strategy Archives

No Industry Has A Better Success Metric than Baseball

Metrics and Standards | By Steve Banker • 09/14/2020

Baseball’s Wins Above Replacement Player, abbreviated to WAR, is the best success metric there is. A player’s WAR is the number of additional wins his team achieves above the number of wins the team would have if they replaced one of their players with an average player – a player from their AAA minor league team, for example.

A player’s WAR values are calculated from the quality of their batting, baserunning, fielding, and pitching. A higher value accrues to players who make a larger contribution to a team’s success. A high WAR reflects both excellent performance and a large quantity of playing time.

If you are into math, you can see how it is calculated HERE. But for players other than pitchers the math is based on the idea that additional runs contributed to a team lead to additional wins. 10 runs are estimated to be roughly equal to roughly one win. Therefore, a 1.0 WAR value for a player signifies a contribution of roughly 10 more runs than a replacement-level player. Last year, Mike Trout of the Angels had the highest WAR at 8.6. This means the Angels won roughly eight more games than they would have if his innings had been played by a replacement level player.

What is great about this success metric is that it defines exactly what a team needs to do to get to the playoffs. There are 162 games in a typical season. A perfectly average team wins 81 games. A team that wins 94 or more is a lock to get into the playoffs. If a team wins over 91 games, they have over a 90 percent chance of making the playoffs.

What this means is that teams need to purchase or develop players with a cumulative WAR of 13 to be a lock for the playoffs. That is easier said than done.

The Net Promoter Score as a Critical Success Metric

I’ve exaggerated a bit in the title – other sports have developed their own version of WAR. But what I really want to point out is the CLARITY of this success metric. This success metric defines exactly what needs to be done to win! That is very unusual in business and industry!

Let’s compare WAR to the Net Promoter Score (NPS). NPS is the key success metric many companies use to gauge their competitiveness. The Net Promoter Score is used to gauge the loyalty of a firm’s customer relationships. It is claimed to be correlated with revenue growth. NPS is calculated based on responses to a single simple question: How likely is it that you would recommend our company/product/service to a friend or colleague?

But let’s say a company’s NPS has fallen below their competitors. What needs to be done to improve it? Should costs be lowered? Service improved? Product quality enhanced? Or does something else need to be done?

Dell’s Experience with the Net Promoter Score

A declining NPS may lead to a company doing a series of surveys with customers to determine what the problem is. For example, five years ago Dell’s NPS fell as the complexity of their supply chain increased. In Dell’s case, when they dug into this by talking to customers, what they heard over and over was “I want you to build, ship, and deliver what I ordered, when you said you would.”

The drop in the NPS caught the attention of senior executives and a supply chain team was put in place to correct the problem. Dell embarked on a journey to improve their Perfect Order Metric. Dell’s definition of the Perfect Order Metric was based on (% of on time deliveries) x (% of complete orders) x (percentage of orders delivered damaged free) x (percentage of orders delivered with accurate documentation). So, the uber metric NPS, is supported by POM, which drills down to other metrics like on time deliveries (OTD).

In Dells case, (OTDs) is where the computer manufacturer performed the worst; so that is where the company focused their attention initially. But as is so often the case, the wrong metrics can drive suboptimal behaviors; metrics can be manipulated. Initially OTD was defined as being on or before a certain date. Order promisers started delivering products early. They might reasonably believe there was a high probability the goods could be delivered in two weeks, but they would set a delivery date of three weeks. This led to longer lead times and higher inventory levels. But it was counterproductive, costs went up but this tactic did not move Dell’s Net Performance Score up as Dell was not delivering the kind of performance customers valued.

Dell realized they needed a REDO. They needed to take an end-to-end view of their processes starting with order receipt, processing orders, fulfilling orders (postponement manufacturing and warehousing), and deliveries. And each step needed to be measured.

Before the end-to-end order fulfillment process was decomposed and measured, the initial belief was that logistics was performing very badly. Actually, logistics was the most predictable, but they were at the end of the process, so logistics appeared to be the problem. Further, if every partner in their supply chain performed to their contractual obligations Dell would have on-time deliveries every time.

In decomposing the end-to-end process, the goal was to “flush out the tricks.” Inventory was not allowed to increase. Lead times could not be padded. If a product was not in stock, it was the job of sales to set the right expectation and then the other parts of the value chain needed to deliver on that expectation. And Dell realized that no one knew how lead times were calculated, they had to invest in a tool to correctly calculate the lead times.

Final Thoughts

Based on this process Dell did improve their NPS. The supply chain executive that led this initiative got a promotion.

But it was not easy. And it was not quick. And it certainly was not simple!

Wouldn’t life be great for executives in other industries if they had success metric as robust as what baseball has with WAR?

A Playbook for Supply Chain Strategy

Learning & Leadership | By Steve Banker • 12/03/2018

When we think of strategists, we tend to visualize men educated in elite universities able to see things the rest of us cannot. But strategy is often more prosaic. For example, when it comes to supply chain strategy, there is a playbook that can be followed.

The Supply Chain Strategy Playbook

Understand the corporate strategy and adopt the supply chain strategies to the corporate strategy! What a company’s supply chain should attempt to do is very different for companies that compete based on cost, service, innovative products or services, or compete in a niche market.
Build supply chains from the customer backwards! Many companies seek to understand how their customers perceive them by using the Net Promoter Score methodology. The Net Promoter Score (NPS) is a management tool that can be used to gauge the loyalty of a firm’s customer relationships and claims to be correlated with revenue growth. NPS is calculated based on responses to a single simple question: How likely is it that you would recommend our company/product/service to a friend or colleague? When companies see their NPS scores fall, the supply chain team needs to go on a perfect order journey to better understand how they are failing their customers.
Engage in integrated business planning (IBP)! IBP is the process that balances supply and demand over a short and medium term. Over longer planning horizons, IBP can help time hiring for seasonal surges, insure there is warehouse and trucking capacity for promotions, and lead to the right kinds of capital investments. IBP is a collaborative process that includes logistics, manufacturing, finance, sales and marketing, and potentially other groups as well. Supply chain excellence is a team sport that must involve collaboration with other parts of a company, and even suppliers and customers.
Implement new supply chain applications in an integrated fashion! Existing supply chain applications have proven benefits and an ROI that ranges from good to excellent depending upon the application. But companies will get much better payback from their supply chain projects if they do not do them in an ad hoc manner. A company should have a comprehensive end-to-end vision of what they want to accomplish, in other words, a view of what their integrated supply chain should look like. Companies can then logically sequence their projects to achieve that vision.
Engage in comprehensive training! If your people are the most important ingredient in success, companies need to think about training first. When companies put in new processes, new applications, and ask for change, they often find that some people do not have the skills for their new jobs. A comprehensive approach to training helps to slot people into the right jobs and acquire new people with skills better adopted to the new strategy.
Implement supply chain segmentation! The idea behind supply chain segmentation is that not all customers or products should be served with a one size fits all supply chain. Different service levels, inventory policies, and supply chain networks can make sense depending on the specific goals for a customer or set of products.
Engage in a digital transformation! This is a new addition to the supply chain strategy playbook. Historically, most companies only looked at proven technologies. Companies looking at these kinds of solutions would put together a detailed business plan, and then only implement the technology if the forecasted financial returns exceeded their return on investment (ROI) target. But more companies are experimenting with potentially transformative technologies, regardless of whether the ROI is there or not based on the premise that they have to learn what may be possible. Engaging in this kind of experimentation requires a massive culture shift. ARC’s upcoming forum in February, Driving a Digital Transformation, addresses this issue head on.

Guest Commentary: Supply Chain Direction – Strategic Plan vs. Cost Center

Logistics Technologies | By Jason Nurmi • 12/17/2013

When companies engage with a shipper, regardless of the industry or the complexity of the supply chain, the first area to focus on is where supply chain stands in the organization. Although supply chain management is now a generally understood function in most companies, organizations often struggle to get supply chain management on the key initiatives list for their CEO’s. There could be a number of reasons for that omission. We often hear that supply chain management is just too complicated or broad to take a focused approach. Either way, before an organization can begin strategizing to manage change in planning, optimization, or service improvement, it needs to determine the appropriate controls and how to employ them. Simply put, organizations must first determine whether it considers supply chain to be a strategic function or just a cost center, and then figure out the best way to execute based on that determination.

Supply chain as a strategy

For companies that view its supply chain as a strategic asset, the most important question becomes, “How can our supply chain be a competitive advantage?” From LeanLogistics’ diverse network of clients, I see three underlying themes that organizations use to position their supply chain as a differentiator:

The organization must identify and support a champion on the leadership team. By having the support of a VP level or above, supply chain is able to influence and develop overall business strategy. From product development to packaging to mode, someone must be controlling and managing this piece, so it is best to have someone who is “hands on” at the very top level of your organization.
Supply chain initiatives must be measured by a direct link to the customer service experience. Sure, large enterprises like Amazon have achieved excellence with their supply chain initiatives, but organizations of all sizes can also implement this approach to achieve similar strategic results. By ensuring that products reach the end customer in a timely fashion, success can be measured by customer satisfaction levels, rather than delivery time. If we think about the 4Ps of marketing (Product, Price, Promotion, and Place), supply chain is the “Place” in today’s marketplace.
“Transportation will continue to play its primary role as a ‘bridge’ and ‘shock absorber’ for businesses and supply chains,” said Chris Caplice, Executive Director of the MIT Center for Transportation & Logistics. As companies scale to meet business demands while supply chains expand and contract, organizations need a solution that can provide the same elasticity. Whether that is expanding into new markets or optimizing the methods used to serve existing markets. The complexity within the transportation market drives professionals to look for alternatives to traditional on-site or hosted transportation software systems; technology that can keep pace with today’s ever changing demands. As the transportation world continues to evolve, transportation technology must adapt and continue to provide value. That flexibility is the key to sustainable and continually improving supply chains.

Supply chain as a cost center

For organizations that continue to view supply chain as a cost center, it’s important to acknowledge that many shippers don’t have a seat at the table, but are still held accountable to contain or lower costs in the current economic environment. When we encounter a shipper working from this corporate mindset, I’ve found that there are a few key tactics they can use to help drive success to their organization through the supply chain –

With fuel fluctuations and a looming lack of carrier capacity in the market, companies concerned about the bottom line need to proactively address challenges such as carrier relationship management to maintain service levels without affecting cost. Without visibility into transportation processes, companies are forced to utilize more spot buys resulting in higher costs per mile, more empty miles, and an increase in carbon emissions. By focusing on carrier relationships, the shipper can yield savings, but also decide on the best modes and carriers to improve service.
In a world that is shifting to omni-channel distribution, it becomes increasingly challenging for organizations to manage their supply chains as a cost center. Organizations need to focus on customer purchasing and manage their supply chain distribution network accordingly. Effectively shifting the percentages between TL, LTL, and parcel can be an effective approach to control costs. Transportation sourcing technology can provide the visibility needed to help streamline a RFP, introduce new carriers, and display cost performance across the transportation network. This type of technology can also help determine where the company should optimize customer purchasing to reduce costs. By moving away from “just in time” models to optimized purchasing models, companies can leverage full truckloads, which in turn, lowers the cost-per-mile.
Moving away from manual processes can also help. Yes, Excel has its merits, but numerous companies still use manual methods to manage freight with no way to measure service, benchmark against other shippers, or evaluate performance over time. With limited metrics and no best practices, companies struggle to control, let alone, reduce costs. These companies can realize significant savings by leveraging today’s advanced transportation management technology to deliver complete transportation planning, execution, settlement and procurement to improve supply chain processes and reduce costs. Also, when “cost is king,” shippers need to understand that omni-channel distribution is going to increase costs and is better suited for companies that view supply chain as strategic.

Many of today’s supply chain industry challenges are not new, just more complex. Whether an organization views supply chain as strategic plan or a cost center, improving service while containing costs has always been a goal for transportation and supply chain professionals. With limited capacity availability for shippers, cost increases, and the complexity of managing many moving parts of a supply chain, companies cannot afford to continue using manual processes or aged software. Not only do shippers need to have visibility to carriers, vendors, and other supply chain partners, but companies need to leverage innovative technology and work together in order to scale their business and improve their performance. To continue this conversation, contact the author or visit Is your supply chain a strategic plan or a cost center?

Jason Nurmi, VP Technology Services at LeanLogistics, is responsible for all aspects of customer technology implementation, post-implementation tactical customer support, and client services. His leadership at LeanLogistics has enabled the Technology Service teams to develop proven processes and efficiencies. Leveraging his 18 years of experience in the Manufacturing, Warehousing, and Transportation industries, he continues to drive best practices to efficiently implement LeanLogistics technology and drive on going value to customers with experienced professionals in the industry.

Prior to joining LeanLogistics, Jason has held roles in support, education, consulting, and management. Jason holds a Bachelor of Science degree in Industrial Management and a Master Degree in Administration from Central Michigan University

Fostering a Bottom-Up Supply Chain Strategy

Social Media | By Steve Banker • 07/18/2011

So much of supply chain management is, and must be, top down and focused on tight process control. Companies have applied Six Sigma and Lean to factories and warehouses to lock down processes in pursuit of high quality and throughput. While there is room for input from floor-level workers, there is not a lot of room for them to do their own thing.

New tools for collaboration have emerged that are said to be changing the world based on bottom-up feedback and peer democracy. In general, social media and other peer collaboration tools are a better fit for the edges of the value chain – marketing, sales, ongoing service – than core manufacturing and distribution processes.

Many companies go through an annual budgeting process where they set targets and refine their strategy. For most companies, participation is limited to top executives, either in fact or in practice. Even if a meeting is called where the rank and file can give their feedback, lower-level employees will be very reluctant to contradict someone higher in rank. Usually these meetings devolve into top management selling their strategy. The high-level strategy document that accompanies the budget ends up reflecting the vision of the bosses.

At a high level, companies do need to set a strategy. For example, if you are a 3PL like Ryder, you might decide that being excellent at execution is core to your strategy. And if that is your strategy, you need to continuously pursue that vision. It would be counterproductive to fundamentally change your strategy every year. You would end up trying to be everything to everyone, which would be a recipe for failure.

However, once the broad contours of a strategy are set, whatever it is, bottom-up participation in fleshing out the vision could enhance the strategy.

Wikis are one tool for mass, nonhierarchical collaboration that can have a role in refining a company’s strategy. The best example of peer-created content is Wikipedia, the best encyclopedia that has ever existed. According to the book “Wikinomics” by Don Tapscott and Anthony Williams, each Wikipedia article has been edited an average of twenty times. “On occasion, ‘edit wars’ break out, in which users repeatedly reverse each other’s changes,” the authors write. “In these rare cases, a Wikipedia staffer makes the final judgment.”

Personal productivity tools, like Microsoft Word, are very structured when it comes to the editing function. In contrast, a wiki invites all users to edit any page, or to create new pages, within the wiki Web site.

The budgeting process also involves thinking about what sort of revenue new product introductions might generate in the coming year, how emerging trends could affect the business, and whether there are competing products built on newer technologies that could begin to erode the core business.

Internal prediction markets can be used to tap the broader insights of the company for these purposes. Consensus Point sells such a solution. In effect, a company asks a question and then invites as many people as it wants – including employees, but also perhaps partners and customers – to buy and sell “virtual stock” based on their confidence in a particular outcome (e.g., this product will really take off). Economists are researching these prediction markets and when and where they work best. However, it seems safe to say that prediction markets often outperform traditionally generated internal corporate forecasts.

These new peer-based social media tools seek to involve participants in an ongoing process of creation and collaboration. Just like good writing involves rewriting, good strategy needs to be continuously refined. And it makes sense that in refining your strategy, tapping the experiences, knowledge, and commitment of the broader organization will lead to better results.

A complete analysis of logistics trends, technologies, and services

The Supply Chain Strategy Playbook

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