Good news: Perfection isn’t necessarily a requirement for top-level competency and success.

First of all, “perfect” is a virtually impossible standard. Even one mistake — regardless of how many orders or units are handled — immediately puts perfection beyond reach.

How much help does that provide for you as an effective benchmark of performance?

One reason the goal of perfection persists is because research from several years ago that said boosting perfect order fulfillment by 3% paid off with a 1% hike in profit margins.

But in subsequent years, a more well-rounded definition of what constitutes perfection has evolved among supply chain operators.

One metric that’s picked up some steam is the “Perfect Order Index.”

Perfect Order Index is compiled by multiplying:

• the percent of orders that were on-time
• by the number of orders that were complete
• by the percent documented correctly.

Beware: POI stats can be pretty brutal at first blush. Even solid supply chain operations are likely to see numbers below 50%.

One critical aspect of benchmarking supply chain performance is setting the parameters.

What constitutes success? Is it when a shipment leaves your docks on time? Or is it if that shipment arrives at the customer’s facility when it’s supposed to?

Many factors — some out of your hands — can control “on-time” performance. For instance, what if the shipment leaves your facility on time, but the independent carrier has problems?

Your best bet is to take it back to basics, at least when starting to devise your method of measuring supply chain performance.

The four basic criteria supply chain benchmarking universally encompass:

• on-time
• complete
• damage-free
• correctly “documented”

Another benchmark that’s been successful for many businesses is calculating “on-time, in-full” performance.

It is what it sounds like: How many of your orders were on-time, (either leaving your building or arriving at your customer’s facility). Then, how many of those orders were in-full — complete shipment, no damages, no rejects.

Heads up: You’ll need a pile of documents to accurately calculate this:

• invoices
• shipping manifests
• bar coding system
• how cartons are labeled
• RFID tagging, and
• even advance shipping paperwork.

The same supply chain tactics that make your company lean and profitable can become your downfall in just the blink of an eye.

That’s because the benefits of the drive to improve efficiency — running lean, just-in-time production, single-source suppliers — can also leave you more vulnerable than ever before.

Fortunately, the best solution is easily summed up in two words: Be prepared.

The fancy term for it is “risk management.” Either way, we’re talking about shooting for the same goal.

1. What could go wrong?

The first step in managing supply chain risk (or being prepared), is to identify and catalog the “what-if” problems that could possibly disrupt your operations.

A few to consider include:

• Shifting customer demand
• Changing financial factors, such as credit availability
• Other market pressures, such as your competitors or your supplier’s competitors, and
• Weather, natural disasters or similar problems (think Hurricane Katrina or the California wildfires, for instance.)

2. Profiling your suppliers

At the same time, you should gather material about your own company (think of it like you’re writing a book) that is critical to supply chain continuity.

This means your company’s operations, including production and fulfillment; and data about your suppliers and your customers.

Try profiling your top suppliers, by identifying:

• Who are your key suppliers
• Where they are located
• Is there another site that could fill in if the primary supplier or supplier site fell short?
• What’s their production capacity, and
• What’s their production flexibility? Can they turn on a dime to help you if you asked?

Today’s emphasis on lean production has left many companies dealing with single-source suppliers, without much of a safety net.

3. What else could go wrong?

There’s the flip side of this coin, too.

Does your company rely heavily on a small but powerful customer base? What would happen if one of those customers closed up shop or took its business elsewhere?

Another contingency to consider: Does your supply chain focus efforts on one primary “ship-from” location? Would you be prepared if a disruption put that area out of commission?

Of course, you’re not going to come up with all of the answers right away.

Risk management is an ongoing process. You can never be prepared enough.

But taking the time now to anticipate problems and plan contingencies could make the difference between success and failure for your company in the future.

Or, in this case, what comes first?

Companies are slow to warm to doing more B2B transactions over the Net, mainly due to security concerns. But it’s nearly impossible to resolve security concerns and put business minds at ease unless there’s enough transaction traffic driving the effort and establishing a reliable track record.

Raising the stakes and complicating this dilemma:

The whole situation plays out against the background of the Internet, where the legit businesses and enterprising hackers constantly jockey for the superior position.

It’s enough to make you long for the good old days, when cash was king and credit was paid off regularly.

Well, maybe not long for those days. But it certainly is much more complicated today, as the advantages of doing business over the Internet are balanced by new perils.

Basically, there are three types of losses a business faces when it begins transactions online:

• property loss or damage
• business interruption, and
• extra costs.

As cybercrime becomes increasingly lucrative, a worldwide black market for information has developed.

The attacks are growing more sophisticated as well, as cyberthugs try to sneak in your back door through your vendors and other businesses with access to your system.

It used to be that staying up to date on your browser’s security parameters and employing a commercial security service was enough to keep you protected.

It’s still important to stay on top of your browser’s security updates, but as the attacks have become more sophisticated, the defenses must keep pace.

Some of the recent counterattack suggestions include:

• Segmenting your company’s data into clearly defined zones, so certain breaches can be isolated and limited
• Training your people who are involved in areas where data theft is a distinct possibility. Less than 15% of breaches are detected by “insiders.”
• Acquiring “memory snapshots” to use in forensic investigations of cybercrime, and
• Limit how much information — and influence — can be accessed through “smartphones” or other devices that can easily end up in the wrong hands.

With this front and center in your mind, watch out for these 7 deadly supply chain pitfalls:

• Build first, then wait for the orders to roll in. Do this and you’re liable to end up with a lot of product you can’t use. You know the money meter is ticking away each day product sits on your shelf and gathers dust. Solution: Analyze and monitor your ordering from outside suppliers.
• Too much down time. Staffers should move fluidly from one task to another, and outgoing shipments must be timed for maximum efficiency. For example, say your regular FedEx shipment goes out at 4 p.m. Yet there are almost always a couple of more orders that dribble in afterward. Those orders won’t go out until 4 tomorrow — unless you can adjust the timing of FedEx pickup.
• Efficient, uncluttered delivery routes. When was the last time you took a close look at your delivery patterns? Chances are, there’s been some change in suppliers and needs since then. Study where trucks are going now with an eye toward more efficient delivery, then tighten up those routes.
• No wasted motions. In addition to plotting the most efficient routes around the warehouse for putaway and picking orders, examine the ergonomics of each location. Are workers being asked to pick up too much from the floor? From higher than their head? Spend a few minutes each day observing how workers lift, tote and put down.
• Too much here, too little there. All too often, it’s a normal part of logistics shuffling: Early deliveries are stowed over there, orders going out soon but not yet are stashed here, inventory plopped into a temporary location, until the proper home opens. All of these cost you time and raise the risk of error, which can be even more costly. Clearly designate a place for everything, even temporary stops.
• Space, the final frontier. When you see the same warehouse configuration every day, it’s not unusual to start looking past areas that aren’t quite all that you hoped they could be. Some folks even develop what can be best described as a blind spot. What to watch for: too much open space; too much tight space; too much space on shelves; cartons that aren’t loaded to capacity; even outgoing shipments that aren’t packed to the rafters.
• Errors, plain and simple. Billing errors, incorrect shipments, broken or damaged goods or product, deductions, adjustments, mislabeled product and even simple inventory discrepancies and slip-ups. These all cost you, and will continue to be problems unless aggressively addressed and attacked.

The best way you can stay in the driver’s seat is to make sure you have an organized plan of attack for working with suppliers, one that lays out your expectations and  emphasizes quality.

There are three areas to focus on that’ll help upgrade your relationships with suppliers:

1. Most companies treat poor supplier quality as collateral damage, part of the price of doing business. Here’s a painful stat: The cost of poor supplier quality (COPQ) take take a 10% bite out of an organization’s revenue.

It’s more than just faulty materials or goods. There’s a ripple effect — rework, slowed production, extra freight costs, warranty expenses when customers complain, and recall expenses when you have to ship it back from those customers.

So the first step — which many businesses don’t do now — is to track supplier quality, by logging to the bad (and the good), and what it ends up costing your company.

2. Once you’ve done your homework, you can approach suppliers about recovering the cost of poor quality supplies. In this case, many companies charge back the goods to the supplier. When enough product starts flowing backward, suppliers will take notice.

Experts point out that the bulk of costs stemming from suppliers providing poor goods is NOT the materials. It’s that collateral damage that really rings up the dollars. Finding a way to quantifying these costs will show suppliers just how deep — and costly — the problem is.

3. Finally, the best way to formalize your approach to solving these problems is to design your own supplier scorecard. Not only will you create a running evaluation of each supplier, it’ll also provide a solid framework of your expectations for these suppliers.

It strengthens your hand considerably when you sit down at the table with a supplier if you have a written list of problems and the costs incurred, along with a clear explanation of your expectations.

That’s why the producers of Warehouse Management Systems are going to the trouble of pointing out silver linings, as a way of helping you prosper through a lean time.

Now’s a great time to upgrade your WMS or even buy a new one, they proclaim.

Figuring out what this means to you is a two-step exercise.

First, you need to determine if your current WMS is starting to hurt inventory operations more than it helps. That’s the first step in making a pitch to spend money in order to save money.

Three questions to ask:

• Are necessary supports and upgrades becoming increasingly expensive?
• Is your current WMS vendor up to par? Will it be able to support you over the next five years?
• Finally, does your existing WMS hamper your supply chain’s ability to remain competitive?

That leads into the second major step in evaluating your WMS.

Too many companies take the approach that a WMS is finished when it’s installed and up and running.

To get the most out of your WMS, it needs to be updated in conjunction with your operational needs.

But there are two critical areas that must keep up with the times. You need to take a step back and determine if you’re getting enough bang for the buck with your current WMS, in these two critical areas:

• Labor management. In many warehouses, labor is the biggest cost. Are you getting the most out of how workers are deployed, and how they spend their time? A WMS should be able to help improve labor efficiency in your warehouse.
• Slotting. A solid WMS should help you maximize your use of space, and help determine the most efficient travel routes for workers. Both of these pay off in the long run, by making the best use of space and of labor.

One of the biggest costs in transactions with suppliers and customers is the physical act of getting paid.

Most businesses still rely on the tried-and-true method of paper checks (and taking advantage of features like mail float time — or being frustrated by the same).

But there’s hard proof that moving away from paper and handling more transactions electronically is more efficient, easier to do, and even safer than using checks.

First, there’s the inherent complexity of the payment process itself. In a 2008 Aberdeen Group study, 76% of businesses described A/P operations as either complex or somewhat complex.

(A complex transaction, in this case, involves two or more banks and more than three payment types.)

Across the board — including Best in Class operations down to industry laggards, electronic payment processing costs were noticeably lower than handling paper-based checks.

• Best in Class companies spent an average of $10.84 on each paper-based check transaction, compared with an average electronic payment processing cost of $6.71 — a savings of 38%.
• Below average operations spent an average of $11.33 on each paper-based check transaction, compared with an average electronic payment processing cost of $8.42 — a savings of 26%.

OK, many of the Purchasing & Procurement folks already know there’s money to be saved by pitching paper. These are some stats to back it up.

But the biggest fear — one that hampers efforts to turn transactions into electronic time-savers — is that security can be compromised, creating chaos for all parties involved.

Here’s some ammo to help shoot down that argument.

When businesses experiencing payment fraud were polled as to the source of that fraud, here’s what they said:

• paper-based checks — 42%
• commercial cards — 33%
• ACH — 6%
• wire transfers — 4%

(Admittedly, there are more paper-based frauds reported because there are more paper-based transactions. But you get the idea.)

Sure, you already work together in many ways. You’re certainly not working against each other.

But there are three ways you can reinforce the bonds that keep this team performing at a high level.

The final result is a win-win-win: Procurement, A/P and your entire company all benefit.

• Get on the same page. One of the biggest problems in getting payments in or out of your business can be invoice keying errors. Even the best number-punchers and crunchers will occasionally tap the wrong key — sometimes that’s all you need to create a large headache. Try this: Ask suppliers to repeat purchase order numbers back to buyers when placing phone orders. At the same time, include a clause in your contract that requires suppliers to match up invoice line numbers to line item numbers.
• Finding the best terms. Given today’s business conditions, you might want to re-open the door on negotiating standard payment terms with suppliers. Team up with your A/P folks to identify optimal payment terms. Are there early payment discounts you should be taking advantage of? Are there ones you might want to stop?
• Notify the proper authorities. It seems every business has its share of renegade (non PO) transactions, which inevitably fall to A/P for resolution. Catalog these strays and make sure each group is getting the proper review necessary before approval. This increased visibility has been proven to reduce renegade buying and save businesses money.

More companies are suddenly floating belly up in the corporate fish tank.

This can hurt you two ways:

• The dead-in-the-water customer owes you money, and/or
• You rely — make that relied — on that company as a primary supplier.

But there are strategic steps you can take, in addition to what you’ve already done, to help minimize the impact of today’s shifting economy.

1. Identify your key suppliers and set up a monitoring system. If a primary supplier shut its doors today, would you have anticipated it? Do you already have a back-up plan in place? Or would you be left scrambling and grasping for new suppliers, who could take advantage of your desperation?

Three suggestions, other than your usual sleuthing:

• Subscribe to Dun & Bradstreet financial alerts
• If it’s a publicly traded company, seek copies of annual and quarterly reports, and
• If your company has an online brokerage account, you probably can access expert stock analyst reports on the account.

Spread yourself thinner. If you haven’t done it already, begin splitting up the suppliers for your most-vital products and services. There’s always been pressure to economize, which usually means consolidating with one supplier. Now, whatever you might be saving will quickly be lost — and more — if you continue to keep all of your eggs in one basket.

Expect an ebb and flow. Finally, in negotiating contracts for your company, make sure you include clauses that’ll protect from future increases — and reward you for future decreases. Many companies treat this as a one-way street. With the yo-yo nature of some resources, like oil, you’ll want the flexibility to roll with price swings in either direction.

One week from today, the White House gets a new resident. What can we expect from President Barack Obama when it comes to critical transportation issues that impact supply chain operations across the country?

It looks like there will be at least four key areas confronting the new administration.

1. Trains and taxes. The railroad industry wants to invest more money in improving the quality and quantity of shipping by rail. However, the industry is also pushing for a 25% tax credit for capital investments. This effort might find more momentum than a similar push did in 2007: Rail unions have lined up with big rail shipping concerns to push for re-regulation.
2. Flying high. The FAA Re-authorization Bill is due before Congress. The primary focus is passenger travel, but there are also aspects with air freight and supply chain ramifications. Basically, the bill is likely to designate the funds necessary for airport infrastructure improvements. You might feel the impact if air fuel taxes are increased to help foot the bill.
3. Limits on the road. While the Hours of Service (HOS) Rules for truckers have been finalized, there’s an unlikely alliance of people looking to scale the hours back even more — safety advocates and railroad lobbyists. For now, the rules are: Drivers can be behind the wheel for up to 11 hours in a 14-hour window commencing with the beginning of the work day. Drivers can’t start the next work day until they’ve been off-duty at least 10 hours. If HOS are reduced, you might see a bump in shipping rates. Also looming: Expect to bear the brunt of fluctuating fuel costs when shipping.
4. Labor pains? The ongoing controversy over unionization efforts could spread to non-union shipping carriers, such as FedEx, JB Hunt and many others. One silver lining: Most of the shipping companies that could be impacted already have good working relationships with the unions that would be involved.