e-mail component. Actually make that a significant e-mail component. Day after day, my inbox gets filled up with everything one can imagine (or is germane to a logistics and supply chain editor, that is), with various types of things, including: company news, personnel news, pitches of all kinds, and editorial calendar opportunities.

While not all of these e-mails are direct hits, the ones that commonly are come from Wall Street analysts in the form of reports they send out, covering public company earnings and other things like industry trends and data-driven research, among other things.  Not long ago, I received a research note e-mail from Thom Albrecht, an analyst at BB&T Capital Markets, which provided a detailed recap of his firm’s annual Transportation & Logistics Market, which was held in February in the Miami area. This is an example of a good e-mail.

Albrecht’s research note highlighted the conference in great detail. One part which I found particularly interesting was based on a presentation from Tony Brooks, the president of XPO Freight, the company’s less-than-truckload group, which it recently acquired from Con-way.

“The new President of XPO Freight, Tony Brooks, suggested success in supply chains is measured wrong,” wrote Albrecht. “It’s all about cost reductions when it should be measured by inventory, working capital and time. Later, over dinner with 4 shippers, they told us they agreed with Brook’s statement and wished someone could create the right supply chain formula, instead of just transport savings.”

Well, isn’t that the truth. I mean it makes sense that cost reductions are continually viewed as the benchmark of benchmarks when it comes to supply chain success, right?

After some thinking, I started to wonder if perhaps that is not the right way to approach things. This led me to follow up with Albrecht to see if he could offer up some additional comments related to this topic in terms of what he and shippers think could or should be included in an ideal formula that would mark true supply chain success.

That is easier said than done to be sure, and while Albrecht did not offer up a magical formula, he helped to put things in perspective in helping to expand on what XPO’s Brooks was explaining. 

What he said was this: “Tony’s point was that transportation gets measured just as a cost rather than what it does for the rest of the organization in terms of managing inventory properly, ensuring that lost sales are minimized (not on the shelves), that the supply chain is efficient by mode, transit times and cost, etc.  Done properly transportation and supply chain is invisible within a good company, which keeps the focus on what that company makes and not how they get it to the stores.”

All great points there from Albrecht to be sure, but still no formula…grin. It stands to reason that finding a “perfect” supply chain formula may prove to be elusive, maybe forever. But that does not mean it is not out there in some form or another.

There are possibly ways of devising working operational formulas for very specific subsets like transit times, service metrics, and other types of related efficiencies, but maybe that is as far as we get for now. The reason? A high and well-justified focus on costs. Again, it makes all the sense in the world as we are all in business to be successful and profitable. But that does not mean that a non-costs-based formula could prove to be beneficial in supply chain circles.

Like Albrecht said, transportation and supply chain is invisible when done properly in a good company. The thing is it can be harder to measure. That much is certain.

What makes for a true supply chain formula for success? Send me your thoughts atjberman@peerlessmedia.com.