When it Pays to be a Rule Breaker

By Mark Schmit

Most of us spend the majority of our lives learning “the rules” in one form or another, learning how things work and why, and why we should keep doing them the way they’ve always been done. It’s useful information, I think we could all agree but, in the immortal words of The Little Mermaid’s ‘Scuttle’…it gets very boring.

A recent article published by SupplyChain24/7 caught my attention because it told us to do the exact opposite—its entire premise was the idea that sometimes you need to know when to break the rules. The authors make the case that winning companies, as they refer to them, such as say, Wal-Mart or Amazon, win because they saw a situation in a new way and took a risk.

According to Robert Sabath and Richard Sherman, of Trissential LLC, there are five rules to carefully consider breaking (or following). The key is to first understand the why and the how of supply chain operations, of why these are “rules”, so you can see when they may not fit the situation.

• Rule 1: Supply chain is not strategic.  Well, it can be. After all, the strategic value of supply chain operations can bolster a marketing strategy to delight customers and grow market share. Supply chain capabilities can be used to target a critical market segment or to support an initiative that differentiates them from the competition.
• Rule 2: All customers are created equal. The authors highlight a disconnect between marketing and operations that contributes to the problems associated with this rule. “For operations, the biggest challenge often is understanding which customers are “best.” Size, by itself, may not be the indicator of importance. Total profit contribution or long-term profit potential would be a better indicator.”
• Rule 3: Manage for minimum cost… Addendum: Manage to minimize cost within context.
• Rule 4: Always use optimization models to determine the location and level for manufacturing and inventory.  This rule, according to Sabath and Sherman is more like a guideline, really. Models, after all, don’t usually offer us absolutes—they’re based on assumptions and projections and ever-changing scenarios.
•  Rule 5: Ship every parcel order the day the order is received. The reason to break this rule, Amazon’s Prime incentive is the perfect example, because by guiding its customers to a two-day shipping window, Amazon collects order, inventory availability, and cost information for each customer, distribution location, and shipping method in its network, allowing their optimization system to go to work and find the best location for shipping at the lowest total cost. This virtual inventory system considers all available inventory, consolidates orders, optimizes transportation, and can concentrate volume while minimizing parcel, all leading to a growing margin per box.

As a summer blockbuster once taught us, even The Code can be “more like guidelines, really.” You may need to know them, but sometimes, what you really need to know is when to break them.

As MEP National Accounts Manager, Mark Schmit has a successful track record of developing outreach programs and partnerships with private-sector entities that solve real-world competitiveness problems while maintaining a mission-driven perspective.  Mark identifies new business opportunities that leverage state and federal funding with the goal of improving the competitiveness of U.S.-based manufacturers.  Defined as a next generation strategy, supply chain optimization is a key area of focus for Mark and MEP, respectively. Contact Mark at mark.schmit@nist.gov or read more of his posts on the Manufacturing Innovation Blog.

Photo courtesy of Red Hook Flicks.