30 October 2003
Mistakes are unavoidable, but there are steps you can take to stop them from turning into nightmares. Adrian Holliday investigates
Every morning, a former county council supply officer probably wakes up cringing at a mistake he once made that was so blindingly stupid it cost him not just his job, but also his pension. The mistake was to inadvertently sign a bulk order for a batch of carbon paper so huge it was estimated it would last his employer two million years.
According to this apocryphal story, a queue of trucks turned up at the county hall depot to drop off the stock. Pallets whizzed to and fro and a new storage facility was frantically knocked together to store the stuff. When the county council auditors eventually paid a visit, they questioned the stupendous carbon paper requisition, as well as its brand-new home.
The procurement officer was forced to own up and wave goodbye to his job - and his retirement payout.
An end-to-end van queue in the goods drop-off area is a stomach-cramping portent of bad supply chain decision-making - and is definitely one a certain aircraft manufacturer would recognise. The company needed an extra supply of rubber-band clips designed to hold cockpit parachutes tightly in place. Concerned about being caught short, it ordered four times the amount needed - 2,500. However, the spare clips were only available by the 10kg box - and an order for 2,500 boxes was duly put in. Sure enough, not long afterwards, there was a convoy of delivery vans winging its way towards the aircraft facility site…
Such horror stories are familiar to everyone in the business world. But how can such mistakes happen in the first place? And what can you do to avoid them?
Dr Cary Cooper, an occupational psychologist at Lancaster Management School, puts it down to simple human fallibility. "Everyone makes mistakes," he says. "But it's also about the cock-up theory. Sometimes it's about a major mismatch between the job and the person. But I have to say that epic cock-ups do happen less than they used to. People at work are far more 'bottom-line aware' now - one mistake and they're out.
"However, having the wrong person in the wrong job is often about the politics in an organisation. Some people play the game, they kowtow. But if you have a good manager in place, that shouldn't happen." Carriage clocked
Margaret Thatcher was accused of many things, but kowtowing wasn't one of them. Fluffing the stock sheet in the Thatcher grocery shop in Grantham probably wasn't one of them either. But after a nasty London tube smash in the 1980s, when the passenger death toll was aggravated by considerable overcrowding, she immediately put in an order for extra carriages for certain London Underground lines.
The new carriages turned up, but the length of the combined passenger cars in some instances exceeded the length of the platform. So the Thatcher government asked for them to be shortened - a less than straightforward request as they were built in four-car blocks. In the end, the extra carriages were cut and spliced to the required length. The debacle didn't hurt Thatcher politically - bar a few red faces at the Department of Transport.
Such a breakdown in communication between client and supply chain is something Sarah Wilson, associate director at Egremont, a retail consulting supply chain specialist, is only too familiar with. She remembers the case of a major UK supermarket that almost lost control of its supply chain while trying to get a campaign for a new product off the ground. The problem was a chronic internal and external communications collapse.
"In retail, you're either buying or marketing-led," she says. "Here, the supermarket buying department got very excited when the board agreed to a need to kick-start volume. They got the okay to look at some volume drivers and innovative ways to sell mainstream products. There was loads of internal publicity and a TV budget, and the commercial and marketing teams got terribly gung-ho. However, the promotion was such a success that they could have sold a year's supply in a week."
The result? Almost complete supply chain gridlock. Nearly everyone was affected, from management to the clogged supply line. Shoppers were also unimpressed by the supermarket's failure to deliver what it had so expensively promised. "Everyone lost faith in each other," says Wilson. "Management lost trust with the supply chain to deliver on time, so they began to order far more than they needed to. When you work all this back through the supply line, the problem further magnified away from the store."
The lesson here, explains Wilson, was that the supply chain needed to work directly with buying and marketing - although not necessarily trying to influence what they want to do. "It's really about basic management change," she adds. "Supply chains are excellent at planning and setting levels of risk, something buyers are not good at. In the case of this supermarket, we changed the focus from, 'Oh my God, how do we cope?', to how it could best make sure the product the customer wanted was on the shelf. It was a painful process, but they managed it."
Nevertheless, even the most highly efficient supply chains can have their kinks (or yawning voids, depending on your experience). Tony Hart, enterprise applications analyst at Datamonitor, tells of one computer producer that prides itself on its supply chain operation. "We've bought its computers for work because we're able to check on where it's got to in the build cycle. However, we've found that although this system is sophisticated enough to give you some of that information, it's not able to tell you where the hardware is once it reaches the courier company. We've experienced waiting for the computer to turn up on the promised day, yet it doesn't. It's an issue of ownership, and this company is simply passing this on."
The computer maker may well be aware of the weak ownership line, but it could be that such an arrangement proves flexible and cost-effective for it, even if it's not great news for customers.
But the lean, just-in-time production backbone also carries dangers, according to Dominic Roberts, litigation lawyer at Wragge & Co. "You need to consider what will happen if that supplier goes bust or if it suddenly demands double the price and attempts to hold you effectively to ransom," he says. "In order to obtain flexibility of supply, the customer may have provided the supplier with no commitment, either for component quantity or duration of supply - and so the customer may have nothing to fall back on."
Roberts gives the example of a customer that has given its supplier special tooling to carry out a job. If there's no contractual obligation on the supplier to continue to supply at an agreed price, and the supplier suddenly says it can't supply the customer or only at a higher price, finding an alternative won't be easy.
"An alternative supplier won't have the tooling," he says. "And often you need approval from the end-user to your subcontractor to ensure safety and quality controls get maintained. With just-in-time manufacturing, when stock levels throughout the supply chain are deliberately kept low, an interruption at the bottom of the supply chain over a cheap component can halt the whole manufacturing process overnight."
He warns that damages resulting from loss of production can be astronomical, and may not be covered by insurance.
Off-road vehicle manufacturer Land Rover knows a thing or two about supplier caprice. Last year, it was given a nasty jolt when the chassis provider for its Land Rover Discovery model, UPF Thompson, went into receivership. The receiver argued it was under no obligation to continue to supply chassis to Land Rover at the agreed price. Land Rover got an injunction to force it to continue, arguing that there was an agreement in place where UPF should continue to supply them for an indefinite period, subject to notice of termination. Too much trust is trouble
But sign-on-the-line fine print is less of an issue in other areas of the transport industry, says Garry Mansell, managing director of Freight Traders, a web-based freight logistics firm and a subsidiary of Mars. Few contracts are actually signed.
"There's a huge degree of trust between the people who move the cargo and those who own it," he says. "Deep sea, where you're moving freight between continents, is a wonderful example. The US is the only country in the world where it is mandatory to file contracts with a central bureau. Most deals are done either by e-mail or by telephone. Many people think contracts are something that are considered for ages, but many are made with sketchy information and accepted by e-mail or phone."
However, a combination of skimpy basic information and too much trust is asking for trouble. "Put as much information as you can into a tender document, especially for mainland road and rail travel," Mansell advises. "Freight guys need as much information as you can give them about your flow. I've seen situations where someone comes to your business and asks you how much it will cost them to move goods from A to B, but forgets that they need their goods temperature controlled."
Postal and zip codes, or the lack of them, are another trap. As Mansell says: "There are two places called Essen. One is in Belgium and one is in Germany - don't make any assumptions."
But he acknowledges that the freight industry is, by its nature, a short-term beast. And a bad experience with one operator means simply having to try out another.
Dr Richard Wilding, senior lecturer in supply chain management at Cranfield School of Management, says that when a company discovers a supply chain partner it would like a closer relationship with, a few non-threatening "dates" are probably a good idea first.
"Collaboration with some companies can be a real problem," he says. "It's a bit like going up to a girl in a bar and saying, 'I want to marry you'. To build that relationship you need to start with the small stuff."
Paradoxically, Wilding explains, strong long-term relationships often work well without relying on endless contract signing. "There are often high levels of trust, a lot of passion for what they do, and far looser contracts."
Otherwise, he says, it's one party trying to eat the other. Either way, someone's going to bite the dust. Wilding relates a cautionary story about a hunter moving through an Alaskan forest, looking to kill a bear for its coat. At the same time, "a bear is going through the same forest looking for a meal because it wants a full stomach. The compromise is simple. The bear eats the hunter. The hunter is surrounded by fur. And the bear has a full stomach."
How to avoid getting into a hole in the first place
* "Be pragmatic and avoid the Emperor's New Clothes culture," advises Christopher Barrat, of Greystone supply chain consultants. "Prices go up, yet you often get a situation where no one is allowed to talk about it. A lot of senior purchasing executives take the attitude that 'because we're a big car manufacturer or food retailer, we can kick the hell out of the supply chain'. That's a very poor attitude to take to business."
* Depending on the business, get a properly structured agreement at the start of a relationship. "Too many don't," warns Dominic Roberts, lawyer at Wragge & Co. "You can have a change of management, or just fall out. Things were sort of agreed, but not finally agreed - and your lawyer finds that any agreement was not a contractual term, but only an agreement in principle."
* Be careful of single-source partnerships. According to one supply chain professional, not so long ago a major high-street retailer sourced all of its furniture supply from the same supplier. "Lead time on all of these products went from 10 to 47 days, and the quality of the products also suffered. You can bet it was two senior people from both companies talking it over, not knowing anything about how it would really work out," the source says.
* Develop relationships both internally and externally with the commercial, buying and marketing business areas, as well as with your suppliers and manufacturers - and spend as much time reviewing as planning. Moreover, learn what needs to change to improve the situation next time.
* Don't over-rely on IT specialists who say a better computer system would make a huge difference. "They are always saying that, and it isn't necessarily true," one supply chain consultant says. Forrester Research found that any software bought to lower costs was, in relation to other cost-reduction moves, less likely to be effective. In a recent supply chain networks survey, it also found that "supply chain optimisation software assists in identifying supply chain anomalies, but most respondents reported that employees continue to resolve planning and execution exceptions without software help."
* Forrester also urged supply chain managers to stop trying to eliminate uncertainty and to try to manage uncertainty better instead - as well as to reward flexible behaviour.
* "If only the forecast were more reliable..." is a common refrain. However, Charles Davies, of AT Kearney's supply chain practice, says people constantly fail to understand that supply chains exist solely to manage uncertainty. "Regular forecast errors are unavoidable," he says.
Adrian Holliday is a freelance journalist