The Achilles’ Heel of Supply Chain Management

The Achilles Heel of Supply Chain Management.

The Achilles Heel of Supply Chain Management.

An Article for Harvard Business Review by Ananth Raman,a professor at Harvard Business School in Boston, Nicole DeHoratiusand Zeynep Tonare doctoral candidates at HBS. Team MembersSuraj SudheendranPulak AggarwalMohsin KhanSourav ChakrabortyYogesh ShuklaIntroductionWhat exactly is Achilles Heel?

AnAchilles heelis a deadly weakness in spite of overall strength, which can actually or potentially lead to downfall. While the mythological origin refers to a physical vulnerability, idiomatic references to other attributes or qualities that can lead to downfall are common.

The article focuses on the problem of inaccurate data in supply chain management. The new technologies of point-of-sale scanners and electronic inventory systems helped stores track the flow of goods, transmit new orders electronically, and synchronize production schedules for suppliers to real-time demand data. "Phantom stockouts" are items that should be available, but are misplaced in the storage area--a situation that can impact a company's profitability. Distribution center errors, management policy, and human error contribute to the problem of bad data, which can be controlled through periodic auditing of inventory.Case FactsThe decision to equip the cash registers with bar code scanners should have been a beneficial decision with respect to tracking the ow of goods and electronically transmit precise replenishment orders, synchronising production schedules by suppliers on the basis of real time demand data,preventing loss of sale due to out stock,etc.However, the data at the heart of supply chain man- agement are often wildly inaccurate.The executives at one company with a reputation for expert data handling estimated that their data were 99% accurate. Physical audits, however, showed that inventory levels were way off the mark for two-thirds of the stores stock-keeping units, or SKUs.It was estimated that these errors reduced companys overall prots by 10% through un- necessary inventory carrying costs and lost sales from out-of-stock items, or stockouts.Even when a stores inventory information is technically correct, it may still suffer from bad data because employees routinely put products in the wrong place.Another well-regarded retail chain found that 16% of its in-stock SKUs were re-ported as stockouts when cus-tomers asked for them at the help desk.

However, the items were available; they had just been misplaced in a storage area or on the selling floor. It was estimated that that the problem of phantomstock-outs cut this companys profitability by 25%.The Reasons for the blunderThe main question was that what exactly was the reason to this highly innacuracy of the collected data?Some part of the problem can be traced down to human nature. the behaviour of the clerks at the cash registers.If a customer is buying peach, orange, and strawberry yogurts at the same price, the clerk often swipes one of the yogurts say, peach three times. As a result, the stores inventory system says the peach yogurts are down by three and the others are unchanged. The managers often add more fuel to the fire by tracking the checkout clerks speed but not the inaccuracy.For most of the retailers the main reason to adopt scanners was not to gain better data, but to reduce labor costs.Some of the blame must also go to retailers distribu-tion centers.When one re-tailer audited every item on hand at a new store, it found that the inventory system had the wrong quantities for 29% of the SKUs, with an average deviation from actual supplies of 25%. The pickers in the companys dis-tribution center had simply been sloppy in assembling the stores mix of SKUs. It was found that error rates on items received directly from manufacturers were substantially lower than on items received through company distribution centers. Why??To minimize paper work and auditing expenses on goods transferred within the company, the retailer had discouraged store managers from getting credit from distribution centers for items shipped in error that cost less than a certain amount.As a result, the managers werent motivated to carefully check the accuracy of deliveries from the dis-tribution centers.

The periodic auditing of the inventory can prove to be a solution to this problem, but they are mostly conducted with regard to financial aspects like measuring shrink of goods that have been lost or pilfered.This means that the inventory is measured in monetary values and not by items.If the result shows the value of inventory to be approximately the same as what is shown in the system then the managers are satisfied, even if the actual mix of SKUs differ greatly.Conclusion and Possible Solutions.Rewarding speedy check-outs, reducing paperwork, and checking inventory value are laudable goals, but they all inadvertently undermine the accuracy of supply chain data. Before the problem can be solved, executives need to un-derstand how their actions and policies can distort the data. Only when companies realize the extent of the problem and its effect on profits will they begin to rethink their practices.Executives can improve inventory reporting in their companies by actually using the data for important decisions. As long as inventory data arent being collected for anything important, store managers wont be under pressure to improve their data quality, but until the quality improves, retailers and their suppliers will hesitate to rely on the data. Encouraging accuracy at cash registers should be a major aspect to be taken care by the managers.The use of inventory audits should be diversified and also be used to measure the actual mix of SKUs.Its time for a concerted effort to bring on the future.Thank You..