When I first took over the inventory management department for a nonprofit that distributed educational material I asked to see the metrics that were being used.
I received charts that measured total investment in inventory, COGS, turns, etc. The most interesting number, however, was inventory availability. The department was very proud that they had reached 99%. What that meant was that out of every 100 sku only 1 was on back-order. In this case with 5,000 SKU that meant we were only out of stock on 50 items.
Compared to what it used to be that seemed pretty good!
That was until I found out that only 1 out of 3 people that ordered from us received all of the items requested.
In other words, the actual order fill rate was only 66%!
So while the department thought they were producing A level results, in reality, they were measuring the wrong thing from the customers perspective. The true work results was closer to D level performance.
This is not an isolated incident.
Ed Frazelle PhD is the founding director of the Logistics Institute at Georgia Tech. I had the privilege of going through his Logistics Management Series and one of the concepts that he used as an eye opener for supply chain professionals was his perfect order % exercise.
What he would do, is ask everyone in the room to define what a perfect order looks like. He would write down each item and then asked how good are you? What is a great performance? And everyone would respond somewhere between 95 - 99% and we would end up with a chart like this:
Clear online description 98% -> A
Pricing was accurate 97% -> A
No errors during checkout 95% -> A-
Items available 95% -> A
Order confirmation 98% -> A
Picked accurately 97% -> A
Packaged properly 97% -> A
Shipped on time 95% -> A-
Received w no damage 97% -> A
Proper documentation 95% ->A
In every case, each department thought they were doing pretty good.
It was not until the end that Dr. Frazelle would say no, we aren’t going to average them, we need to multiply each one to get the actual perfect order percentage.
Here is what that looks like.
.98*.97*.95*.95*.98*.97*.97*.95*.97*.95 = 69% or a D+
Now, who wants to get excited about D+ work?
To have A level work, each component of the supply chain needs to be (to borrow a line from Mary Poppins) “practically perfect in every way”
Ok, so nowadays Amazon does all of that stuff for you. You're wondering, is this even relevant to my organization?
Yes, I think so.
Next time I'll show you how this applies to a service organization like a school, resort or camp. In the meantime be thinking about:
Dwight Grant is a seasoned businessman with over 30 years of leadership experience. He lives in CO where he enjoys whitewater rafting, mountain biking and spending time with family.