This Week on SCDigest:
The 50% Problem 2009
Supply Chain Graphic of the Week, plus more Supply Chain News Bites
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Guest Expert Insight - The Top 3 Reasons You Need to Improve Supplier Collaboration
This Week on "Distribution Digest"
Reader Question - On Improving DC Labor Retention
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Next Generation Supply Chains: Eliminate Operator Scanning to Optimize Manufacturing and Warehouse Operations

November 5, 2009

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November 10, 2009

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November 12, 2009

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Supply Chain Graphic of the Week: Combining EAS and EPC RFID in Retail


This Week's Supply Chain by the Numbers - Goodyear Inventory, Hours of Service, WMS at QKL Stores, Hanesbrands Factory Closure



More gloomy economic news dimmed investor’s hopes of recovery on Wall Street last week.  Our Supply Chain and Logistics stock index finished the week with mixed results.

In the software group, i2 slipped 3.9%, followed by JDA (off 3.3%).  In the hardware group, both Intermec and Zebra were down for the week (4.3% and 2.2%, respectively).  In the transportation and logistics group, Yellow Roadway slid 18.4%, while Prologis climbed 9.6% following a company statement expressing the expectation that their customers will eventually demand more space.

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HolsteHolste's Blog: Under-standing The Common ROI Pitfalls Involved in DC System Automation Projects and How to Avoid Them

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Other News: More of the Same from Annual 3PL Study - but Will the Recession Serve as an Inflection Point?


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All five of the major west coast US ports (Los Angeles, Long Beach, Oakland, Seattle, Tacoma) are off in terms of container volumes so far in 2009 - most by double digits. One of the five is down far less than the other four - which is it?

Click to find the answer below
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The 50% Problem 2009

As long time readers know, every couple of years I write a piece (this will be the third) on what I call “the 50% problem.” Summarizing succinctly, the 50% problem is this:


Companies consistently tend, often dramatically, to overrate their supply chain performance. While statistically, by definition, half of all companies must be in the bottom 50% of performance in any given area, ask a group of companies where they stand, and almost inevitably, nearly every one of them thinks they are performing

Gilmore Says:

"Recognize that almost everyone is in the bottom half of performance in at least some areas of the supply chain and, by definition, 50% of companies are overall."

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better than their peers. Generally, in my experience, a huge percentage of companies believe they are in the top quartile (25%) or quintile (20%) of supply chain performance.

But 75 or 80 percent of them are wrong.

Think I am exaggerating?

What triggered this biennial column is the latest Trends and Issues in Transportation and Logistics report from my friends Drs. Karl Manrodt of Georgia Southern and Mary Holcomb from the University of Tennessee, along with various sponsors. There, amidst other survey data, was this interesting chart:




The point I hope should be obvious: the mean/average response from companies rating themselves against the competition across all four of these categories, on a scale of 1-7, is right around 2.0; whereas, in fact, the mean ought to be around 3.5. If it was 3.2 or something, I would say fine, but from a statistical perspective (and this report has 800+ survey respondents), average scores near 2.0 are simply totally out of whack. Like the parents of the children in Garrison Keillor’s Lake Woebegone, everyone believes they are well above average.


In the past, when I have written on this topic, the level of pushback I get is surprising. Here are common arguments that I have heard:

  • A general rejection of the observation just because some people don’t like the ramifications; they just don’t want to talk about it;
  • The difference between the top and the bottom is very small, so that makes it seem like everyone is near the top; and
  • Of course everyone thinks they are doing a great job, what would you expect?

None of that masks the reality. Even though by definition half of all companies must be in the bottom half of performance, I wanted to dig up more proof. In doing so, I spoke with Bruce Tompkins of Tompkins Associates, who runs the company’s Supply Chain Benchmarking Consortium, and I asked him to look up some data from the consortium’s substantial database. Two points:


First, the Consortium’s data consistently supports the fact that there is almost always a “bell curve” of performance. According to Tompkins, “I took 5 metrics of supply chain performance [logistic costs as percent of sales, inventory turns, etc.] and analyzed the data from a statistical view.  I arranged the values in ascending order and then determined the min, mean, median, Q1 through Q4, max and standard deviation, as well as 95% confidence interval around the mean,” he said. "Basically, it tells us that the data follows pretty closely to a normal distribution with some outliers that skew the data one way or the other."


In other words, there is a traditional bell curve, and big differences between the leaders and the laggards.


Ah, you say, but “Maybe that is just the difference between different industries. Within a given industry, the differences in performance aren’t very meaningful.”


Not true, says Tompkins, after I asked him to look at it that way. While the standard deviation among responses within an industry does, as expected, come down a bit from the general pool, the difference between leaders, the middle and laggards is still substantial even within industry sectors metric after metric.


Second, Tompkins has also seen the 50% problem play out many times in the Consortium’s work.


We actually still have a couple of questions in our database where we ask people to rate their companies performance in different areas against others and typically tell them to normalize their perception on volume or revenue or some sizing metric,” he told me.  “It always comes back highly skewed to the positive. An example: How do you view your parcel discounts compared to other companies with similar parcel spends?  The data for that kind of questions is skewed significantly toward much better discounts or significantly better discounts because they have no idea what the real answer is. We then ask them to tell us what their parcel discounts are for some key parcel types and their perceptions are no where close to reality.”


In other words, when the analysis is based on actual data, there is inevitably a bell curve, and a fairly wide distribution of real performance. However, when the response is based on perception, most companies suddenly cluster near the top of the rankings.

Here is another example, a chart the folks over at another benchmarking service, AQPC, were kind enough to send along to us, showing average “dock to stock” time for a group of several dozen retailers and wholesalers (click here to view chart).


The chart again shows wide variation between the best and worst on this metric. The leaders (top quartile) get it done in two hours; the middle, about six hours, and the laggards - 24 hours. Big differences between tops and bottoms.


I suppose another pushback to my thesis might be: everyone is different. In other words, there is something about those in the bottom half that makes that performance OK for them. Maybe they are doing the best job they can given some strategy or constraint.


Fine, but don’t confuse that with top level performance in the way I think most of us think about it. That leads to being content with performance that is, in fact, well below best-in-class or maybe even the middle, even if that performance can be rationalized based on some other factors.


Several years ago, when we first wrote about this, Mark Holifield, then head of supply chain for Office Depot and now in that role for Home Depot, wrote back in response with a great set of observations. We don’t have room in the column, but they are worth repeating, and you can find them here: Holifield on 50% Problem.


For me, I will add to that what I have said before:

  • Recognize almost everyone is in the bottom half of performance in at least some areas of the supply chain and, by definition, 50% of companies are overall. This could mean you. Know where you need attention.
  • 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 you thought was an "A” or a “B" is really a "D."

I will note in closing that one benchmarking service told me a few years ago that their data had an upward bias, because a large percentage of laggards each year dropped out the next. Who wants to participate in something that shows you to be behind the leaders?

Now that’s a real 50% problem.

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

Let us know your thoughts

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Just catching up on a few letters this week. We received a few letters on SCDigest editor Dan Gilmore’s blog entry asking if cross docking outside of retail was something of an urban legend – and asking for examples.


That solicited our Feedback of the Week, from Dick Bower of American Woodmark Corporation, who offered an example of cross docking that is quite interesting, but not quite what we meant, as it happens further downstream. Jeff Gantt of Manhattan Associates also offers an interesting take and some examples on this – but we are still looking.


You will also find some letters on “The True Costs of Offshoring” - more next week.


Feedback of the Week - On Searching for a Non-Retail Cross Docker


Interesting observations about non-retail cross-docking.  We might be an example like you are looking for…and maybe not.


American Woodmark Corporation is a kitchen cabinet manufacturer that supplies Home Depot, Lowes, as well as builders and distributors.  In some respects, we do serve retailers (Home Depot and Lowes) but there is a difference.  Our product is made to order and shipped directly to the consumer’s home. 


To accomplish this we use a network of 3rd party crossdock delivery agents.  Our network design allows us to build/ship truckloads (multiple kitchens for multiple consumers) into the crossdock points.  Those agents have already received an ASN and set appointments for delivery.  The truckloads are received, broken down by kitchen, and loaded out for delivery (mostly for the next day).  Our “dwell time” at the 3rd party crossdock averages just under 3 days and we are working to lower that further.


Dick Bower

VP, Supply Chain Services

American Woodmark Corporation

More on Non-Retail Cross Docking:

I’ve been doing some digging throughout our customer base and have a bunch of non-retail cross-dock flows currently in use.  When we refer to non-cross dock capabilities within WM, we classify them as either Opportunistic Substitution or Immediate Needs Driven Cross-Docks.


Opportunistic Substitution Cross-Docking – During receiving, a check is made to see if there are open shortage tasks (from known or unknown shortages) generated during batch processes (replenishment, the wave, work orders, etc.).  If the item and quantity needs are met, the received LPN is converted to an outbound carton, a label is printed (if required) and the user is directed via tasking to the outbound dock.  If inventory (raw material or finished goods) is required at a manufacturing line/build location and there’s a shortage, the same process occurs at the time of receiving (minus shipping label generation)

Our food manufacturing customers use cross docking/opportunistic substitution to satisfy shortages discovered during allocation.  We have a customer that has the standard finished goods DC that ships to their customers.  They also have manufacturing facilities (3 satellites) that produce the finished goods inventory that is transferred (using WM’s warehouse transfer capabilities) to this outbound distribution center.  In the DC, opportunistic substitution is used to cross dock the finished goods inventory when received from the manufacturing facilities.  These are full LPN/pallets that are tasked directly to the staging location to the order with the shortage.  In the manufacturing facilities, shortages from both transfer orders (between facilities) and work orders are satisfied during receiving.  If the inventory can satisfy a transfer order shortage, then it is tasked to a staging location.  If the inventory can satisfy a work order shortage, then it is tasked to a build location/manufacturing line.  We have a handful of these customers that use similar flows.  I’ve noticed that these flows are JIT centric.  Small runs of potato salad, pasta, etc., are made, packaged and shipped all in the same day.  There are exceptions, but date sensitivity to your earlier point is not as relevant when it comes to cross-docking because the DC turns so often or there’s no inventory in storage.

Immediate Needs Cross-Docking – In addition to the pickticket, immediate needs records are bridged from the ERP, which references the pickticket/SKU and, in some scenarios, the inbound LPN to determine which orders need the inbound inventory.  The LPN is converted to a carton during receiving, and the user is directed to move the inventory to staging.


We have everyone from office suppliers, to paint manufacturers and apparel customers using this cross-dock approach.  To your point, timing is a challenge, but the larger issue is the inability for most ERP systems to allocate in-transit inventory as well as on-hand inventory.  For most ERPs, the inventory must be received before orders can be dropped/allocated to the DC.  Years ago, our customers would develop these capabilities in-house, but now we solve these issues with Distributed Order Management/Order Routing solution.


Jeff Gantt

Product Management

Manhattan Associates

On The True Costs of Offshoring:


To complete the analysis, consider the social costs of unemployment that eventually are born by domestic business through reduced demand and higher demands for taxes to cover social costs.  When you combine these with those mentioned by the author, a great deal of the manufacturing off-shored to Asia makes no sense.  If the U.S. economy was growing, creating wealth and demand, there would be no calls for increased taxes on income, profits, and yes, consumption. 


For example, in my home state of Illinois, candy and soda are being taxed to fund a public works program. Gambling machines are being allowed in bars, a regressive tax, which thankfully, I will not pay.  Also the governor wants to raise the income tax by 50%.  Fortunately, the people have risen up and told their legislators until they fix the state's corruption (you may have heard we're about to send another ex-governor along with several other politicians to jail, incompetence and waste, they’ll punish the politicians who don’t pay attention to their demands.


Steve Tonissen

Vice President Marketing

Smart Signal

More On The True Costs of Offshoring:

Very nice article...   This is the problem with off-shoring to Asia, what price can one put on out-of-stocks when your customers in the states are beating you up because they need parts.  Perceived good pricing is one thing, but when you do not get your parts on time, that hurts your business and bottom line tremendously.

Jose M. Perez
Senior Fabrication Path Facilitator
Operations Support
S&C Electric Company

Yes, BUT....


When inventory is valued at Western Chinese or Indian manufacturing costs, more safety stock is cheaper than one may imagine.


From production sites serving an eventually very large Asia-Pacific market, our consumption may represent incremental volume, insufficient to justify re-capitalizing on-shore production. For an example, see Great Britain... from 1870 on.

The latter is my biggest concern. Like outsourcing logistics and IT, the investment to bring something back -- in money and people -- may become insurmountable.


Lee Hales

Richard Muther & Associates



All five of the major west coast US ports (Los Angeles, Long Beach, Oakland, Seattle, Tacoma) are off in terms of container volumes so far in 2009 - most by double digits. One of the five is down far less than the other four - which is it?


Oakland, down about about 7% this year, but that is way less than 16-24% declines in TEU of the other four ports.