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.

Data doesn’t always equal intelligence

Data drives many modern supply chain processes. Measurement of the time, equipment and costs involved in these processes allows for optimization and improvement. What can be measured can be improved.

It is easy to collect lots of data. What is hard is to know what data is valid, and how to interpret it so that it can be used to improve the processes. More data doesn’t always equal a better process. In fact, there is a point where collecting more data actually increases the noise in the data and makes it harder to interpret.

Data properly validated and interpreted equals intelligence. And intelligence must be action-able. It must tell us what we need to do differently.

For example, collecting lots of data on vendor lead time variability might seem like a good idea. But by itself this data won’t tell us the whole story. We need to know about all the factors that could impact this data, and decide which factors are significant and manageable, and which factors are outside our control. Penalizing a vendor for poor lead time performance based solely on data measurements may hide the fact that our own processes are keeping the supplier from improving. I know of a case where the vendor’s lead time increased dramatically because the company that was ordering product from them was also arranging the freight pickups from the vendor, and was not scheduling these correctly. Not the vendor’s fault here.

So remember that data by itself frequently won’t tell you how to improve your business. Only the intelligent interpretation of the data will allow you to see where you can take action to improve your processes.

People – not systems – make supply chains successful

The supply chain world today is increasingly driven by data and systems. This makes sense as the goal of every supply chain is to find the lowest operating cost structure. And systems allow us to track and measure many more cost variables than we ever could in the past.

But merely accumulating data doesn’t necessarily lead to improvement. Someone has to validate and interpret the data, as not all data is reliable. So no matter how sophisticated our systems may become, there will always be room for intelligent people to play a role in supply chain success. In fact, one of the curses of a complex supply chain is that it is very brittle. Small changes cause disproportionate disruptions. Changing a cost or a ship point becomes an Olympic event. Rerouting shipments requires extensive manual interventions and levels of approvals. Shifting customer demands frequently require manual overrides.

Ever try to change an online order with Amazon? Better be quick.

Some of these disruptions are unavoidable. And only people fluent in supply chain tactics and systems can make these changes without tearing up the system or reducing its effectiveness. We have invested a great deal in our systems. I hope we will be willing to invest a similar amount of time and money is developing the talented people who will allow our systems to save money while at the same time remaining loose and flexible enough to respond to the changes required to truly serve the business needs.

To improve your business, analyze your top performing locations

There is a trend in business that focuses improvement efforts on the low and poor-performing locations. While there is some validity in this, especially where obvious operational problems can be easily corrected, I believe there is more value in studying what your best locations do well, and then applying what is learned there to other locations.

I call this reinforcing success.

If you break down the processes that your successful locations use, you will find steps that can be applied to other locations, often with very little expense and only minimal training.

As an example, I managed a category where an outside firm was responsible for managing the inventory and display of product. This company did an outstanding job maintaining the displays once a week. But what I found was that in the top-performing locations the staff at the store did not wait for the reps from this company to service the displays. They took this on themselves and made sure that they displays were always full and clean. The result was a significant increase in sales. The store had a stake in the success of the program, and it showed.

While it may not be profitable – or possible – to expand this practice to all the other locations, it would make sense to find ways to increase the store’s stake in this program’s success.

In my opinion this is a far better approach than setting up programs that penalize stores for poor performance.

 

When in doubt, pilot

In today’s business environment there is a tendency to want to make decision in a hurry, to execute them and then move on. In many cases this is a valid strategy, particularly with new products where the market is wide open and the first player on the field has an enormous competitive advantage.

But for the majority of ongoing tactical and strategic decisions it’s often better to take a more graduated approach.

Rolling out a product or program without first putting in place the proper controls, measurement tools and change management policies is asking for trouble. That’s why I recommend using pilot programs wherever possible. These programs may delay the rollout or expansion, but they almost always provide for better information for making the program a success in later phases.

As an example I frequently get requests to order product in the same quantity for every store in the chain. We know that the product won’t sell equally well in every location, but we order as if this is the case. It would be much better to roll out product to a few locations – especially those that historically don’t perform well – to see how the product performs. We would learn a lot about how to manage the product at the store level, how to price and display it, before we expand the program to more locations.

It takes time to do this, but I have never had a case where we did this and did not learn how to improve the program going forward. It’s not an easy habit to establish, but I believe that, in the long run, it will save more than it costs. And what is learned from each pilot program can be shared with other teams to improve processes in these other areas.

You are only as good as your data

Supply chain and inventory management decisions can be complicated, and the results of a bad decision can be very expensive. We rely on data in many forms to help us make good decisions. But how often do we question the reliability of this data, and how often is it updated? Good data that is outdated is not much better than bad data.

It takes time to validate data, but if you are serious about your success, you owe it to yourself to take the time required to check your data’s accuracy. You don’t want to find out after the fact that your made your decision based on bad information. Go back to the team that compiled the data and ask them to explain how they got it. More importantly, ask them about any assumptions they made when interpreting the data.

As an example, I recently discovered that a report I was using was no longer supported by our IT teams. No one had validated the data for several months. Shame on me for not checking. The result was that I had been making recommendations that were completely misleading. So going forward I now have a policy that I won’t use a report that has not been validated within the last 30 days.

Get in the habit of questioning the data that everyone else is assuming is foolproof.

Everyone owns the forecast

Forecasting and demand planning are key practices in an effective supply chain. But I’m often surprised at how the various teams that are responsible for managing the forecasting process and results see accurate forecasting as someone else’s responsibility. In some cases forecast data is not even shared. And in these cases any success in accurately forecasting demand or consumption is due more to luck than skill.

So everyone needs to own the forecast. And not just the final numbers. Every person who uses the forecast needs to own the forecast, that is, they need to know that they are responsible for letting everyone know what they know about factors that will impact the forecast. If product won’t be available for two weeks or will be restricted due to raw material issues, everyone who depends on the forecast needs to know this. Hiding these factors only undermines the validity of the forecast. And if people don’t trust forecast data, they won’t use it, and then it loses most of its value.

So if you are involved in forecasting for your company, own the forecast and all the issues that come with creating a good forecast. You’ll get better results for your efforts.

Your customer doesn’t care about your supply chain issues

While we might be tempted to explain customer service failures based on supply chain issues, in the end your customer doesn’t want to hear this.

I can say this from experience. Here’s the story:

I recently took my Toyota Echo to a local Toyota dealership because the A/C was not working well. I left the car with the dealer and expected to hear back from them within a day or two. After three days I called the dealership to see what was up, and I was informed that the mechanics hadn’t been able to find the problem. So nothing had been done. I got the car back because we needed it and I took it back several days later. Little did I know that I would not see my car again for nearly two weeks.

During these two weeks the mechanics tried several fixes. None of them worked. Turns out Toyota does not stock the compressor clutch that I needed, so the mechanics tried to build one out of parts. They did this three times, and each time it burned up. At $400 a crack that was expensive. Throughout this time I could not get an answer from the dealer as to what was happening.

In the end the dealer shipped in a new compressor and clutch was able to solve the problem. It only took three weeks, give or take a day.

But the issue was not the mechanics or the dealership. It was a decision on the part of Toyota to carry fewer parts in fewer locations in order to save money. In the end it cost them nearly $1500 in parts, shipping and labor – and most of my goodwill.

The lesson here? I really don’t care about Toyota’s supply chain or inventory issues. If they want to sell cars and service them, they need to invest in the inventory that is required to do this well. And if they can’t fix something in a reasonable amount of time, they need to keep the customer informed at all times. Not knowing what is happening – or, in this case, not happening – with my car was quite upsetting.

So remember that your customer doesn’t care about your supply chain issues. Right or wrong, they expect service and timely communication about how you are solving their problems.

And yes, I still do allow this dealership to work on my cars. They are in the process of redeeming themselves.

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