In an attempt to be self-effacing when introducing myself to new clients, I sometimes describe my career as boring, having been involved with business and inventory management systems for three decades. In reality, I have enjoyed the ever changing challenges presented over this period. My journey began working for Mobil (many years prior to the Exxon Mobil merger) where I learned that you never want to look back on your career to find you repeated your first year many times over. I didn’t.
I was employed by manufacturing, wholesale/distribution and retail companies prior to a consulting career serving numerous clients in North America, Europe and Southern Africa. I live with a relentless quest to help management accelerate inventory throughout the supply chain from raw material to consumer. My single minded purpose is to help companies to retain their competitive advantage, grow their business and increase profitability. It has been challenging, exciting and exhilarating to share in the successes enjoyed by competent leadership willing to embrace fresh new thinking.
When corporate leadership exhibits a pioneering spirit, embracing disruptive emerging technology and revolutionizing their operating paradigms, they increase customer service, reduce costs and accelerate productivity, making their companies significantly more profitable. The results are rewarding.
Detailing every development over the years would take a book, but a few thoughts come to mind. I worked with an automotive company during a time when they changed their planning cycle from monthly to weekly. The resistance to change was evident. Buyers were up in arms because of the volume of paper-work involved to support supplier approval from 12 to 52 times a year. Guess what? Planning weekly did not stop there. Daily, then hourly and finally continuous Just-in-Time production methods have driven suppliers to replace inventory via Kanban cards or other “pull-type” replenishment signals. And if we could not shorten the supply chain further—why not bring the supplier into the plant and further reduce cycle and replenishment times! Progress, and the quest to drive quality to new levels, is relentless. This is motivated by fierce competition, customer responsiveness, ever increasing productivity, elimination of waste, supply chain flexibility and of course, the bottom line. Earlier in my consulting career, I recall times when, with sophisticated enterprise systems in place, we expected solutions to emulate or simulate the work environment. We believed the computer would help make decisions for us —artificial intelligence, or at a minimum address all the “what if” scenarios. We did not challenge our own processes to determine if they could be simplified or improved upon. Accepting the status quo was a critical mistake in our thinking. We had a cavalier approach to planning. The mantra was, if the forecast was wrong, change it and re-plan! After all, the computer could re-plan at the speed of light. We did not consider the consequences to suppliers, production, or distribution facilities. All we achieved was automated chaos. We accepted as impossible our ability to forecast or plan. To top that, we knew customers never read our forecast but ordered whatever they wanted. Over time we got smarter.
About two decades ago we began to understand that through a broad knowledge-base of forecasting algorithms that we could predict future demand patterns based on history. We understood forecasting in aggregate provided greater accuracy. This principle holds true today. However, when working with manufacturers, wholesalers, distributors or retailers we recommended forecasting at a product family level to capitalize on this aggregate level of planning accuracy. We soon learned that accuracy at the family level did not help if there was a significant change in the mix of product making up the aggregate—some lines may be new and experiencing accelerating growth and other lines may be at the end of their life cycle with sales in decline. As we moved toward to greater granularity, we learned that forecasting a specific Stock Keeping Unit (SKU) presented challenges when it experienced a significant growth or decline. We needed to understand the cause, such as a change in demand by a major customer or group of customers, a new competitive situation, strike action, act of God, or possibly a regulatory impact. Before long forecasting SKU by customer became accepted practice. We learned that demographics has an important part in determining demand from certain markets both at the macro and micro level. It is reasonable to see demand geographically in the US when taking climatic zones into account. We vary from the “frozen tundra” of the north to the Sunbelt of the south, the concentration of population in the northeast against the lifestyle of populous California. At the micro level we find pockets of culture across the country with differing tastes from Hispanic, Asian, Arabic, European, African and other communities, all of whom need to be satisfied with their differing needs and preferences for product. We may think that this concept is stronger when considering retail merchandise such as grocery or department stores, but even big ticket items such as motor vehicles, are purchased by geography. All–wheel drive automobiles are more popular in Wisconsin and Minnesota than Texas or Nevada.
The impact of macro and micro demographic information coupled with planning SKUs by customer and location; and the need for slicing-and-dicing data to satisfy the management team across sales, marketing, merchandizing, purchasing, distribution, production, warehousing, finance, and executive management, now calls for substantial volumes of data, both historic and future, requiring immediate feedback to support management’s effective decision making. We can’t underestimate the need for flexibility in viewing data differently to accommodate a variety of business models. Responsiveness dictates that planning evolves from monthly to weekly and even daily periods.
There are additional factors that play an important role in managing the supply chain; the location of production facilities (both on and off shore), the network of distribution centers (hub and spoke, linear, or matrix) to support rapid delivery to markets or wholesale facilities, location of retail stores and retailer’s DC’s. When sourcing product from the international markets such as Brazil, India or China, lead times play a critical role in our ability to effectively plan to meet demand.
Earlier I wrote of using forecasts to help plan future demand, but over time we have learned the benefit of extrinsic input to the forecast. Having sales people tell us what is taking place within their territory can be a boon, provided we don’t sabotage the system with counter intuitive rewards. Sales people, by their very nature, are highly optimistic and desire an unlimited inventory supply to be available for all their valuable customers (every single one). Hording inventory is expensive and more so when it results in the next fire-sale, needless promotion, or write-offs. Collaboration works best within a system of performance measurement and accountability up and down the sales organization. Bonuses for over-achieving the forecast are as bad as accepting under-achieving sales results. Accountability extends to other functional areas such as operations and marketing all of whom must work jointly to satisfy a fickle customer or consumer.
Inventory is the largest investment most companies manage. Reducing inventory while increasing customer on-time delivery—or having merchandise available when a customer is ready to purchase, is the surest path to greater profitability. Experience teaches that the only constant is change. Beware if you are part of a team constantly playing catch up to competitors—both national and international. Being part of a winning team is so much more satisfying.
The state-of-the art today is collaboration across the supply chain. With retailers trending to update suppliers hourly (when will it be real time?) with Point of Sales (POS) data, we have timely and accurate information regarding what consumers want. Suppliers (wholesalers, distributors or manufacturers) may find their systemic infrastructure unable to respond or their logistical ability to react may be inadequate. We face challenges that address the need to keep a step ahead of the competition. The question to ask “is my executive team up to the task”?
Over time we will introduce experiences encountered while working with challenging situations. We do this in the belief that some experiences may match challenges you face on your journey to gain more control of your business. It is a positive goal trying to increase sales, reduce costs and generate additional profits.