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In previous articles we have looked at what your FMCG supply chain needs in order to be competitive in the market. However, what if your journey is proving difficult to get started and performance is far below expectations?
If your business is operating well and there is even some growth in these testing times then a fairly standard Balanced Scorecard is ideal. The focus is simply on getting your stuff to customers and onto shelves at the right time, in the correct quantity and at the best possible cost. Along with other company measures, e.g. finance, HR, SHEQA, the scorecard shows the health of the wider business.
When all is not going smoothly however, the Balanced Scorecard will benefit from augmentation with other measures. In companies where sales are below expectations, customers are unhappy and cash flow has dried up you need some intensive care focus. This does not mean you stop generating the Balanced Scorecard as this will contain important financial and non-financial measures but you need to place sensors in new, critical locations.
For businesses struggling with sales and tight cash flow here are top ten tips for a set of simple Intensive Care Recovery KPIs:
1. Sales-out. Sales to distributors do not guarantee you a final cash sale to a consumer so focus on the processes and transactions which lead to consumption. Is your business focused on sales-in?
2. Discounts. Control how much discounting is taking place both on and off the invoice. Are discounts authorised in advance and then checked to ensure they are at the correct level?
3. Debtor Days. This is money owed to you so negotiate favourable terms and constantly review. If 60 days terms have been in place for years then isn’t it about time this was challenged? Apply some pressure, even a day helps.
4. Creditor Days. You owe this money but if you upset suppliers they may stop supplying! Renegotiate where possible and do your best to pay on time as you never know when you really need a favour.
5. Overdues. Where money is due to you and has exceeded the agreed payment terms you need a dedicated and persistent ‘persuader’ to get on top of late payers. Do you know your level of overdues at this precise moment?
6. Forecast Accuracy. Do not look at or measure every single SKU. Apply segmentation principles and determine those SKUs which are important and make a healthy profit. Does your current SKU policy reflect a scatter-gun approach?
7. Lost Sales. Investigate every significant lost sale and systematically apply a 100-year fix so mistakes cannot recur. Are your ‘lost sales’ really lost or are some simply delayed?
8. Potential write-off. When cash is tight, this is the last thing the CFO wants to hear. Do you monitor stock-age internally and at distributors to avoid this criminal cash waste?
9. RM/PM stock levels. If you are grossly overstocked, obviously you should not re-order and you might even consider selling some raw materials. Is RM/PM inventory aligned with SKUs identified in tip 6 above?
10. Finished Goods stock. Again, ensure your key SKUs are always available in the required quantities as per S&OP forecast. Promote any excess or slow-moving inventory to generate extra income and minimise potential write-off.
This list is not exclusive but I suggest you focus on a maximum of 10 KPIs or measuring them and then taking action, will become difficult.
In addition to the sensible tight control of discretionary spend in all departments, this approach can stabilise your business and guide you back to a healthy glow without being in the glare of those from Head Office.
Finally, feel free to use any of our contact routes including Live Chat, if you have any questions about how the Enchange Supply Chain House can assist your journey to supply chain excellence.