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First Thoughts
  By Dan Gilmore - Editor-in-Chief  
     
   
  July 26, 2007  
     
 

The 50% Problem Revisited

 
 
Gilmore Says:
It’s the very rare manager or executive who believes his or her function or organization is performing below average.

What do you say? Send us your comments here

So just where do you stand in terms of your company’s performance in supply chain effectiveness, distribution, and transportation?

In one of our most popular columns ever, almost three years ago I wrote a piece titled “The 50% Problem,” which can be summarized as sort of Garrison Keillor’s Lake Wobegone for the supply chain – you know, the town where all the kids are above average.

A couple of recent discussions with supply chain execs led me to take a fresh look at the topic. It’s also one of my favorites and one that I think is quite important in the end.

In working with companies on logistics and supply chain issues for almost 15 years, I’ve consistently noticed one thing: it’s the very rare manager or executive who believes his or her function or organization is performing below average.

So, if I ask someone where they stand, occasionally I’ll get an answer like “We are the low cost producer,” or “We have the lowest distribution costs in the industry.”

And you know, they just may be right.

But I also know that not everyone can be.

The response to the question I usually get though is: “We’re probably in the top 20% of performance,” or “We’re probably not quite there yet, but we’re getting really good.”

In other words, almost everyone gives themselves at least a "B."

The problem is that by definition, 50% of all companies are performing below average, either as a whole, or in some specific area, like transportation. That’s one out of two. Sometimes the response I get when I discuss this reality with supply chain managers is that “Well, we’re a big company, with lots of efficiencies. The bottom half in terms of performance is probably the mid-size and smaller companies.”

Maybe true. But the problem is that you can take this down to any level of aggregation. You can take just Fortune 100 companies, and 50% of them are in the bottom half; or 50% of retailers, etc.

The one exception to this “grade inflation” tends to be when a new manager or executive first comes on board – often because of performance problems with the previous management.

This is quite rational, of course, as the poor performance can be blamed on the problems of the predecessor, and cited as the reason to drive investment and process and organizational change. So for 3-6 months, the new exec will say the performance has been lousy, but usually by the end of that period they will have claimed to have turned things around, and in short order they are back to B level, on the way to A.

When I originally wrote this piece, we received a great letter from Mark Holifield, at the time Exec VP of Supply Chain for Office Depot, but now in a similar role for Home Depot. Holifield has also looked at this issue, and shared insights from a serious article in New Yorker magazine that nonetheless can be summarized from the old joke about half of all doctors finishing in the bottom half of their class. (See The Bell Curve.)

“Supply chain managers seriously interested in improving performance can learn a lot with a thoughtful read” of this article Holifield wrote at the time.

He generously submitted his key takeaways for supply chain and logistics professionals:

  • In the absence of comparable data, one might think themselves to be superior, when in fact they are just average, or even way below (ignorance is bliss).
  • While nearly all of us believe we are doing our job as well as it can be done, we can't be sure without measurement, and shared comparable data.
  • People achieving breakthrough performance, are doubted at first as to the veracity of their performance. On the part of the doubters, this wastes valuable time.
  • While supply chain participants might follow the same procedures quite rigorously, their results might be different, due to softer dimensions of how they do it.
  • Openness drives improvement.
  • Seeing the difference between 99.5% performance and 99.95% performance, teaching it to others, and having the passion to make up the gap are the key differentiators.
  • Aggressiveness, consistency, and ingenuity can matter enormously, sometimes more than knowledge and skill.
  • "Centers in the top quartile are improving fastest": success feeds on itself, like the top performers in supply chains.
  • Being average is OK, but settling for average is giving up. We must always strive to be the best, or we should go do something else.

One of the key points to me is the comment about what may appear like small differences in performance (99.5% versus 99.95%). Sometimes, it may be that the absolute difference between the leaders and laggards appears small (though in reality, it is often large).

Nonetheless, small differences matter. What’s an extra half a percent in profitability to the bottom line worth in terms of dollars and stock price? It’s a significant amount for most companies.

Holifield suggestions are spot on. I’d offer just a few more.

  • Recognize almost everyone is in the bottom half of performance in at least some area of the supply chain and, by definition, 50% are overall. This could mean you.
  • Build consistent benchmarking and self-assessment into your operating model.
  • Don’t fire the messengers who suggest such an assessment, only to lead to the unpleasant discovery that what we thought was a "B" is really a "D."

What are your thoughts on “The 50% Problem?” What could you add to Mark Holifield and Dan Gilmore’s suggestions? What has your company done?

Let us know your thoughts at the feedback link below

 
 
     
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