Supply Chain Blog

Fashion Retailers: Is inventory eating into your profits? (It is…)

Posted by Dave Jordan on Wed, Aug 31, 2016

I touched on the problem of expanding UK waistlines a few blogs ago and the topic popped up again recently when I was out and about shopping for clothes – no, not me. This is not as regular an event as it may be for senior management but due to the imminent arrival of a few dry and summery days, I was in need of new shorts and T-shirts.

Nothing special or posy, just bog-standard items that do not have some sort of advertising logo blazoned across for which I receive no payment.  Similarly, I was keen to avoid those that look like someone has been assaulted by an ultimate, all-topping, deep-pan, soft-cheese pizza. Oh, and no fashionable rips and tears, either. Plain and simple and in one “quiet” colour; that’s me.

Fashion_retail_inventory_supply_chain_analytics.jpgIf I look at the internet – it’s all true there isn’t it? – then I am about the top end of average as long as it is not Christmas, Easter or holiday time. As everyone knows, bathroom scales do not work accurately during those periods and clothes shopping then is silly anyway. There started my rare shop for T-shirts and shorts in the medium/large size range. Should be relatively simple I thought as I started to dodge the bodies of the newly pedestrianised high street throng.

Alas, no BHS, no Austin Reed and now not even an Old Guys Rule to replenish my summer wardrobe but plenty of retail options remained. With a spring in my step I activated the soft hiss of the sliding doors and there I was in one of the largest clothes retailers in the game. No names mentioned in case it jinxes the chain and we lose another big name!

The choice in style and colour was good and the racks were very well stocked with lines and lines of T-shirts and shorts. Then the problem hit me. Although I was looking for M or L sizes the only items available were extra small, small, extra-large, XXL and even XXXL! (Don’t get me started on why extra small and XXXL must be the same price.) This was not an isolated case and after checking I realised this was true for the gaudy coloured stuff and the “stylish” pre-damaged items. What is going on?

This may only be a sample of 1 but this major UK chain with several international franchise locations is probably operating with several hundred thousands of Euros hanging on racks with only a small chance of being sold anytime soon. Sizes which fit a large proportion of the population are out of stock (OOS) presenting a huge lost sales problem. And it is not just T-shirts and shorts; have a look at hugely expensive suits, coats and shoes. The same may also be true of the ladies’ fashions but I decided against browsing those racks.

In FMCG, if your Heinz beans are OOS then you pick up HP or an own label offering in the same outlet and it does not really impact on the retailer or the consumer. Not so in clothing retail where alternative options are dotted around the adjacent shopping centres. Seeing multiple Mr. Averages walk out of your store due to OOS while a host of other sizes hang around is just plain daft.

How long does that working capital flap about in the stores eating into your profits? Inevitably, the seasons change and with that the styles adjust. New designs and new ranges are introduced but where do you put them? Eventually, to create space you have to withdraw the S/XXXL stock and either marginally discount it internally or more heavily with a third party.

The problem is not only about having too few top sellers but also about how you plan for the success of the entire size range and avoid over-stocking profit guzzlers. Nobody has a functioning crystal ball but you can apply some clever supply chain analytics to ensure your store inventory is designed for success and not for failure.

Image courtesy of mapichai at freedigitalphotos.net

Tags: CEO, Inventory Management & Stock Control, Supply Chain Analytics, Integrated Business Planning, retail

FMCG – Hunkering down for Supply Chain Analytics

Posted by Dave Jordan on Wed, Aug 24, 2016

Have you ever “hunkered down”? I remember being asked to hunker down during a supply chain training course many years ago and I had no idea what I was supposed to do. Eventually I had to ask as failing to follow the hunker downwards request appeared to be causing a bit of a problem for the presenter.

This hunkering failure occurred during one of the many versions of the Beer Game in which I have taken part or run over the years. Anyone who has been involved with supply chain activities will probably have taken part in the Beer Game, or the Moussy Game as it is sometimes known in dry countries of the Middle East.

What does the beer game do? The rules are relatively simple and in summary the overall objective is to meet consumer demand for cases of beer in a complex, extended supply chain while controlling unplanned expense on back orders and inventory. The game involves four overlapping and inter-dependent supply chains, i.e. manufacturing, distribution, procurement and a retail outlet. There is a cost penalty for holding excess stock and any backlog unfulfilled orders.

Players rely on colleagues in the other departments to do the right things for the business but frustration soon surfaces. Usually, things do not go well and players feel frustrated because they are not getting the results they expect. Assumptions are made about consumer demand and erratic patterns emerge as backlogs mount and/or massive unnecessary stocks accumulate. It was at this stage in the game I was told to “hunker down……….”.

Does that sound like your own supply chain – not the hunkering bit? Frustration is common between departments who all aim to do the right thing but only have the necessary data and information to do the right thing for their specific area of responsibility at that specific time. Even after careful consideration and informed debate, the real effect of an adjustment can only be seen in the future.

supply_chain_analytics_fmcg_inventory_performance.jpgIF - a big if -  nothing else changes and all assumptions are correct and accurate then there is a chance the desired effect will develop. However, life is not like that and certainly not supply chain life. What can happen?

New launches kick-in and are successful, or not.

Competition by definition is designed to disrupt your plans.

The weather turns out rather different to the forecast.

The economy takes a turn up or down.

Factories, 3PLPs and distributors all suffer performance variability.

Customers and consumers change their needs and habits.

Etc., etc., etc., this list really is endless. Absolutely anything can happen to turn apparently sensible decisions into foolish, forecast failure.

Hey, what about all that IT we have? Doesn’t that help us understand what is going on? This should tell us what is really going to happen in supply chains? No, not necessarily. Common supply chain IT tells us what has happened, what is happening, where and when but not precisely why an event happened or what will happen.

Subtle differences perhaps but to up your game you need to hunker down with Supply Chain Analytics to gain a full unexpurgated understanding of how changes you make today will impact the future and more importantly, how you can change that future.

Yes, you can.

Image courtesy of Enchange at Enchange.com

Tags: Customer service, FMCG, CEO, Inventory Management & Stock Control, Supply Chain Analytics, IT

Olympic level FMCG performance or simply distributor over-stocking?

Posted by Dave Jordan on Tue, Aug 16, 2016

Wow, four years have flashed past since the London Olympic bunting was packed away and the metal polish put back under the sink. The 2016 Rio games are well and truly underway and the cauldron flame is alight for the duration.

Over 11,000 competitors from nearly 200 countries and even a refugee team have been getting up ridiculously early to sweat and train at whatever sport they excel. That is a huge number of really fit people who are focused on being in peak condition for a once in a lifetime event that might last less than 10 seconds or several hours.

Taking the 100m sprint as an example; the top sprinters will have 4 opportunities to perform. A combined window of 40 seconds to reflect all that money, time and effort that has been expended to qualify and perform to the best of their ability. What if they stumble or don’t hear the starting gun, drop the baton or worse still, get disqualified?

FMCG_INVENTORY_DISTRIBUTORS_CEO.jpgAll that planning and careful preparation to get to the final of the competition only to be disqualified for being a little twitchy waiting for the starting pistol to crack out loud. Or, sticking your foot just a millimeter into the triple jump plasticine. Hey, don’t worry, there will be another chance for you in Tokyo………

You are not in the final to perform in front of millions of people watching around the world. Nobody will see you perform and instead of your stock rising and attracting more lucrative advertising deals you will be remembered as that poor guy with the twitch or that girl with the too-big training shoes.

Cue segue. The global economy seems permanently stuck in “weak and unpredictable” performance mode with no obvious way out even for the dis-United Kingdom of Brexit. Imagine you are a yellow CEO Pac-Man (do they have female Pacs?) nibbling away at the dots and then getting stuck in a dead-end. What next, nowhere to go, panic, panic! Despite this, many CEOs will be under extreme pressure to “make the numbers”. How exactly? While all this Olympic activity is taking place is your physical FMCG stock rising as we move through the second half of the year?

Despite what sales and finance colleagues will spout, there is a limit to how much stock can you push into your trading channels and this includes International Key Accounts. Coercing (or more likely forcing) a distributor to take more and more stock may appear an easy option but it is an unsustainable action that damages your business in the long run.

At some stage a brave CEO has to say enough is enough and start a period of controlled destocking despite the effect this will have on top and bottom lines. Loading the trade does not happen by accident; you know you are doing it so stop deluding yourself and HQ and do something! Put a stake in the ground that sets the tone for the future.

You may believe that excess inventory means you will never be out of stock or off the shelves but this is not the case. The available stock will inevitably be unbalanced and just when you expect your long planned relaunch to fly out of the blocks and hit the shelf you also twitch and realise you have 9 months’ stock of the old product sitting in distributors warehouses.

What a disappointment. A waste of money, time and effort, i.e. an Olympic gold medal-sized goof and HQ is unlikely to give you another chance in a lot less than 4 years’ time.

Image courtesy of stockimages at freedigitalphotos.net

 

Tags: FMCG, CEO, Distribution, RTM Assessment Tool, Inventory Management & Stock Control

Supply Chain – regular IT to Supply Chain Analytics

Posted by Dave Jordan on Thu, Aug 11, 2016

I am an App-free zone. I have to admit I am not a big App fan but at least I now know what an App is after a lengthy period of ignorant denial. Originally used only by cutting edge, bearded techies (sorry Steve), Apps have become a major part of routine as life seems to revolve around getting more out of mobile phones.

Some of these telephones are more powerful than desktop PC’s and the cameras are certainly as good as mid-range stand-alone versions. In fact, why is a mobile phone called a telephone anymore? The functionality is such a long way from the house brick sized “hand” sets you see on old shows like The Sweeney that another moniker seems appropriate.

Supply_Chain_Analytics_FMCG_PLANNING_PHARMA_IT.jpgWe do not call a modern car a wheel simply because that’s what started things rolling in that technology, do we? Nor do we call our curved, slimline HDTVs cathode ray tubes. Find a new name people!

Apps in industry and supply chain in particular tend to be rather larger in size and far more expensive but do they all do what it says on the tin? Largely, yes.

  • ERPs do bring a high degree of rigour, data collation and transactional integrity to complicated manufacturing and distributive supply chains.
  • WMS systems do provide you with inventory control, performance measurement and stock surety as a basis for excellent customer service.
  • DRP helps you plan the efficient distribution of your finished product.
  • TRP works to ensure your stock is on the move to clients in good time and with efficient fuel and time consumption.
  • APO can certainly help a company improve planning across the extended supply chain.

These and more apps or IT packages are certainly good news for people running complicated regional or global supply chains. While they all have a value and a role to play there is something they do not provide. 

Despite spending millions of Euros in sophisticated and not so sophisticated systems, are there any significant new opportunities to improve supply chain performance? Yes, and here is why:

  • All those increasingly complex IT-led projects have automated ways of working whether they are optimum or not. Generally, this provides incremental improvement at best and with significantly increased variability and caution in the planning processes.
  • The sales forecast is often blamed as the cause of whatever problem is current. In reality the issue lies within the supply chain processes, the set-up of the IT and/or how the various tools are being used in parallel and in tandem.
  • Managing this never ending supply chain complexity becomes the real challenge. Faced with this complexity and increasing uncertainty, planners buffer their supply chains with inventory and lead-times. Inventory becomes that large eared elephant in the room. Everyone knows it reduces free cash and adds unnecessary cost but nobody knows exactly what to do about it and even fewer are brave enough to propose anything.

There really is nothing positive about unnecessary inventory in the supply chain.

The answer? What is needed is better and more accessible data analysis to drive decision making across the supply chain and not in one stand-alone sub function. Decisions need to be taken based on facts and without the emotion or gut feel that is often the default motivation for immediate action.  This is where the App and half that is Supply Chain Analytics can contribute to your business success.

SC Analytics Apps or IT can sit above your existing transactional IT to overcome these challenges and help you ensure all the individual sub-functions are working seamlessly and synergistically. You do not write off your existing systems or put them in a box on a shelf; they all have a major part to play but they would benefit from supply chain analytics help.

Thinking about it, the term “supply chain” actually does reflect the reality for companies yet to operate with some sort of Supply Chain Analytics. Think of a heavy stainless steel chain draped across the desk. Yes, all the functions are indeed joined together but some links are not fully aligned, some lie at odd angles and overlap with others while others are stretched out and only just connect at the extremes. Doesn’t that sound like something that can be further improved?

Maybe the supply chain should actually be the “supply artery” without all the spatial confusion of a chain. The artery would continually supply the precise amount of product required at any time to any location as demand dictates and taking all environmental factors into account. Now, that is an App I would buy!

Image courtesy of Stuart Miles at freedigitalphotos.net

Tags: Performance Improvement, ERP/SAP, Forecasting & Demand Planning, Supply Chain Analytics

Frock Stocks & FMCG Supply Chain Inventory Decisions

Posted by Dave Jordan on Thu, Aug 04, 2016

Senior Management has been on quite a shopping spree over the last few months taking advantage of various big name high street stores that have lost their lustre and even their premises in some cases. The demise of these familiar UK brands has nothing to do with Brexit and the variable value of Sterling but in one case a run on the Green pound has been responsible…..

Of course this has had several knock-on effects and not least the amount of money “invested” in clothes and shoes is now significant and that money is largely sunk - the market for unwanted or out of style apparel being extremely limited. I hate to think how much money is hanging in the wardrobe but that raises a second issue.

The trusty old Grink pine wardrobe from IKEA has reached capacity. As a result, the small Allen Keys have been out causing blistered fingers in order to erect another Grink plus a wall mounted Plop shoe tidy. Another investment to store items that are not in regular use. In fact, if you consider that the vast majority of clothes and shoes are seasonal, at any one time most of the space is taken with things you would not dream of wearing. Fake leather Boots in August? A floral summer dress in December? (NB Northern hemisphere before someone comments!) A Superwoman onesie at any time!

FMCG_INVENTORY_STOCK_SERVICE_CONTROL.jpgWith so many clothes squeezed into the now two Grinks they are so full that finding anything in a reasonable time is difficult. Senior Management might well be correct that there is a perfect dress in there for a particular special event but can you find it? Sooner or later all recollection of what is in the wardrobes has been lost as the memory grey matter section diminishes.

Worse still, fashion trends do not stand still so what was a “must have” last year may be considered an insult to the designer where they to be worn the following season, luvvie!  

So, what have we got and what have many, many FMCG and pharmaceutical companies?

High working capital – all that money tied up on stock that may not be useful.

High storage costs –  you will be paying too much for storage whether you manage logistics internally or outsource to a 3/4PLP. (Don’t expect them to reveal that you are storing too much!)

FIFO - stock age is not monitored and write offs persist. Old stock is not liquidated before expensively assembled relaunches hit the shelves. You do not actually know what is there contributing to ongoing working capital.

High stock shrinkage – loss and damage have a higher incidence when stock is not correctly monitored and inventory levels are kept high – harder to miss.

Stock accuracy - cycle and annual stock counts are difficult to execute and usually provide unwanted shocks at reporting period ends.

Efficiency -  when warehouse capacity utilisation above 80%, operational efficiency stalls and soon plummets. Picking becomes a hazard and the warehouse simply does not have sufficient doors to move goods in and out.

When supply chain processes are inefficient and specifically inventory build decisions are not fully assessed and evaluated, you inevitably overstock as planners do not know what else they should do to protect sales and customer service. Conversely, when this happens you actually lose sales and offer poor customer service.

Does this provide the basis for a profitably growing business? Of course not but so many companies remain oblivious to the processes applied and decisions that are taken that bulk-out the supply chain.

Image courtesy of photostock at freedigitalphotos.net

Tags: Customer service, FMCG, Pharma, Inventory Management & Stock Control, Supply Chain Analytics