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 Supply Chains: Searching for the next “big thing” – it’s here!

Posted by Dave Jordan on Wed, Jul 27, 2016

I had an informal discussion with a small group of FMCG Supply Chain VP/Directors last week. I well remember the occasion as it was the day UK had its annual summer but the discussion was memorable for more than that fact. After rushing back to base in the inevitable evening rain with my briefcase as the only shelter I wrote out some notes from the session and they worried me.

Supply chains have moved on a long way from the early days when bits and pieces from other usually incongruous functions were glued together to form a nascent coherent function. I cannot list the huge number of initiatives that have taken place in the intervening years but some global supply chains are so slick that even sales people are almost impressed! Not all new ideas resulted in sustainable changes but some of the more obvious candidates like S&OP, corporate buying, ERP deployment and 3PLP partnerships have more than earned a return on the investment.

Unfortunately, you cannot stand still and supply chains everywhere are continuing to eke out incremental improvements in some of the more mature cases or substantial step changes in those less developed. Some companies clearly have plenty of scope for improvement but what about those who are at the top end of the Gartner Oscars list?

Is there anything left for Supply Chain VPs and Directors to achieve? Has all the cutting edge, innovative stuff happened? Are there really no more storming, monster initiatives coming over the hill? Is this as good as supply chain is going to get?

Talking of monsters, let me go back to the senior group discussion I mentioned at the top of the page.  S&OP and its younger sibling Integrated Business Planning have stabilised virtually all of the major multinational supply chains. Bringing a degree of discipline across all functions and a smaller improvement in sales forecast credibility has helped companies squeeze positives in top and bottom line performance.

Heavy investment inFMCG_Supply_chain_analytics_inventory_stock.jpg ERP upgrades have added a degree of financial rigour and reliability to businesses although the underlying thought is that even now, nobody really gets value for money from those slick and shiny IT packages.

I can imagine all these hungry supply chain executives searching for something that can make a lasting difference. You know what? They are standing there while it’s raining soup but they’ve all got forks!

The one area which has been largely untouched by the various supply chain initiatives and IT tools is inventory. Boring, boring stock levels; the planning manager’s crutch, the sales manager’s obsession, the working capital bane of management finance managers lives.

You may argue your stock is under control. The level is the right number of weeks cover. The value is at or below the annual plan targets. Even the number of pallet spaces is on track at the 3PLP warehouse. All highly likely but are those stock levels really supporting the business or simply just propping it up? 

Look carefully and I think you will find it is the latter. Inventory will not be aligned with precise market activation and selling out plans and is therefore stifling rather than facilitating growth. All the numbers may apparently support the business objectives but look closely and you are likely to find very little science in how forward stock cover is defined and specifically by SKU.

There is a solution. A sensible low cost solution that works and tellingly, it has been designed by supply chain experts for supply chain people!

Put your forks away and read about SupplyVue supply chain analytics. This works!

Image courtesy of Ohmega1982 at freedigitalphotos.net

Tags: FMCG, S&OP, Inventory Management & Stock Control, Supply Chain Analytics, Integrated Business Planning

2 issues to address before you can optimise inventory.

Posted by Michael Thompson on Wed, Nov 25, 2015

Inventory_optimisation_issues_fmcg.jpgIn my last post I dealt with the long-standing issue of inventory optimisation and some of the reasons that many organisations are still struggling with it. If it was just left to a technical challenge, optimising an organisation’s inventory, whilst never straight forward, would at least be doable to an extent.  However, we are dealing with people in organisations; often many people and each person has an opinion, an ego and a career to protect and progress. In working on supply chains for well over 20 years, I have found that many of these people issues can get in the way of sorting things out and this includes with respect to inventory optimisation. So here is my recipe for the two that must be addressed before any organisation can optimise its inventory. 

  • Cut out the blame.  Nothing quite lends itself to blaming others than the causes or perceived causes of poor inventory management - too much, too little (stock outs), never the right amount to satisfy anyone. Whether it is supply chain management ("if only we had a decent sales forecast"), sales management ("why can't the planners give us enough stock?"), purchasing management ("we should order more or we will be blamed again when the stock runs out") …. and so forth.  A decent Sales & Operational Planning (S&OP) process can cut through a lot of the blame culture but sometimes this is only a start. Something else is needed.
  • Stick to the facts.  I have found that the single most effective way to cut out blame is to stick to the facts. At its most basic every supply chain management team (or S&OP Team) needs a decent set of supply chain KPIs or metrics. These can change an emotional exchange (at a pre-S&OP meeting for example) into an objective decision making process.

Sometimes, however, we need something more. If it was just down to a decent S&OP process supported by KPIs, inventory optimisation would be much easier than it is in practice. This something else, I have found, can be a deeper and more thorough analysis, sometimes referred to as supply chain analytics.  I will deal with this in my next blog with a real example. In the meantime, please do share your organisation’s inventory story.

Image courtesy of Ambro at FreeDigitalPhotos.net

Tags: Michael Thompson, Inventory Management & Stock Control, Supply Chain Analytics, Integrated Business Planning

3 reasons why multinationals are still struggling with inventory

Posted by Michael Thompson on Wed, Nov 18, 2015
Last week I had another chat with a client about inventory.The essence of the client's problem was - "Why can't we get our stock right?  We either have too much …. or run out … and we have just spent a fortune on a new IT system …."

Sound familiar? I have had variations of the same discussion dozens of time and it boils down to this for most manufacturing-based organisations:

  • Inventory_stocklevel_supply_chain_question.jpgDo they know the ideal level of inventory that will deliver their target service levels?
  • Do they know what needs to be changed to achieve these targets?
  • Do they really understand what is actually happening with their supply chain? 
If they are honest, often the answer to at least one of these is "no". In the last 10 years or so, despite investments in sophisticated systems, there are still huge opportunities to improve supply chain performance, particularly for large global supply chains. Why is this? I believe that there are three reasons:  
  1. Poor Diagnosis.  In efforts, often motivated by internal politics and attempts to apportion blame, there is an incorrect diagnosis of poor performance.  Root cause is not always if ever addressed.  For example, the forecast is often blamed - “if only we had a decent forecast …”. In reality the issue often lies within the supply chain processes, incorrect supply chain policy, the set-up of the IT systems or how the tools are being used.
  2. Complexity.  Managing supply chain complexity, especially for multinational organisations, is a real challenge.  Many operate in 100’s of markets around the world, have a factory footprint of dozens of factories, 100’s of warehouses and serve 100’s or 1000’s of direct customers.  To protect themselves, supply chain managers in these businesses are buffering supply chains with inventory and lead-times.
  3. Complex IT Projects.  Often large IT projects (e.g. SAP/APO upgrades) automate traditional ways of working.  This can result in little improvement or sometimes things are made worse with increased noise and nervousness in the planning processes.

So what is the solution? I believe that before a ‘technical solution’ can be found (and there is always a technical solution), certain internal issues need to be addressed. I will deal with these in my next blog. 

In the meantime, please do share your organisation’s inventory story.

Image courtesy of niamwhan at FreeDigitalPhotos.net

 

 

Tags: Michael Thompson, Inventory Management & Stock Control, Supply Chain Analytics, Integrated Business Planning

FMCG IBP Team Behaviours: Wrecking Market Deployment

Posted by Dave Jordan on Wed, Oct 28, 2015
Over several years I have been involved in many Integrated Business Planning (IBP) meetings as a facilitator, observer or participant. Every IBP process is rightly different in every company and sector, e.g. FMCG, Pharma, Agri but the basics essentially remain the same.
  • IBP is a collaborative cross functional process that engages all functions to produce an integrated set of plans that all are committed to support.
  • The purpose is to balance demand & supply in the extended supply chain.
  • IBP is performed periodically – monthly or weekly cycles.
  • IBP aligns operational plans to high level business & strategic plans.
  • IBP can be implemented at a market, regional or global level.
  • At its core is a single set of numbers for the entire business.
  • IBP uses standardised processes, calendars of events & meetings, data and information requirements plus Key Performance Indicators.

Some meetings in the IBP cycle are deadly serious affairs with strong and controlling leadership while others are jollier with team members encouraged to throw in the odd guffaw in support of team bonding and morale. I personally prefer the latter as you tend to see far less use of damaging WMD – Wrecking Market Deployment – ordnance (yes, check the spelling if you must!).

What sort of morale, process and performance wrecking ordnance can be seen in the worst examples of an IBP process? Here is a selection:

Delayed Action Information Grenade – usually deployed after 20.00 on the evening before an important IBP meeting. Deliberately timed to provide no opportunity for debate or analysis before the information is revealed to the wider team. Usually aimed into a neighbouring silo and accompanied by the defensive “but I sent you an email” and much useless debate.

Blame Thrower – As the name suggests this weapon indiscriminately apportions blame to anybody but the person delivering the accusations. The usual outcome is that the deliverer is really the one to blame and this tactic is used to divert attention from their own failings.

Bouncing Bomb – This is deployed far in advance of the meeting with the full awareness that a problem is coming and the knowledge that this will explode much further down the process when it causes maximum disruption to the business.

Err to Err Missile – A lethal weapon which fails to correct known faults within the process and sees them repeated time after time. Eventually the error, whether data or behaviour, can become embedded thus consistently undermining performance.

UxB or Unexpended Budget - a passive weapon brought to the table by Sales and Marketing colleagues. Plans built on a certain level of market support have no chance of success when budgets are cut after business planning decisions have been made. Usually results in excess stock, lost sales and ultimately, write offs.

Unclear Bomb – Perhaps the most terrifying weapon of all and although deadly it is in frequent use in FMCG, Pharmaceutical and Agri IBP processes. This bomb is commonly deployed when participants have not adequately prepared for their part in an IBP meeting. A lack of clarity in data interpretation and the resulting information undermines the process and in-market performance.

There are many more weapons able to cause mayhem and disruption in IBP processes and they are used by all involved departments. Success comes only when the weapons are permanently decommissioned and people start to “prove people right” rather than work hard to prove them wrong.

Image courtesy of Ambro at freedigitalphotos.net

Tags: FMCG, Dave Jordan, Pharma, S&OP, Agrochemicals, Integrated Business Planning

FMCG: Driving success through Integrated Business Planning (IBP)

Posted by Dave Jordan on Wed, Sep 30, 2015

The sun is shining high in the sky and you are driving your Volkswagen Golf Cabriolet 2.0 TDi with the top down on a six lane highway. There is a long drive ahead for you and your three friends but with this car on this road things should turn out fine. The only emissions you are bothered about are coming from the quadrophonic surround-sound speaker system.You can see far ahead down the highway into the distance in the direction of your objective. You can see all the potential hazards in good time from your comfortable leather bucket seat. Traffic is starting to build up but you are ready and move down the gears gently before the road clears and you equally gently depress the accelerator and resume cruising. You can see a bumpy stretch of road ahead and position the car so the hazard disappears directly between the front wheels of the VW causing nil discomfort for those on board.You can see the policemen ahead with a radar gun and you diligently slow down and adopt a speed 1 click below the limit. You even give the officer a jaunty wave and onwards you drive. Ahead is a hazard caused by a broken down lorry so without any desperate braking you indicate early and move into the next lane to pass the vehicle that is not going anywhere soon.Your passengers are relaxed, comfortable and enjoying the ride. You are approaching your destination and looking forward to successful evening at the beach.That is how your FMCG S&OP or Integrated Business Planning (IBP) process should look. Planning and executing your actions in good time and well into the future. Perhaps this is how your process works?The same VW, same driver and passengers, sun, road and the same destination objective. Instead of relaxing back into the leather you are gripping the steering wheel like it was about to fall off. You are leaning forward in the seat looking at the road directly in front of the bonnet/hood (delete as geographically appropriate). Every single stone or bump or holes felt by the passengers as you try to avoid driving over hazards that present themselves at the very last second before they slip under the tyres.

Seeing everything so late you are lurching the car one way and then the other making the passengers uncomfortable and probably a little concerned. Clearly, you are not incontrol of the vehical or your destiny. Looking just over the bonnet at the road surface you also miss the broken down truck in the near distance and smash into the rear at speed. You and your company are having a terrible journey and you do not achieve your objective. You missed the radar gun earlier and now have a hefty fine and penalty points on your licence.Following a rigorous IBP process allows you to plan your innovation, promotional and routine and tactical sales activities in good time ensuring everyone is on board and knows what they have to do well in advance.

If you recognise your company in the chaotic driving example then you have quite an opportunity!Image courtesy of Bill Longshore at freedigitalphotos.net

Tags: FMCG, CEO, S&OP, Sales, Integrated Business Planning

FMCG: S&OP morphing into Integrated Business Planning (IBP)?

Posted by Dave Jordan on Wed, Sep 23, 2015

I speak to many FMCG companies who tell me they do not need Sales & Operational Planning in their businesses. As a formal process they may not be operating to S&OP norms but if they are getting their products onto shelves then some form of S&OP must be in place. This may not be optimum or efficient but at the end of the day their products are in front of consumers and ready for purchase or not, depending on how successfully your sales and marketing colleagues have stimulated the market.

This leads me to a frequent problem with S&OP – the name, not the process. Reluctantly sales people do get involved in S&OP process but in my experience they have rarely bought into the idea 100%. Nevertheless, they are there at the meetings and they are sharing data and information etc.

To everyone else in a company the “operational” term usually applies solely to those continually moaning Supply Chain types and sometimes in Finance. Colleagues in all other functions including marketing frequently do not see themselves as part of this process yet it is the lack of rigour and discipline in these sales supporting roles that undermines business performance.

This is why I increasingly prefer the term Integrated Business Planning (IBP) as it covers the whole company plus there is no “and” in the process name. The latter point may seem trivial but S and OP triggers a “them and us” mentality whereas there is no debate about the IBP process. We are in this together (not in the current UK government way) including HR who play the important role of providing the right people and the right training opportunities in order to support the overall business objectives.

The use of IBP does not change the objectives of the process significantly but perhaps the benefits are more clearly defined:

IBP helps to transform planning from a boring must-have into a decisive and continually improving competitive advantage by fostering one integrated planning platform across sales, marketing, supply chain and finance and yes, even HR:

  • A clear and unambiguous understanding of business performance drivers.

  • A dynamic understanding of the financial impact and interdependencies of different planning scenarios.

  • Optimisation and balance of the monthly business plan with longer term strategic planning and identification an allocation of skilled resources.

  • Balancing planning for profitability or volume or growth as per the business need.

  • Unambiguous quantification of financial risk and opportunity of planning scenarios.

  • Continually increasing business flexibility and surety of success.

  • One company working as one team.

Of all these desirable benefits the last is the one you really need to pursue. If you get this working within the framework of an IBP you will be hard to stop in the FMCG marketplace.

Image courtesy of Sheelamohan at freedigitalphotos.net

 

Tags: FMCG, S&OP, Forecasting & Demand Planning, Sales, Integrated Business Planning

FMCG: Free Sales & Operational Planning (S&OP) e-Book

Posted by Dave Jordan on Wed, Feb 04, 2015

Whether your deployment of Sales & Operational Planning (S&OP) is as solid as fine old Cheddar or is more like Emmental after a rodent rampage, you will benefit from this free e-book. The Enchange S&OP e-book tells you what S&OP is, what S&OP does, how S&OP works, how S&OP can go wrong and how to evaluate the efficiency of your deployment. The book will also tell you what it feels like when you get it spot on!

As ever, there is always a little fun included so we expect you will be singing along to our very own S&OP song very soon.

You can download the FREE Enchange S&OP e-book HERE.

Visit our website for more FREE resources on everything Supply Chain.

Click to complete our contact form and send us a comment or a question.

Enchange – Improving Supply Chains every day, everywhere!

FMCG S&OP FREE E BOOK resized 600

Image courtesy of ddpavumba at freedigitalphotos.net

Tags: FMCG, Dave Jordan, Humour, S&OP, Sales, Integrated Business Planning

FMCG Foods Turnaround: A highly successful S&OP Case Study

Posted by Dave Jordan on Wed, Jul 23, 2014

I know I am prone to rattle on about Sales & Operational Planning (S&OP) but seeing the benefits being delivered to previously struggling business is extremely motivating for a confirmed “techy” like myself. If only we could advertise such successes we would be able to find and help other business in need of an S&OP boot camp or some S&OP tender loving care. Here I attempt to highlight how one such business went from a boat up a creek without a paddle to a cruising, ocean going luxury liner.

The Challenge

Our regional FMCG client did not have any formal planning process and so started from a lowly position on the Enchange Assessment scale which allows benchmarking with the same and other sectors.

  • Demand and Supply Planning forums existed but they were not followed by a formal Finance Review nor any Pre-SOP and leadership S&OP meetings.
  • There was a weekly demand planning meeting that resembled an S&OP meeting.  However, this was a “fire-fighting” opportunity to adjust the current month forecast.
  • The forecast horizon was far too short particularly when considering significant peaks, e.g. Christmas and Easter.
  • Supply and demand were not optimised within the business and, for example, lost sales occurred while inventory was managed on a reactive basis resulting in over and under-stocking. As a result, the business had failed to reach budgeted sales targets for a number of months.

S&OP Case Study FMCG Foods resized 600

The Approach

Enchange designed a low cost 3 month project with largely full time support to implement S&OP in the business. As the project progressed the Enchange support gradually changed from “Enchange runs” through “Enchange facilitates” to “Enchange hands-off”. This enabled the client team to maintain process integrity and leadership at the closure of the project.

All processes and procedures were designed and documented together with new job descriptions. A company-wide set of “recovery KPIs” were created and published in a dashboard format with clearly allocated roles and responsibilities for each.

The Result

The business has been turned around as a result of this project. Budgeted monthly sales targets have been achieved for 6 consecutive months. Amongst many other enhancements the following KPIs have been implemented and are measured monthly:

KPI Measurement

Project Start

Project End

Business plan achievement

60%

129%

Growth over previous year

-15%

+20%

OTIF  

32%

95%

Stock outs finished goods

22%

8%

Stock outs raw/pack materials

>10%

2.6%

Forecast accuracy

27

75%

The Future

Clearly, this company is not yet the finished article but the improvements made in such a short time are staggering. KPIs will require adjustment as the company provides more and more fuel to the sales effort to ensure the performance bar continues to be raised and process complacency is avoided.

If you are reading this and this is not your company and you operate in an FMCG D&E market, one of your competitors just made a step change in market performance! Be afraid, be very afraid.

Image courtesy of renjith krishnan at freedigitalphotos.net

Tags: FMCG, Dave Jordan, Performance Improvement, KPI, Supply Chain, S&OP, Integrated Business Planning

FMCG: Top ten tips for totally terrific S&OP – not a fishy tale!

Posted by Dave Jordan on Wed, Jul 16, 2014

I have travelled quite a lot over the years and tried to add one new country each year until I stumbled at 45. Many were holidays but a majority were on business with very few opportunities available to actually see the place. “Oh, you must be so lucky to travel” – not. During the hundreds of flights taken I have seen some very unusual things aboard aircraft.

S&OP_Top_10_Tips_MrCEOOn one flight in the Middle East the passenger in the business class seat next to me was a hooded falcon. Taking a flight out of Kuala Lumpur I soon realised I was the passenger list and that is a rather spooky situation when you are in a deserted Boeing 747 – service was ok, though. My most frightening experience was seeing man carry a blister pack of craft knives on board!

More recently, I scanned surrounding passengers in that dull period on a 3 hour flight after the inedible food had been consumed and before the hopeful sale of duty free items to see a young girl holding a small, clear plastic bag with a live goldfish inside. How does that happen in these security conscious days? I suppose if the amount of liquid was less than 100ml it could qualify as “safe” to carry on but what if the fish was not really a fish........? Would the fish need a pat-down search? What would be the scale of the risk .....groan.

When you are trying to secure the safety of hundreds of passengers on a plane and potentially on the ground you really do need a set of strict and consistent rules as if one airport drops its guard something significant could be missed.

Similarly, when you are running an FMCG or Pharmaceutical S&OP you need a set of consistent and widely understood rules and measures to get the best out of the process. Ok, so the implications of bending the rules are not usually life threatening in this context but getting this wrong can certainly bring your career to halt and make those nice bonus payments few and far between.

Top ten tips to a totally terrific S&OP:

  1. CEO and senior board buy-in. Without this don’t even bother to start S&OP.
  2. Appoint a process leader who knows S&OP inside out and has gravitas in the company.
  3. Create the role of Data Manager to turn data into information and a facilitate focused actions.
  4. Don’t promote or advertise S&OP as a Supply Chain process or one that it is designed to improve SC performance. Yes, it will but the ultimate priority is higher sales.
  5. Agree and display a set of KPIs that involve all disciplines to motivate co-operation and team working.
  6. Get the right people involved in the meetings – don’t allow people to delegate to junior colleagues.
  7. Get meeting dates in diaries for at least 12 months, rolling.
  8. Insist on personally seeing minutes and action lists; do not let meeting discipline fall away.
  9. Be hard on dissenters and laggards.
  10. Do not stop S&OP or you will end up with a business far worse than when you started.

If you stick to these rules you will be successful and I have now seen this achieved in many disparate environments leading to improved top and bottom lines. No, it is not rocket science but sticking to the rules can make your sales rocket.

Image courtesy of Dan at freedigitalphotos.net

Tags: FMCG, Dave Jordan, CEO, Performance Improvement, Pharma, S&OP, Forecasting & Demand Planning, Sales, Integrated Business Planning