Updated: May 30th, 2023 • 5 min read

5 Common Mistakes to Avoid in Supply Chain

Could your business be suffering due to oversights and systemic mistakes in your supply chain? Diagnosing these mistakes can be difficult, but in paying attention to the red flags, you can understand missed opportunities in your day-to-day common practices.

Here are some common mistakes and their associated flags:

1. Misunderstanding cost-to-serve

This is one of the key elements of your performance but companies often don’t understand why this is important and how this works. You should ideally be able to come up with meaningful answers to these questions:

  • Do you know which of your customers give you the most and which give you the least profit?
  • Are there any customers that are not profitable entirely?
  • Do you lose money when you supply some products to some clients?

Many companies aren’t aware of where they stand in these places, but it’s imperative to get a grasp on customer accounts and the subsequent relationships. These costs are often generated within the supply chain but they can also be invisible or hidden in accounting reports, damaging your performance in general.

2. Missing opportunities with cost-to-serve

Measuring this can be complex but foregoing measuring can harm your business. It’s one of the most common mistakes with supply chains today. You are missing many opportunities by missing the cost to serve.

  • Knowing which of your customers contribute the most and which contribute the least
  • Transforming the unprofitable customers into profitable customers
  • Extracting value from the supply chain

Differentiating between products and customers might classify them as:

  • Low CTS – Low Revenue
  • Low CTS – High Revenue
  • High CTS – Low Revenue
  • High CTS – High Revenue

The best ones, of course, are the Low CTS – High revenue ones and the worst ones are High CTS – High revenue ones. This is the group you should pay attention to in the sense of transforming.

For example, a company can be spreading a wide spectrum of logistics across their customer base equally without actually understanding what the cost to serve each client was. So, they’d have to analyze each client individually relative to their location, size, delivery frequencies and other elements to figure out what they are doing wrong.

One particular company found that they were essentially subsidizing smaller clients that bring less revenue and placing huge freight costs on their biggest client. This was an ineffective approach, thus leading them to change their freight costs, cost allocations,  and pricing models. 

3. Not developing effective sales and operations planning

This is another common and expensive mistake. Not putting the proper resources and effort into developing some kind of operational foresight can be perilous for your organization.

This lack of effectiveness usually comes from:

  • Failure to follow a process
  • Failure to include qualified leaders
  • Lack of empowerment with participants
  • Inadequate technology

If you want to get some benefits from S&OP, you need to invest in resources both technological and human. This also needs time and attention of senior chiefs and reps as well.  It can be amazing tool if everything is done properly. But if not, you can expect certain problems:

  • No belief in the demand projections
  • Late input
  • Misleading projections
  • Lost sales and missed opportunities

So, if you are doing this, then do it well.

4. No freight-cost knowledge

“Many companies have no idea about the freight transport market and the factors that drive costs and rates they charge to clients. Understanding freight service is essential if you want to pay a regular rate for shipping,” says Jennifer Styles, a project manager at Academized and Paperfellows.

Knowing this cost can help you choose the right transport providers, and negotiate more effectively. For example, you could be paying for pallet spaces that you are not even using because carriers charge by pallet and they might double stack a trailer. They then charge for the same pallets you paid for to other people. You could also be using a more expensive carrier and paying more money for it. This can create problems with accounting and maintaining your business costs.

4. No customer service clarity

“Your company should have a good policy in place for supply chain and logistics organization. Many companies have not defined this or how customer service can happen with logistics and transportation.,”says Arnold Berk, a business journalist at Australianhelp and Bigassignments.

You need to have a supply chain customer service policy or your customer satisfaction will be at risk. Business leaders often fail to appreciate this.

Without this, you can have several issues:

  • Your customers have no idea what to expect
  • Management can’t know how to act
  • Bad decisions can be made and increase costs

5. Neglecting reviews of distribution network

This mistake can create many issues for a company besides the financial issues. These problems often happen when there are changes in the business environment. One of the most common mistakes is to overlook this. You might be missing opportunities to:

  • Save operating costs
  • Improve energy efficiency
  • Maximize use of assets
  • Reduce freight costs
  • Create a flexible supply chain
  • Increase customer satisfaction

These have been some of the biggest mistakes you can make in supply chain. However, if you fix them or avoid them, you can expect significant growth.