Author Archives: fitz1

Seasoned supply chain professional.

Who’s managing your business?

You probably think you are managing your business. And for the most part you would be correct. However, if you deal with suppliers at any level, their performance can have a significant effect on your business. When you can’t get the products you need at the prices you want, when shipments arrive late or are incorrect, your business is impacted.

So I believe that if you are not actively managing your relationships with your suppliers, they are managing your business to their advantage. And it doesn’t matter if you are Wal Mart or the corner deli. Your suppliers are shipping your products on their schedule, buying products and selling it to you at a price that works for them, and managing your business to suit themselves. They aren’t necessarily evil – they are just running a business.

So how do you get them on your side? Here are my thoughts:

1. Be easy to work with. Demanding customers may get what they want in the short-term, but over time this kind of behavior builds resentment. Share all the information you can about your business. Help them understand your challenges – you want them to care about your business and its success.

2. Build relationships with your suppliers. Find out all you can about your suppliers’ world. What challenges are they facing? What capabilities do they wish they had? Work with them to allow them to give you great service. You want to be the company that they will drop everything for when you call.

3. Don’t focus only on price. Every supplier can compete on price. Lowball offers get them noticed and in the door. You want suppliers that will stick with you over time. Find out the total cost of doing business with them. Product pricing is only one aspect. What about shipping and freight terms? How about availability or customization? Can they give you exclusivity on any products?  Find out what they can do that will help drive both your businesses.

4. Understand that there will be service failures. Every supplier stumbles. Let them. And then watch how they recover. If they recover well and the impact to your business is minimal, send them more business. Don’t expect them to be perfect. You aren’t perfect, either.

If you take the attitude that you need your suppliers as much as they need you, and take the time to build solid relationships with them, they can give you a competitive advantage by understanding how to best support your business.

 

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More data doesn’t always equal better decisions

There is currently a lot of interest in Big Data. We can now capture and store immense amounts of information about almost any process, include how humans behave. Buying and browsing habits drive internet advertising at a personal level. Face-recognition software allows companies and authorities to track people’s movements and activities. GPS tracking on cell phones shows where we have been, and when we were there.

In the supply chain world more data has often been seen as an advantage. The thinking is that the more we know, the better our decisions will be, since we have more facts to use as the basis for our choices. In general this is true. However there are at least 3 factors that can reduce the value of the data.

First, in many cases we have reached the point where there is more data than we can effectively analyze. Time constraints often require that decisions be made before all the data is available. So rigorous analysis has become a luxury. And standardized reporting has replaced ad hoc reporting.

Second, more data can hide valuable data. It’s not more facts but the right facts properly interpreted that allow for good business decisions. This is where experience can trump data: the numbers may look good, but if your gut says the decisions being made are not right, it’s worth taking another look at the numbers.

Finally, data is subject to interpretation. An instock figure of 99% may be good for a commodity item, but not for a seasonal item that is approaching the end of its annual cycle. And the way data is presented can skew how it is interpreted. If a presentation looks too good to be true, ask to see the raw data and have the presenter to walk you through the process used to arrive at the final data. It may not be as objective as is appears. And too often politics rather than data drives decisions.

In short, more data will not automatically lead to better decisions. Sound decisions require data, clear thinking and time. And in many cases these are shortchanged. It’s no wonder then, that people are often disappointed in the results of decisions made only on the volume of data available.

Why are you forecasting?

In an earlier post I mentioned that forecasting is really only effective when everyone involved owns their part of the forecast and the processes that go into making and supporting it. By itself a forecast won’t help your business, and it certainly won’t fix any structural or logistical problems. But if you use your forecasts as the basis of a conversation with the people who are impacted by it, your forecasts can become a powerful tool for managing and growing your business. This is the value of the collaborative planning, forecasting and replenishment (CPFR) platform.

In my opinion a forecast has no value until it is shared with the all the people who may be impacted by it. And while we may not want to share all the factors that went into making a forecast, we should share with our partners as much information as possible about the timeframe, limitations, expectations and accuracy of our forecasts. If we are asking them to bet their business on our figures, we need to be up front with them about how confident we are in the numbers. We also need to teach them that they can trust us to share everything that we possibly can with them, so that they can be confident about working with us in the future.

 

Coaching suppliers

In an earlier post I emphasized that treating your suppliers as customers was a good business practice. A further point is that most suppliers benefit from being coached on how to best support your business. If you make them guess as to how to best support you, you will very likely be disappointed in their performance. On the other hand, if you teach them how to help you succeed, both you and your suppliers can improve the processes and tactics that support business success and growth.

If your suppliers are not meeting your expectations or if their lack of performance is hurting your business, your first reaction is likely to be a desire to want to penalize them. Unless you have already gone through the process of discussing and defining the issue with them and agreeing on a plan for improvement and given them time to improve, you are only hurting yourself when you penalize them. By treating them badly you may scare them into complying, but that’s all you will get. You won’t be encouraging them to want to better learn how to support you.

In my 20+ years managing suppliers for 3 big box retailers, I know from experience that coaching suppliers can significantly improve their performance and their willingness to help you grow your business. Coaching suppliers effectively helps them better collaborate with you and also allows them to increase their emotional investment in your success. And you want to be the company that suppliers compete to support.

 

Suppliers as customers

Recently I organized a meeting with one of my key suppliers to discuss the next steps in building the business. In all the points we discussed the one that bothered me the most – and still bothers me today – is how this company’s employees were being treated by my company. I heard several stories about how these employees were routinely denied access to systems and inventory data that they needed to do their jobs, and how in some cases the retail employees simply ignored them. And these were people who had come into the store to help manage the inventory and merchandising of product!

What is interesting about this is if my company’s employees had treated a customer or another employee in this manner, they would have been disciplined. But somehow it was OK to abuse a supplier. I guess the policies governing proper associate behavior apply only in certain cases. Not very professional, in my opinion. Respect for the individual indeed!

Your suppliers deserve the same treatment as your best customers. You can’t do business without them. Abusing them isn’t going to help you in the long run. And all the talk about respect for individuals goes right out the window if the policies are not applied consistently.

I have been managing suppliers for major retailers for nearly 20 years and consistently I have been impressed with their willingness to support my business, even when we ask them to do outrageous things. My experience tells me that most suppliers really want to be good partners. They depend on others to distribute and market their products. So why can’t companies collaborate so both sides win?

I believe too many companies still see suppliers as a cost center and not a partner who also wants to grow the business. This attitude will undermine the relationship every time. If you see your suppliers as competitors for your profits, you won’t collaborate.

Want to grow your business? Take some time and really get to know your suppliers. Let them educate you about their business. Let them show you how they can better support you and offer you insights into their industry.

Want a competitive advantage? Be the company that your suppliers want to support. Treat them well so that when issues come up there will be no question that they will go out of their way to support you. I can tell you from experience that treating your suppliers well, knowing what they can offer, and giving them the chance to shine in supporting your business will build the kind of loyalty that your competitors will envy.

Soft Skill KPI’s

In an article in the current issue of CSCMP’s Supply Chain Quarterly the authors show that companies need to measure both business performance and employee interpersonal effectiveness when evaluating supply chain performance. And it makes sense that if we are going to measure one side of the business that we need to measure the other dimensions as well. While I agree with the idea that employee soft skills like leadership and communication can’t be measured in the same manner as fill rates and instocks, I believe there are significant issues when it comes to measuring these soft skills.

Evaluating interpersonal skills is difficult and frequently open to a wide range of interpretations. It’s hard to have an unbiased view of another’s behavior, especially if it deviates from what we might expect or how we might act in similar situations. A person who is demanding and harsh may actually need to act this way to get his/her job done to meet the business expectations. In this case saying that this behavior is not appropriate may be more a measure of the pressure to meet business goals than a valid interpretation of interpersonal skills. When push comes to shove, companies will care more about meeting their business goals and shareholder expectations than they will in developing nice people – even if nice people are more productive in the long run.

So what is the answer? In my view getting an accurate view of a person’s soft skills takes a lot of time. We need to observe the individual over an extended period of time and in a variety of situations. And we need to be experienced in objectively evaluating other’s behavior. In most cases the cost of doing proper evaluations is beyond the reach of most companies, and is usually reserved for the top levels of the company.

What about the rest of the employees? Here’s where I believe we have a structural problem: most managers are so busy trying to meet the expectations of their managers that they have little time to get to know their direct reports. And you can’t evaluate what you don’t know. To me this is a larger issue than how we evaluation soft skills, since these evaluations require a great deal of time and experience. If we make our managers’ jobs so demanding that they can’t take the time to develop the people under them, then I don’t see how we can expect these people to develop their soft skills. They will be too busy worrying about meeting the company’s financial and business goals.

Until this structural problem is resolved, I don’t see how we can expect much improvement in employees’ soft skills. Short-term business goals will always trump these, since business goals can be easily measured.

You can read the article here:

http://www.supplychainquarterly.com/topics/Strategy/201104people/

Intelligent loss of sales

No one likes walking away from sales, especially in today’s competitive marketplace. But sometimes it makes sense to walk away from sales that carry a cost that is far higher than the profit from the sale. Certainly we don’t want to disappoint customers. On the other hand, trying to meet every customer need could drive you out of business.

A good example of letting sales go is in managing instock levels in retail locations. We all know that maintaining an instock level of 100% is not only nearly impossible; it’s also very expensive. Buying and stocking enough product to support this level of instock is prohibitively expensive. It also makes little sense from an overall sales perspective, as there is a point where having more inventory doesn’t lead to increased sales. So if we set an instock goal of 99.0%, we are in effect saying that we are willing to be out of stock 1% of the time, and we are willing to give up the sales that might come if we were never out of stock. We are intelligently choosing to lose these sales for the sake of the health of the overall business.

Every business will be slightly different, but every business – from Walmart to the corner deli – needs to understand that every sale carries a cost, and that some sales are more expensive than they can afford. In these cases the right business decision is to walk away from these sales and focus your energy on more profitable sales channels.

Analysis must be action-able

Managing a supply chain successfully requires gathering data to help monitor the performance of the various links in the overall chain. Much of this reporting is routine, such as sku performance, shipping accuracy, on-time delivery and key receiving accuracy. These reports are useful for monitoring, but they often don’t tell us how to improve performance. For this we need more analysis.

In my view all analysis must be designed to support change, that is, it must be action-able in a way that adds value to the process it evaluates. We could also say that all proper analysis always seeks to answer a question: how can I improve this process? Where are the bottlenecks? What players need to know about this so that it can be resolved? There is no need – and rarely time – for analysis that simply restates what we already know.

Out of stock reporting is a good example. That a product is out of stock is not helpful. We need to know why a product ran out. Was it unexpected sales? Incorrect inventory counts? Short-shipments? We can only correct a problem if we know the root cause.

So when you analyzing data, remember that the goal is to envision how to improve a process, and not merely to impress others with elaborate spreadsheets or fancy presentations. Provide value by showing a better way to manage the business.

The value of VMI programs

In a recent issue of a supply chain magazine I read an article which questioned the value of vendor managed inventory (VMI) programs. The basic argument of the article was that the cost and difficulty of managing these vendors outweighed the value. While I understand these points, I can see several advantages to these programs – if they are well-run. These are:

1. Vendors frequently know more about their industry than retailers do. The value here is that for companies that carry many skus, they cannot know the inside story of every supplier’s industry. This is particularly true with industries that deal in commodity items, such as metals, or in industries where raw material costs and availability strongly influence assortments and pricing, such as the candy or coffee industries. Retailers and resellers need to develop strong relationships with these kinds of suppliers in order to benefit from the supplier’s industry knowledge so that they can collaborate in managing assortments, pricing and products effectively.

2. Vendors frequently know their customers and markets better than resellers or retailers do. Customer preferences change as trends and markets change. As an example I learned from a supplier that candy sales tend to drop in a market when companies cut overtime, as people who are not working longer than expected no longer need an extra snack to hold them over until their day ends. In addition some product sell only in specific markets, and placing them elsewhere can be costly. Your suppliers can steer you away from plans that put their products where there is limited opportunity for sales.

3. Vendors know how to price product competitively and how to assort locations correctly. Suppliers know the prices that your competitors charge for their product, and they know what products sell in each market, and when these change. While they can’t share competitive data, they can help you stay current in pricing and assortment.

To get the most value out of a VMI relationship, companies need to treat them as partners in supporting and growing the business. Regular communication of sku performance and inventory data is a minimum requirement. Annual plans with reasonable sales growth goals and quarterly performance reviews are important. And an agreement that specifies the packaging, shipping, placement and return policies helps to prevent nasty surprises once the program is in place.

I believe there is great value in having strong, well-managed VMI programs in your locations. These programs require attention and resources, but in return I believe you get industry and product knowledge that you cannot get on your own. And since every square foot of space in your locations needs to be profitable, it makes sense to include these suppliers and the value they can offer in your programs.

Making the most of product assortments

It’s common knowledge that product assortments need to be tailored to individual locations. What’s strange to me is how few retailers do this well. Obviously there is a cost associated with doing this, as well as a need for analysis to understand when to make changes to an assortment. It’s very easy to find a product, test it for a limited time, and then roll it out to most or all of the locations in a company. Too often, there is little or no follow-up to see if the product truly performs in all these locations. The result is often outdated assortments, stranded inventory, returns and markdowns, and discontinued product sitting on the shelves.

In my experience a large part of the answer here is in a rigorous product life cycle program. As very few products are truly permanent, it pays to know when to get out of an old product – even if it is performing adequately – in favor of a newer product that better serves your customers. There needs to be a plan for getting into a new product, as well as a strategy for getting out of it at the right time. I know of several companies that won’t allow new products to be set up until there is a life cycle plan in place that includes the product’s initial rollout dates and plan, as well as a date and plan for when the item will be phased out.

This kind of planning requires product knowledge, demographic data and product performance data. It also requires a commitment to ongoing monitoring of products and programs throughout the company, together with a willingess to make the hard decisions required to get out of a product before it is dead. This is particularly true with perishable products.

In my experience most of the profit from selling a specific product comes from having it in the correct assortment where the demographics and other skus in the assortment work together to satisfy customer needs. Spreading product evenly around the company rarely produces the kind of results we want.

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