Supply Chain Blog

S&OP: Cutting edge recovery for cash-poor businesses

Posted by Dave Jordan on Sun, Mar 31, 2013

Returning home from my Dubai holiday I spent some time in Duty Free electrical section looking at everything I do not need or in fact, do not know how to operate and never will. I was actually in the market for a new electric shaver as mine had bitten the dust.  Dubai Duty Free has an impressive range of shavers or all makes and designs - the place was bristling with shavers – sorry!

A sales assistant hooked onto my dithering and offered to help. This head-scarved Muslim lady then proceeded to tell me everything I might want to know about the different shavers on offer. I was impressed; she knew every function and gadget and how it makes for a more enjoyable shaving experience. I’m not sure about enjoyable. I don’t think I smile while shaving and I don’t recall shaving bringing on a giggling session.

Once I had a very short list of two, the sales assistant perhaps naturally guided me towards the more expensive shaver. My short intake of breath told her I was not convinced and then she said something which I have heard before and I know is true. “Do you have enough money to continue buying and replacing lower quality equipment?”

Not the smoothest segue but here we go. Why do companies tell me that they cannot afford to implement Sales & Operational Planning (S&OP)? Currently, many FMCG/Brewing/Pharma businesses are bleeding cash as they compete for a shrinking consumer purse. Sure, some will have rich parent companies to bail them out but if not you can soon find yourself on a very slippery slope.

S&OPSuppliers will not provide raw materials as you do not pay them on time. Customers are not paying you on time and you have a severe cash flow problem. You start to operate on a very short term horizon with expensive spot purchasing of raw materials and inefficient manufacturing runs. Eventually the company grinds to a standstill. So, how will S&OP help in such circumstances?

Amongst many other longer term benefits:

  1. Fosters team working under difficult business conditions.
  2. Provides a forum where decisions are taken for the benefit of the company rather than individual departments in isolation.
  3. Focuses attention on those SKUs that are important, e.g. fast movers – high margin, high volume.
  4. Provides total clarity on cash availability and allocation priority – no dissent or hidden agendas.
  5. One set of target numbers and KPIs, e.g. working capital, however poor they may be.

S&OP will help your company understand exactly where you are and provide a rigour and discipline for gradual improvement. This will not happen overnight but you will soon see the benefit of aligning the whole company behind the same recovery objectives.

 

Tags: Dave Jordan, Performance Improvement, S&OP

An FMCG/Drinks marriage made in co-pack heaven – not!

Posted by Dave Jordan on Thu, Mar 28, 2013

A word that strikes fear into even the most hardened FMCG/Brewing/Pharmaceutical business professionals. A similar reaction occurs when heard in the context of family discussions about investments, celebrations and holidays.

Can you guess the word by filling in the gaps, **** it. **** that. ****ning?  I knew you would get this right and of course the four letter word in question is “plan”. Why is planning an event or campaign so difficult in some companies? I wonder how many lost sales can be attributed to poor planning. Of course, “poor planning” is often the default excuse brought forward in a knee-jerk reflex to divert blame away from poor discipline in Sales and Marketing.

Combining business and personal planning strife, imagine this wedding scene.  The room is packed to the rafters with member of the parent sku on the right and the free gift skus on the left. The manager of the co-packing department is checking that all packaging items are present and correct before starting the ceremony. Soon the first couple in this mass wedding step forward and they are brought close together in transparent film. The ceremony leader asks if there is any good reason why these two cannot be joined in promotional matrimony.

CO-packing S&OPHere comes that really awkward moment that everybody dreads in their own weddings. Will Pete from Finance have one drink too many and shout out anything stupid? Will an old flame waddle to the front with 8 months of evidence hiding under her coat? A very real pregnant pause if ever there was one!

Oh woe! There is a muffled voice from a man at the back of the co-packing operation trying to get his words out. He has a valid reason why this promotional match cannot go ahead. The sexy promo sticker that Marketing insisted on designing and sourcing themselves has not arrived. The marriage is off. Time, money and effort wasted plus the likelihood of empty shelves where the newly co-packed couples were to spend their hopefully short-lived honeymoon.

This is scenario is not uncommon and similar incidents continue to occur in FMCG/Drinks companies you would assume had slick Supply Chains by now. A few simple principles:

  1. Ensure all material sourcing is carried out by one skilled and competent group.
  2. A signed off Bill of Material (BOM) will provide clarity on quantities of required materials.
  3. Timely insertion of goods received data into ERP facilitates availability to promise.
  4. If the co-packed item is a new sku you should ensure guiding mock-ups are available for the co-packer well in advance.
  5. Ensure you have significant forward knowledge of marketing activities, e.g. 12 months and ensure they are a fixed part of S&OP.

Is there anything worse than advertising on TV or in an IKA magazine and not having the stock available for sale? Grounds for divorce if you ask me.

Image courtesy of Nuttakit / FreeDigitalPhotos.net

Tags: Brewing & Beverages, FMCG, Dave Jordan, Pharma, Forecasting & Demand Planning, Inventory Management & Stock Control

FMCG/fast food ABC stock holding - do you want fries with that?

Posted by Dave Jordan on Sun, Mar 24, 2013

People who work in fast food outlets – I really cannot label them as restaurants – must have specific training in dealing with non-standard orders. Can you imagine the temptation to groan when in a crowded outlet someone asks for a Muck Chicken Burger but without the usual mayo and salad?

Or worse still, the guy at the front of a mile long drive-in queue asks for a Big Muck Burger but without the bread bun – I have seen this. Quite why you would want a burger without the bun I have no idea but it is the order so on both occasions the well trained staff groan internally and then advise that this will take a few extra minutes.

The groan ripple then reaches the preparation area where a special non-standard ticket is picked up and acted upon by a “chef”. Instead of continuing the slick production line rolling out the fast moving standard menu items, someone has to specially cook and prepare something that is not on the menu. The burger-less bun is probably relatively easy to serve unless the customer is a coeliac where even a trace of wheat will result in an urgent bathroom search.

Inventory and stockWhat about the Muck Chicken Burger? Would they dare simply wipe the mayo and associated goo off a standard burger? I doubt this, so a special has to be made and this is then sent to the counter with special wrapping or a flag on a cocktail stick. There are so many potential variations that it would be impossible to "make to stock” so in this case “make to order” is correct.

In FMCG/Brewing/Pharma there is a similar logic in terms of sku availability. Those skus that sell in large volumes and generate high margin should always be available. Going out of stock on an “A sku” is unforgiveable. Where possible such skus should be produced frequently e.g., weekly or even daily depending on your sector.

Those “D skus” which are slow moving and generate little or even negative profit can afford to go out of stock at times as they are relatively unimportant to you. If they are absorbing some fixed cost element then ok they have a role but they will not make or break your results. Where space exists you should produce and store higher stocks of these skus reserving factory flexibility for more profitable output.

Of course, this will lead to a higher stock value than you might desire but it is right for customer service. If your current stock policy calls for the same cover for all skus then you might consider a growth promoting review and adjustment.

Have a nice day!

Image courtesy of Marin / FreeDigitalPhotos.net

Tags: SKU, Dave Jordan, Performance Improvement, Inventory Management & Stock Control

Big name FMCG/Drinks brands; the risk of car boot sale retailing

Posted by Dave Jordan on Thu, Mar 21, 2013

I regularly rattle on about how poor sales forecasting or dire planning or the absence of S&OP causes untold grief to FMCG, Brewing and Pharmaceutical companies. Of course, these failings and many others certainly result in lost sales, write offs, delays and ultimately a simple waste of money. When such failings are repeated and senior management fails to take remedial action then you can add end of career to the list of likely outcomes.

If, and it is a ridiculously big if, companies had near perfect planning then they may indeed increase turnover and edge up the bottom line but they will make a huge number of people redundant. I’ll let that sink in for a bit as it is quite a statement.

Like hyenas waiting for an injured wildebeest to succumb and become lunch there are a large number of parallel business disposing of blue-chip company mistakes. Disposal or Residual Stock Management companies exist to minimise the impact of poor extended supply chain performance. Failed promotions, over ambitious launch targets and warehousing issues such as lack of FIFO push your pampered brands into outlets and even countries you would prefer to avoid. If you are lucky you will recover your costs but expecting any kind of normal profit is being overly optimistic.

S&OP lost salesTo cap it all, it is usually the Supply Chain team who are suddenly responsible for making the disposal. “Disposal” is selling stock for cash so why doesn’t this come under the sales department?

How about linking such losses with bonus payments. Whether you consider disposal to be sundry sales or real turnover the bonus basis calculation might be:

Monthly turnover – Full sales value of disposals = your actual achievement

All the effort that has been expended converting raw materials into branded finished product is wasted. Additionally, once you decide to move some stock out cheaply you need to divert some of your staff to do a job which is likely to have a negative impact on results. Yes, you will save on the cost of destruction or land fill but the main damage could be in the devaluation of your brands through regular appearances at discount shops, car boot and garage sales!

Back to the redundancies statement. You may argue that any jobs lost in the disposal businesses would be compensated by your own recruitment but in today’s economic climate the larger companies will simple place greater burdens on existing staff. That’s life but an opportunity exists, nevertheless.

Wouldn’t it be a lot simpler if you spent some extra time and effort sorting out your S&OP and forecasting problems?

Image courtesy of Renjith Krishnan/ FreeDigitalPhotos.net

 

Tags: Brewing & Beverages, FMCG, Dave Jordan, S&OP, Forecasting & Demand Planning

Get your teeth into FMCG Demand Forecasting & Customer Service

Posted by Dave Jordan on Mon, Mar 18, 2013

Is anybody good at forecasting? Meteorologists have had centuries of trying and still the weather catches us by surprise. I think this is particularly so in UK where weather related discussions are an important part of daily life. If people paid no attention to the weather then it would not be such a shock but it is top of mind in UK and my theory is that is why the UK is perceived to have the worst weather predictors. Remember Michael Fish.......

ForecastingFootball match results are hard to forecast as there are so many variables. What if the star player gets injured? What if heavy rain makes the pitch difficult to play on? Every year cup matches throw up unexpected results when part-time minnows from lower leagues beat the mighty giants of the top division. Who can forecast that?

How many Romanians will move to UK in 2014 is currently a high profile forecasting debate. I have seen figures from 7½ people to almost 5% of the population. In the latter case you can expect to see a fleet of Airbus A380's stacked above Otopeni airport.

What about FMCG?  Companies spend millions on trying to improve and then maintain forecasting quality. Consumer habit studies tell producers how much product is used or consumed in homes and outlets. Market research helps to define the optimum formulation or colour or packaging that will delight consumers. Sales and marketing predict the effect of advertising campaigns and promotions. A lot of time and effort goes into trying to develop a reasonably accurate forecast and many companies still struggle to achieve decent figures.

Then there are dogs.

The same consumption studies are carried out as above but how do you know how many dogs are in your universe? Some countries do have regulations and licencing for domestic pets but most do not. Dog licences in UK were abolished in 1987 when the cost was a meager 37p! Certainly, Romania does not have such a scheme so how do pet food producers know how to forecast demand here? Many dogs are owned as pets or for security but I suspect the number of stray dogs is in the majority. These stray dogs all seem to survive so somebody must be feeding them something but what a challenge for pet food forecasters.

The point is that producers may not be seeing the real demand and therefore forecasting will always be poor. Do you see the true unadulterated demand in your company?

  1. Do you sell what you have in stock rather than what customers actually want?
  2. Is your Customer Service measure honest? Is it measured against pure customer orders?
  3. Is the wrong function recording and reporting Customer Service performance? Keep the team honest by segregating duties.

If your Customer Service measure is riding high yet you are not seeing expected growth then take a close look at Customer Service measurement.  If you are not seeing gross demand then you are missing out on a significant top and bottom line improvement.

Don’t let your company go to the dogs!

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Tags: FMCG, Dave Jordan, CEO, Performance Improvement, Supply Chain, S&OP, Forecasting & Demand Planning

FMCG CEO, GM & MD’s: How good is your S&OP? Take this test.

Posted by Dave Jordan on Thu, Mar 14, 2013

While you are tackling your day to day routine of crises, meetings, strategy and more while fending off the results pressure from global HQ you often lose a grip on the reality of how your company is operating. Creeping inefficiency can become the norm as you are so engrossed in driving the business forward.

S&OP CEO TestThe local company culture could be so strong that you might only see this from an outside perspective. This is rather like an executive who leaves a company and only then can see how inefficiency was directly contributing to unhealthy stress. You need to take an unbiased view of the reality with which you attempt to delight FMCG, Brewing & Pharmaceutical customers and consumers.

Take this simple test from your perspective as a CEO, GM or MD and get a reality snapshot of your company Sales & Operational Planning (S&OP) health and efficiency.

Do you need S&OP or an S&OP revamp? Does your organisation suffer from the following symptoms? 

S&OP test for Leaders

If you answered “yes” to all 10 questions, then very well done but I bet you didn’t! The likelihood is that there is a sprinkling of straight “no” and “don’t know” answers. If you fall into this category then you are staring at an opportunity wholly within your direct control and in your own personal and corporate interest.

You can find out more about S&OP here. If you feel an external perspective would be wise then a Walk Through of your company S&OP deployment would be inexpensive when you consider the speed and size of the pay-back in top and bottom line improvement.

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

 

 

 

Tags: Customer service, Dave Jordan, CEO, Performance Improvement, S&OP

FMCG/Brewing parallel and counterfeit trade: Shades of greys

Posted by Dave Jordan on Mon, Mar 11, 2013

Probably sitting at number 2 in the excuses offered when sales did not happen as planned is parallel or grey trade. Without doubt greys, “passing off” and counterfeits can have an impact on FMCG  sales but I was surprised how they only became significant when sales bonus targets were not achieved. Sales not going well? Drum up a story about greys flooding your market.

Counterfeits are simply illegal copies of quality brand names. Increasingly they are more and more sophisticated and recognition is now longer a check of the bottle mould stamp or a sniff of the fragrance. Despite co-ordinated attention from multi-national companies, well equipped underground factories still exist to rip-off brand owners and consumers.

Passing-off an inferior product by making it appear to be a top brand is also potentially illegal but often takes time to prove a case. When a product is called Tipton Tea in a yellow box it is clearly an attempt to steal consumers who are not vigilant. However, if the tea was from Tipton how do you persuade a judge to rule in your favour if the artwork is not identical?

FMCG CounterfeitsBack to greys or parallel trade. This is genuine product being sold in a territory for which it was not meant. The quality is fine and multi-lingual packs mean the instructions for use are available. Oh, and they are cheaper than what is normally available. Grey sources can be a distributor in another country sending stock over the border with a bulk discount at month end – a sort of shifty shades of grey!

The real problem arises when there is nothing shifty about the origin and there is no discounting or margin misbehaviour. Someone can get the same product in to your market at lower cost than you can and consumers do not care whose bonus they are affecting. Instead of moaning and groaning about greys why not take advantage of this learning opportunity as someone can do it better than you, deal with it!

Assuming the source cost ex factory and distributor margin are consistent then you should study your arrangements for transport, warehousing and Route To Market distribution. Get your Supply Chain people onto this and fix the problem. If distributor margins are causing the greys then that is a sales issue, i.e. self inflicted sales pain.

If you are the CEO do not be seduced by the sales message that there is nothing you can do about greys - this could cost you your job!

Image courtesy of Criminalatt / FreeDigitalPhotos.net

Tags: Route to Market, Dave Jordan, Performance Improvement, Forecasting & Demand Planning, Sales

Supporting S&OP & pre-historic factory managers

Posted by Dave Jordan on Thu, Mar 07, 2013

Back in the murky depths of time before the birth of humanity and Supply Chains, only dinosaurs roamed the Earth. Fighting and killing their way around the bubbling, steaming globe before an asteroid cut short their existence, allegedly. Sharks, crocodiles and the humble tortoise are just a few of the species that remain from that period in ancient history.

I can cope with the theory that the sharks and crocs were underwater predators, cold blooded and did not need the sunlight but what about Tommy the tortoise? Hardly the most threatening of creatures. Anyway, there is actually one dinosaur which still roams the planet in surprisingly high numbers. You would not recognise them as dinosaurs as millions of years of development and change have passed but nevertheless they walk amongst us.

S&OP in FactoriesMany of the species have adapted to continuous change but others remain uncompromising, aggressive and lonely figures. No hunting in packs for this beast that avoided fossilisation and subsequent digging up with a small spoon and a paint brush by a man in a brown nylon kagool on day-time TV. I refer to the breed of autocratic and dictatorial Factory General Manager (FGM) – with emphasis on the “General”. I have reported a sighting only this week from within an FMCG/Brewing/Pharmaceutical business.

Nothing happens in their domain without the decision and direction coming from the FGM. All activities are focused on making the factory the slickest, cheapest and most efficient source for their product range. TPM, Lean, TQM and other initiatives are designed to continuously improve the factory operation and in many ways, rightly so.

What is wrong with this? Sounds like a standard approach? This is certainly what an FGM should be doing but the key element missing is internal customer service. All decisions are internally driven and not in support of the Marketing & Sales (MSO) activity. The MSO diligently develops a monthly forecast and a 6 month+ forward plan within S&OP but all that effort is then wasted as the factory does what it believes is right for the manufacturing operation.

If your company fails to attract and delight consumers then having a Rolls-Royce factory becomes irrelevant. And if volume drops substantially you could find yourself with a redundant FGM in a redundant factory.

The challenge and appropriate behaviour is to accept the plan as the best indication of what will happen in the market and then align the factory operation behind this. No, of course the MSO forecast will be wrong as it is really just and educated guess but by responding to the market demand rather than factory efficiency the company will have the best chance of in-market success.

Factories that continue to operate with a narrow minded, internally focused approach will soon end up alongside the dinosaurs.

Image courtesy of Popover/ FreeDigitalPhotos.net

Tags: Brewing & Beverages, FMCG, Dave Jordan, Performance Improvement, Manufacturing Footprint, Supply Chain, S&OP

Sales & Operational Planning (S&OP): From Chaos to Cruise Control

Posted by Dave Jordan on Mon, Mar 04, 2013

You could hear the groans around the room when the CEO announced to the company that they had decided to finally implement Sales & Operational Planning (S&OP). Enchange was asked to facilitate the implementation - no, they were not groaning at Enchange! The groaning was partly generated by previous failures at S&OP introduction and the misconception that S&OP means more work.

The previous attempts at implementation were not well structured with meetings having far too many attendees for decent debate and decision making. These mass meetings could take up a whole day and run into the next on occasions. A complete waste of time and resources and in this context you could understand why staff associated extra work with S&OP.

S&OPMeeting dynamics made the UK Prime Ministers Question Time look like a well behaved school for nuns under a vow of silence. All basic meetings within S&OP were crammed into one disorganised rabble of a meeting. A gang fight, a rugby scrum and January sales all rolled into one.

The Finance guy would ignore all protestations and insist the monthly forecast must be exactly equal to the volume and financial number in the annual plan. The planners would double guess demand as there was no forward forecast or reliable history. The marketing representative arrived late, left early and his contribution was miniscule - when an empty lift arrived at the floor the marketing guy stepped out! The salesman present did not really know why he was invited as he had nothing to do with supply and maintained a bemused frown that said “I’m a salesman, get me out of here!"

No, not good.

Introduction to a series of meetings with different objectives, data input/output requirements and actions was never going to be easy. Some heads needed banging together and some egos needed to be massaged but slowly but surely the semblance of a functional S&OP was ground out. Discrete meetings for demand and supply planning, NPD/innovation, Finance and pre-S&OP were inserted in diaries 12 months ahead and rolling. Meaningful minutes and actions were issued and blame-storming reduced as team members realised the value and purpose of S&OP.

The Board S&OP meeting was a short session where the decision makers helped the junior team overcome issues and challenges before one set of numbers were fixed and everybody worked towards the shared target. 

The biggest revelation of this often painful implementation exercise? Work load DECREASED significantly as people worked more efficiently on what really mattered to the business and not what was best for their department or themselves.

Psst, note to CEO’s only – the company in question actually reduced staff and increased sales!

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Tags: Dave Jordan, CEO, Performance Improvement, S&OP, Forecasting & Demand Planning, Cost Reduction

Let us dance to Supply Chain

Posted by Stefan Cucu on Fri, Mar 01, 2013

Our guest blogger Stefan Cucu returns with a blog about dancing......

Every year on my father’s birthday we eat the same cakes and say the same things. The things that are common but very important, e.g. the family and health.  Then father blows out the candles and then comes the fateful question: "what work do you do now, my boy?". My response, "well ... I work in Supply Chain" makes him think and then he scans around the room short of speech and suddenly lights up and says "yes, that is all about trucks!”. Then one of the aunts corrects him "No Mihai, Stefan is in sales".

Move action on now and we are in an important Supply Chain conference organised by
an IT business solutions company with a fine reputation. They have invited Mr. Daniel Glaser-Segura, famous professor at the University of San Antonio, Texas to speak. He is charismatic and speaks a little Romanian. His conference speech was exceptional. It was about changing paradigms in business and amongst others, in Supply Chain but also about Romania's position in what is called global competitiveness. From the slide presented, Mr. Segura indicated Romania is bad in this regard so I pursued the topic.

Romania_SupplyChain_StatusI discovered something called "Global Competiveness Report" published annually by the World Economic Forum: http://www.weforum.org/issues/global-competitiveness. If you position the mouse in the right place Romania will appear at 78th out of 144.  It is very poor, especially if we look at our neighbours in traditional comparisons, i.e. Bulgaria and Hungary (60,62 respectively). Greece is at 96, but they deserve it, don’t they!

However, if you dig further to understand the difference to the leading positions, after you eliminate the state & government unprepared lessons, you will see that local industry is also in trouble.

In the full report in section 11.05 there is comment about value chain breadth. We are talking about many local private companies. Well, here we are at position 103!  It is refreshing now to think that I work in Supply Chain despite my father`s advice, who installed refineries across multiple continents, speaks perfect English and still believes the petrochemical business is the most profitable.

Finally, I remember a local company manager, who said that a Supply Chain Director deals with finding the "chemistry" that links the company in a single dance (but he did not want to introduce S&OP.... ). I keep in mind the 24th of January where a TV programme showing Romanian politicians performing the Romanian Union dance wonderfully. We are bad in Supply Chain but good at dancing and chemistry.

 

Read the Romanian version here.

Image ccredit: www.ziare.com

 

Tags: Humour, Performance Improvement, Supply Chain, S&OP