Too Little Too Late?
Imagine Manchester City needing 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 gentle underarm until the last over of the day.
What about the building contractor who wins a lucrative 2-year contract to build a new factory but starts work only 2 months before the agreed 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!
See No, Hear No, Speak No
I am genuinely amazed at how many CEOs appear not to see routine month-end peaking and the problems this causes in their companies in the critical Sales & Operations Execution phase. 'Problems' is a true understatement as what is actually happening is:
- Lost sales/profit/cash/credibility
- 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 repeated 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...........
Mind The Gap
A reasonable demand forecasting management tool was in place within S&OP and all S&OP/S&OE meetings were happening as per plan. This only served to further irritate the CEO as S&OP was finally 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 demand
- Week 2 – 15%
- Week 3 – 20%
- Week 4 – 60% with 30% in the final 3 days!!!
Yes, unsustainable!
You might as well give the Route to Market staff the first 2 weeks off on leave as they are not actually doing too much, apparently. Orders are low so logistical movements are few and well within capacity so the Supply Chain would appear relatively relaxed and far from stretched.
Pressure Builds
However, forecasted inbound SKUs continue to arrive and as outbound shipments are low the pressure on space in warehousing slowly but surely builds. By week 4 your warehouse is likely to be tasked to hold 60% of the current month stock plus a very high proportion of the following month forecast. And do not forget those few weeks of safety stock!
What does month-end peaking cause?
- Warehouse capacity is exceeded and costly back-up equipment/storage has to be used. This increases picking and dispatch lead times and inevitably, errors.
- Warehouses become congested making picking and put-away sub-optimal. Fast moving SKUs can no longer find homes on normally accessible lower racks making high-reach truck access necessary. You simply physically struggle to access stock even with the best WMS and best people in the world.
- Ability to move stock for promotional assembly and return is hampered even if the added-value operation is in the same location.
- Transport becomes scarce as demand exceeds contracted capacity and spot transport prices diminish profit and service.
- In an effort to make the magic number, the current month mix forecast is shot and stock identified for the following month is no longer available in the required quantities.
- Lost sales, unhappy customers and demotivated staff.
- Last but not least, safety and security of people and assets are compromised.
Despite any apparent rigour in S&OP, the critical S&O Execution process is a nightmare.
The Blame Game.....
The culprit is not in SC in this case. Nobody expects a 25/25/25/25% routine in the month but consistently asking the team to deliver 60% of forecasted monthly volume 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 in your Supply Chain and Route to Market.
Help! I need somebody.
If you have any Supply Chain or Route to Market problems or opportunities you would like to discuss then please reach out to Enchange.com via telephone, email, or live chat.
