Imagine Manchester United needed to score 5 goals in the last match of the season to win the English Premier League yet they do not start attacking with any intent until the 80th minute. Or the England cricket team needing to take 6 wickets to win a Test Match but bowl underarm until the last over.
What about the building contractor who wins a lucrative 2 year contract but starts work only 2 months before completion date? How about leaving your Christmas shopping until 24th December or doing no revision until a week before your final exams? Oh, hold on, the last two are real life!
I am amazed at how few CEO’s appear not to see routine month end peaking and the problems this causes in their companies. “Problems” is actually an understatement as what is actually happening is:
- Lost sales/profit/cash
- Unhappy customers and staff
- Ongoing disruption to company processes.
A medium sized FMCG multi-national recently engaged me “to sort out those people in Supply Chain, especially in Planning”. Allegedly, they were the culprits for continual lost sales and poor customer service going back as far as the CEO could remember. Needless to say although the SC was not perfect the cause of the CEO’s wrath resided elsewhere.
A reasonable demand forecasting tool was in place within S&OP and all S&OP meetings were happening as per plan. This only served to further irritate the CEO as S&OP was in place after several months of learning curve pain. What was going wrong here? This was:
A typical 4 week month had the following sales pattern:
Week 1 - 5% of monthly forecast
Week 2 – 15%
Week 3 – 20%
Week 4 – 60% with 30% in the final 3 days!!!
You might as well give all your sales staff the first 2 weeks off on leave as they are not actually doing too much. Orders are low so logistical movements are few and well within capacity so the Supply Chain would appear far from stretched.
However, forecasted inbound skus continue to arrive and as outbound shipments are low the pressure on space in warehousing slowly but surely builds. By the time the sales alarm clock sounds in week 4 your warehouse is likely to be tasked to hold 60% of current month stock plus a very high proportion of the following month stock, certainly greater than 60%, plus a few weeks of safety stock.
What does month-end peaking cause?
- Warehouse capacity is exceeded and costly back-up storage has to be used. This increases picking and dispatch lead times.
- Warehouses become very congested making picking and put-away sub-optimal. Fast moving skus can no longer find homes on lower racks making high truck access necessary. You simply physically struggle to access stock even with the best WMS in the world.
- Ability to move stock for promotional assembly and return is hampered.
- Transport become scarce as demand exceeds contracted capacity and spot transport prices diminish profit.
- Bonus-centric sales people desperately try to reach the numbers and sell whatever is readily available to meet their targets even if not in the forecast.
- In turn, the current month forecast is shot and stock identified for the following month is no longer available.
- Last but not least, safety and security are compromised.
Oh, we must not forget lost sales, unhappy customers and demotivated staff who suffer this grief on a monthly basis. They must look forward to quarter and year ends with glee, not!
The culprit is not in SC in this case. The sales halo needs to be taken down and placed in a drawer until they get their collective act together. Nobody expects a 25/25/25/25% routine in the month but asking the team to deliver 60% of forecasted monthly results in only a few days is at least madness and probably incompetence on behalf of the CEO.
Yes, I know all the defending arguments about client cash flow and the desire to operate on low retailer stocks but facing the issue head on will pay immediate dividends.
Image courtesy of David Castillo Dominici at freedigitalphotos.net.