1. What you will learn
This lesson opens Reader I by giving you a diagnostic for your supply chain. You will define a ninety-day outcome, score five areas of your chain from supply to returns, and find the one constraint that limits your service or your cash the most.
2. The idea explained
A supply chain is a set of linked steps, and like any chain its strength is set by the weakest link. Owners often spend energy improving the visible steps, such as buying a better vehicle or negotiating a lower price, while a hidden step quietly limits everything. Perhaps orders sit unpicked for a day because the storekeeper waits for a full list. Perhaps goods arrive but are not put away for two days, so they cannot be sold. A diagnostic is a short, honest scoring of the main areas so that you can see which link is weakest and direct effort there.
Five areas cover most small businesses. Supply is whether suppliers deliver what you need, when they promised, at a price you can plan around. Inventory is whether you hold the right amount: enough to serve customers, not so much that cash is buried. Transport is whether goods move between points reliably and at a known cost. Storage and handling is whether receiving, storing, picking and dispatching are accurate and fast. Service and returns is whether customers get what they ordered on time, and how well you deal with problems. Give each area a score from one to five, and write one fact beside it.
Choose the outcome first. An outcome is a change you could observe in ninety days, with a number, such as raising on-time-in-full delivery from 78 to 90 per cent, or cutting days of stock from 60 to 45 without more stockouts. It should be something you can influence. Avoid outcomes that depend on a supplier or the weather. The outcome tells you which parts of the diagnostic matter most, since it is unhelpful to score everything equally when you have one clear aim.
Look for the constraint. The lowest score is often the constraint, but not always. A business with excellent suppliers and weak storage accuracy will not gain much by buying more; it will just lose more in the godown. A business with reliable stock and unreliable transport will disappoint customers however well it buys. Naming one constraint focuses your next thirty days. Remember that logistics improvements cost money and time, that results are uncertain and that most new ventures do not succeed.
Apply it
3. How to apply it in your own business
Write your ninety-day outcome at the top of a page, with a starting value, a target and a date. Below it, list the five areas and score each from one to five with one fact and its source. For supply, the fact might be the share of purchase orders received in full and on time. For inventory, days of stock held and the value of stock unsold for ninety days. For transport, cost per delivery and share of deliveries late. For storage, the gap between register and shelf. For service, on-time-in-full and the number of complaints last month.
Where a fact is missing, score the area two and write unknown. The missing fact is itself a finding, and you can begin recording it today with a simple register. Ask your storekeeper, driver or purchase assistant to score the same five areas separately. They see what you do not. Differences of two points or more reveal blind spots and are worth discussing without blame.
Choose the constraint and write three possible causes with a cheap test for each. If storage accuracy is the constraint, causes may be unrecorded receipts, unrecorded issues or wrongly labelled shelves; tests may be a week of same-day recording, a count of one aisle daily or a relabel of one shelf. Decide what to pause to make room for the fix. Rescore in ninety days and compare. Keep the page in your plan file with the date, and share it with a mentor.
Worked example
4. Worked example
Consider Sushma, who runs a business in Indore supplying school uniforms and stationery to about thirty schools, with a warehouse, a van and four staff. Her outcome: raise on-time-in-full delivery of school orders from 74 per cent to 90 per cent before the next academic season.
Her scores: supply 3, because the cloth supplier is often late; inventory 2, since she holds 70 days of stock and 30 per cent of it is old designs; transport 4; storage and handling 2, because the register and shelf disagree by around 6 per cent; service 3. The total is 3 plus 2 plus 4 plus 2 plus 3, which is 14 out of 25, or 56 per cent.
Two areas tie at 2. She asks which blocks the outcome more. Late or short deliveries to schools stem largely from the picking of wrong sizes and missing items, which links to storage accuracy. She names storage and handling as the constraint, with inventory clutter as a contributing cause: 30 per cent of the stock being old designs makes shelves crowded and picking slower.
She lists three causes and tests. Cause one: receipts not recorded. Test: log every receipt on the day for a week. Cause two: crowded shelves cause mispicks. Test: move old designs to a separate rack and compare mispicks. Cause three: no size labels. Test: label one shelf and count errors there. If she has 200 orders a season and 26 per cent are not on time in full, that is 52 orders. Reaching 90 per cent means 20 late, a reduction of 32 orders. She treats these as targets, not predictions.
After one month she rescores. Storage and handling is still a 2 in her own view, but the log shows that same-day recording of receipts has cut the register-shelf gap from about 6 per cent to about 3.5 per cent on the top twenty items. She notes that this is a partial gain, and that the school season is still three months away. She plans the old-design rack for the coming week and decides to repeat the on-time-in-full count on the next fifty orders before she reports any change to her partner.
5. Common mistakes and how to fix them
The first mistake is spending on visible steps such as vehicles while the constraint sits elsewhere. Fix it by scoring all five areas before spending. The second mistake is scoring by feeling. Fix it by writing one fact and its source beside each score.
The third mistake is naming several constraints. Fix it by choosing one and testing three causes cheaply. The fourth mistake is setting an outcome that depends on others. Fix it by choosing a result your own actions can move.
Key takeaways
6. Board summary
A supply chain is as strong as its weakest link. Score supply, inventory, transport, storage and service, each with a fact. Unknown figures are findings; begin recording them. Name one constraint and test three causes cheaply. Rescore in ninety days.
Check your understanding
7. Practice and self-check
- Name the five areas. Answer: supply, inventory, transport, storage and handling, and service and returns.
- Sushma scores 3, 2, 4, 2 and 3. Total? Answer: 14 out of 25.
- That is what per cent? Answer: 56 per cent.
- With 200 orders and 74 per cent on time in full, how many are not? Answer: 52.
- At 90 per cent, how many are not? Answer: 20.
- Reduction in late or short orders? Answer: 32.
- Why is storage accuracy her constraint? Answer: mispicks and missing items cause most short deliveries.
- What should you score with no fact? Answer: two, marked unknown.
- Why ask your staff to score too? Answer: they see problems you do not.
- Does the diagnostic promise results? Answer: no, it improves decisions only.