Category Archives: Best practices

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.

 

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.

Evaluate products and programs in your low-volume stores

It’s really tempting to test a new product or program in a flagship store. What we often don’t realize is that even a poor product or program can be successful in a high-volume or high-performing location. Putting products in stores that are already great performers can be very misleading, as the store environment and customer base can distort performance and mislead you as to the real potential of the program or product.

Instead, try out your programs and products in a variety of stores, making sure to include some low-performing stores in the mix. You want to know how the product does when it isn’t always displayed well, when it spends some time being out of stock, and when the foot traffic isn’t high. A product that does well in this environment will probably do very well in better-performing locations. In the end, you may discover that the product or program only does well in locations with a certain minimum level of sales or in specific markets with the right demographics.

The bottom line is to make sure the programs and products are tested in a sample of stores that truly represent the range of volume and sales for the entire company. Setting up pilot programs that are guaranteed to succeed can lead you to choose to put product in stores where there is very little chance of success. This can strand inventory in these stores and cost you the opportunity to use the inventory dollars spent there to build your business in other, potentially more successful locations.

Trust your systems

Companies spend huge sums on installing and maintaining complex supply chain systems. Despite these expenditures and the training provided, it surprises me how frequently the people who work for these companies either don’t trust or don’t properly use these systems. And it isn’t just the people at the lowest levels of these companies that don’t trust these systems. I’ve seen people in leadership positions instruct their teams to override the systems under certain circumstances. In some cases this makes sense, since no system can anticipate every situation and some human judgment will always be required in unique situations. But when bypassing these systems becomes the norm or habitual, the value that these systems provide is quickly undermined.

So if you buy and install a system, it makes sense to require people to use the system as much as possible. Allow for exceptions and track these so that the system can be improved and standard operating procedures can be updated. But don’t allow the practice of bypassing the system become part of your company culture. Allowing this will undermine the system and deny your company the benefits it would otherwise provide.

Supply chain education

Supply chains and all the processes and systems that support them are very complex. People who don’t work directly with these processes and systems often have incorrect ideas about what can and cannot be accomplished by them. And it is the supply chain leaders’ responsibility to make sure that the people who depend on the supply chain understand its capabilities and limitations.

Here are some facts that I have found are often misunderstood:

  1. Supply chains don’t like variability. Sudden changes to demand or planning disrupt them, and these disruptions drive up costs. Planning and communication in advance is essential for making supply chain operations successful and profitable. There is a cost to serving every customer need exactly the way every customer expects.
  2. Strategic changes most often require supply chain changes. Buying product via importing it vs. buying it domestically requires very different strategies and practices, which need to be set up and tested before going live.
  3. Not all parts of your business benefit equally from supply chain practices. Highly seasonal businesses often require shipping outside the normal processes, so the cost saving for these products can be substantially lower than for commodity products that can be shipped in consistent quantities year-round.
  4. You will get better performance from your supply chain if you collaborate with your supply chain partners. Those who work in supply chain know that the purpose of the processes and systems is to support the business. Let them know how they can support you. If you demand that they accommodate to your business needs, you may find that they will support you – but only as far as they have to.
  5. Your suppliers have supply chains too. Before product ever arrives in your facilities, it has already gone through your supplier’s supply chain. If the supplier’s systems and processes are poor, you won’t be able to make up for this by building a better system for yourself. It may be to your advantage to share supply chain expertise and practices with them to improve both companies’ performance.
  6. Supply chains are strategic. Wal-Mart, Home Depot and Amazon have proven that improving supply chain processes and systems can dramatically improve corporate performance. Good business planning should include supply chain partners. Without them you may be building wish lists rather than plans.
  7. Supply chain reporting and tracking can help both you and your suppliers increase customer service and build business. Every supply chain has systems or processes that can be improved, or that need to be reviewed regularly as business grows and changes. Share as much as you can with your suppliers and help them see where they need to improve rather than using the data to beat them up when they don’t perform.
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