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July 26, 2007 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

The 50% Problem Revisited

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.

Let us know your thoughts.

Want a printable version? Go to:


Dan Gilmore


Interested in Labor Management? Visit our SCDigest Letter on LMS Resource Center


This Week’s Supply Chain News Bites – Only from SCDigest

July 26, 2007
Supply Chain Graphic of the Week: SCOR Supply Chain Metrics

July 25, 2007
Supply Chain Executives on the Move: Supply Chain Can Lead to the Top, as Motorola Supply Chain Chief Gets Promotion to Head Major Division

July 23, 2007
Supply Chain By the Numbers: July 23, 2007


Despite another record setting week on Wall Street, our Supply Chain and Logistics stock index had mixed results.

In the software group, Descartes realized the week’s largest gain (up 8.2%), while i2 posted the week’s largest downward trend (down 8.5%).  In the hardware group, both Zebra and Intermec were slightly down by 0.7%.  CSX led the transport and logistics group with a gain of 5.2%, while JB Hunt lost some of its recent gains, falling 6.0%. 

See stock report.


Supply Chain Strategy: Do Survey Results Really Indicate a Disconnect Between Supply Chain and the Business?

New Report from IDC Says Yes, but We're Not So Sure

From the RetailWire:
Counterfeits Causing Real Damage in Human Terms

Consumer Safety Trumps All Other Counterfeiting Concerns

This Month's Supply Chain Marketing News Exclusively for Supply Chain and Logistics Solution Providers


by Stephen Craig and Erik Markeset

What Kind of Results Can You Expect from Carrier Bid Optimization Projects?

Question to SCDigest Has Us Thinking about CBO and the Factors that Impact Potential Savings


Have a supply chain or logistics related questions you need answered?

Ask our panel of experts. See our growing list of questions and answers Share your insight.

Reader Question: What Kind of Savings Do Companies Typically See When They Do a Formal Carrier Bid Process by Lane?

Reader Question: Are Supply Chain Certifications Valuable?

Reader Question: When Does Carton Sortation in Distribution Make Sense?

Reader Question: How to Avoid Supply Chain Consulting Bias?



Q. This definition applies to what term: A simple diagram of every step involved in the material and information flows needed to bring a product from order to delivery?

A. Click to find the answer below


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Feedback is coming in at a rate greater than we can publish it - thanks for your response.

We're really behind again - bear with us. But keep the letters coming!

More Feedback this week from our two-part "Unplugged" interview series on RFID with Procter & Gamble's Dick Cantwell. We received many, many favorable letters, some of which we publish below. That includes our Feedback of the Week from Ron Rose, who comments in part on the role of marketing with RFID and retail. It's a good letter.

You'll find several other interesting responses as well. P&G's Paul Fox, who also participated in the interview, tells SCDigest they have also received nice feedback from others in the industry on our work. Thanks again to Paul and Dick for spending the time with us.

Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the Week – On Cantwell/RFID

Great interview with Dick Cantwell on RFID!   

I have almost 16 years of experience implementing RFID based systems in electronic toll collection, fast food payment, asset tracking, and supply chain.  What I have consistently seen in the Retail sector is that the motivation for using this (RFID) technology typically focuses on speed of service (operational accuracy and throughput) and customer convenience. 

However, those benefits alone typically do not bring in an ROI that motivates everyone.  Therefore, it requires looking in other areas of the business, such as marketing where the potential for impact is high, but more challenging to quantify. The biggest hurdle I have seen in the Marketing side is to get them to invest in the technology.  There are front-end costs of implementing RFID-based marketing programs that tends to be met with resistance, as the budgets are managed like an established high society club where they do things the way they have for years because of relationships, processes, lack of desire to change.

What motivates Marketing to change?  They get the same budgets every year, then spend them on a variety of media (possibly committed years in advance).  Hopefully the campaigns are more successful than not, then they pat themselves on the back and collect their bonuses. Life is good.  Why change?   Perhaps we can only hope that as a new generation of Marketers come up the ranks that they will understand the value proposition of using technology such as RFID and make a change to the process.  I know we are starting to see some areas where this is happening.  

This may sound like a tainted view of Marketing, but it is not intended to be that at all.  I am only saying that I feel Marketing is a key to exploiting the full benefit of RFID technologies. We need to start looking at ways to move some monies into areas where technology such as RFID can make more of an impact.

Ron Rose

More on Cantwell/RFID:

Great to see Dick's balanced view. The industry, retailers, manufacturers and RFID vendors, have spent many years trying to figure out the true value of RFID. The early pioneers such as Marks & Spencer, Wal*Mart and P&G have learnt that the ROI comes from a variety of business solutions.

Each must be approached on a step by step basis. It takes time, money, skill and enthusiasm to pursue these goals, but these companies are now demonstrating clear results.

Phil Calderbank
Director Global Marketing RFID & Security
Avery Dennison

Excellent work.  I also believe the report highlights that the technologies are morphing so quickly that it is hard to distinguish what is RFID, passive, semi-passive, active, semi-active, sensor RFID, or RTLS.  I believe compliance should be a joint venture not a mandate.

Dr. Erick C. Jones
Assistant Professor
University of Nebraska-Lincoln

I think Dick Cantwell at P&G is right on. We tend to forget one of the fundamentals of successful SCM is the effective allocation of scarce resources and RFID is no exception. Plans to apply the technology to everything in sight is poor strategy at the outset. Putting it to use in high impact programs (in or outbound) will drive the learning curve while creating returns at the same time. Once in place, RFID will find the appropriate “water level” and be a success, just as barcode technology did.

Tom  Anderson
SVP, Supply Chain Management
Formerly with Rand McNally & Company


Q.  This definition applies to what term: A simple diagram of every step involved in the material and information flows needed to bring a product from order to delivery?

A. Value Stream Mapping

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