Supply Chain Blog

Retail Outlet Classification in RtM Strategy, an Essential Element or a Complete Waste of Time?

Posted by Ross Marie on Thu, Nov 01, 2018

Firstly, what is Outlet Classification? It is a process of segmenting every individual outlet, meaning every point of purchase, based on a set of company specific agreed criteria that you will design, e.g. volume, location, consumer profile, footfall, opening hours, engagement opportunity etc. This will then allow you to target specific activities, resources, brands, SKU’s, promotions, metrics, etc., at a specific outlet groupings level. The main benefit of Outlet Classification is the ability to target your product offerings at specific outlet groupings, regardless of who own them or what their retail format is.

fmcg-rtm-outlet-classification

Outlet Classification must not be confused with Channel Classification. Channel Classification, which will be covered in my next post, tends to group outlets together based on format. For example, an FMCG company may service the retail outlets across a country through 4 main channels, Grocery, Convenience, Horeca and Wholesale. These 4 channels may be further split into sub channels, Convenience could be further split into Organised, Mom & Pop, etc. This is mainly based on the format of the stores and who owns them. Outlet classification focuses on specific factors pertinent to your industry and company. It allows you to become much more targeted with your service model. A specific Outlet Classification grouping could contain retail outlets from all channel classifications, but grouped together based on specific consumer profile or location criteria set by you.

Here are some examples of questions you can ask under Step 6 – Outlet Classification:

  1. Do we know all of the outlets in our geography – including name, address, etc? If not, do we have plans to reach the total target universe?
  2. Will we call on the points of sale ourselves?
  3. Will our distributors call on them or will the outlets collect the product?
  4. What percentage of outlets will we cover either directly or indirectly?
  5. What are the criteria that we could classify our outlets under?
  6. On which criteria can we classify using existing data we or our distributors have, and what criteria requires an outlet visit?
  7. Should we classify and visit all outlets, or should we focus on a subset based on a certain criteria?
  8. Do we have the skill set, coverage and resource to do this ourselves?
  9. If not, then is the service available in my market and what are the resource requirements?
  10. Are there options to do a phased on the job classification or is a specific focus and resource required?
  11. Will we have a different approach to dealing with the outlets based on size, total volume, our volume, category volume, share, display, location, accessibility, consumer profile, footfall, opening hours, engagement opportunity, owner vs staff operated, shopper entry, time spent in outlet, potential growth, TM&D opportunities, credit risk, etc?
  12. What will those different approaches be?
  13. Do current key account agreements effect how we may classify/treat/service specific outlets?
  14. What is the timing required to finish the classification?
  15. What are the criteria for assigning call frequencies and resources (people, money, time) based on the classifications?
  16. What are the training needs arising out of outlet classification?

Arguments can be made against Outlet Classification. If you are in a market entry scenario, with limited resources, with established distribution channels, you may decide that Outlet Classification at this stage would be a drain on resources. But if you are a national player looking for country wide distribution, effective Outlet Classification as part of an overall Route to Market strategy could be the difference between winning and losing in that market.

This post is part of my blog series on the 20 Steps to Route to Market Excellence model. One of the main goals of this blog series is to demystify RtM strategy and to provide FMCG leaders with a step by step guide to follow when reviewing or building their RtM plans.

The overall 20 Steps are split into 4 phases, Assessment, Strategy, Design and Implementation. This post focuses on Step 6 ‘Outlet Classification’. This is the first step in the Design phase and would be undertaken after a full review of your current RtM (Assessment phase), and the development of your new RtM Strategy (Strategy phase). You can read about the steps under the previous phases here.

I hope you find this useful, and I welcome any views and comments below. Next week I will cover Step 7 ‘Channel Classification’. Please subscribe to the blog on this page, to ensure you don’t miss the latest updates on RtM excellence in execution and the 20 Steps model. If you would like to know more about the 20 Steps click here.

Tags: 20 Steps to RtM Excellence, RtM Strategy, Ross Marie, RTM, retail, RTM Assessment Tool, Traditional Trade, Route to Market, FMCG, Brewing & Beverages, SKU, promotions

Distributor Assessment Essentials to Deliver Sales Growth and Improve RtM Strategy

Posted by Ross Marie on Fri, Oct 12, 2018

Welcome to Step 3 of the 20 Steps to Route to Market Excellence. You can read more about the overall model and the steps I have already discussed here.

fmcg-distributotor-assessmentThe third step is ‘Distributor Assessment’. Whether you are looking to build a RtM strategy from scratch or review your existing sales and trade marketing execution, assessing the current and/or available methods of distribution is crucial. Distribution in FMCG is typically complex, with many layers, levels and combinations. There may also be local geographic nuances, and/or historical challenges to deal with. You may own and control every element of the distribution network, known as Direct Distribution. You might contract out the distribution to 3rd parties who then distribute on your behalf, also falling into the Direct Distribution category. You may sell to distributors who then distribute on to retailers themselves (or via other intermediary wholesalers or cash & carry’s), known as Indirect Distribution. You may have a mix of any of these methods which effects both the level of control, and the complexity involved.

No matter what is in place now, you must evaluate every step in the current method of distribution, from an independent point of view, and consider the possible alternative methods for getting your products to retail.

Here are just some examples of questions you can ask under Step 3 – Distributor Assessment:

  1. What is my current method of distribution?
  2. Is my distribution all ‘direct’ to my customers via my own owned or contracted distribution network?
  3. Is my distribution all ‘indirect’ to my customers through distributors that work either exclusively or non-exclusively for me? What are the layers of distributors, sub-distributors, wholesalers, cash & carry's, etc.?
  4. Is my distribution a mix of the above?
  5. Is this the way it has always been for us or did we change and if so why?
  6. Is my current point of sale coverage a function of my distribution model, or of my route to market strategy?
  7. What are the total number of distributors in my market?
  8. What is their coverage map? How many, if any, am I using? Why is this?
  9. How are my direct and indirect competitors servicing the marketplace? What is their distribution model? How do we feel is it performing for them? Is there anything we can learn from them?
  10. How regularly am I assessing the distribution network or the distributors?
  11. Do I have a distributor assessment tool to conduct the assessment? Feel free to gain inspiration from our Distributor Assessment Guide and Distributor Assessment Tool available for download.
  12. After conducting visits, and using my distributor assessment tool, what is the current performance of my distribution network and /or each one of my distributors?
  13. Where are the gaps in performance vs my ideal distribution network?
  14. What are the current levels of brand and SKU availability at the distributors retail level? What are the levels of out of stock?
  15. Is POS material available and visible at retail level? Are planograms being adhered to? What are the overall levels of display in retail?
  16. Is there an awareness of my brands at a retail level? Are trade engagement programs being run at retail level?
  17. What are the current service levels of my distributors? How does this compare to our contract and our KPIs?

Regardless of which method we choose to assess our distributors by, one fact will not change. We must get out into the field, see the distributor and retail environments first hand, and assess effectiveness of what is really happening, not what we believe is happening. Information, reports, and monitoring tools are essential in RtM execution, but nothing replaces actual field work.

I hope you find this helpful, and I appreciate your views and comments below. I will be continuing my series on the 20 Steps to Route to Market Excellence, with Step 4 Competitor Analysis in my next post.

Please subscribe to the blog, on this page, to ensure you don’t miss out on the latest updates on RtM excellence in execution. If you would like to know more about the 20 Steps to RtM Excellence, please visit our website here.

Tags: 20 Steps to RtM Excellence, RtM Strategy, Ross Marie, retail, Logistics Service Provider, RTM Assessment Tool, Distribution, Performance Improvement, Traditional Trade, Route to Market, FMCG, SKU

Supply Chains - Whats do all those initialisms mean?

Posted by Dave Jordan on Wed, Jun 27, 2018

Like many business functions Supply Chains use multiple initials and/or acronyms to describe various tasks they manage on a daily basis. Those not familiar with SC-speak will often sit bemused in meetings as various initials are quoted and debated and then usually blamed for some tenuous lost sale claimed by Sales and Marketing. Here we take a look at just a small selection of those initials.

SC – Super Colleagues. Well, I may be biased but that is what you find is usually the case. Supply Chain people have to react to wildly varying demands and impossible timings but more often than not they succeed to get stock in the right place at the right time.

SOP - Secures Our Performance. If you do not follow an S&OP process and your business is doing well and is robust then a pat on the back is for you. If your business is struggling then you might consider the benefits of S&OP which can make all the difference.

SC Abbreviations resized 600

SAP - Spreadsheets Are Preferred. A common problem in many businesses and what is also common is the number of CEO’s who believe spreadsheets are not being used in their workplace! They probably are but what can you do about it?

IKA- Irritating, Keep Away. In Western Europe the big name Key Accounts may well be the future of retailing in the FMCG sector but in many other parts of the world the reality is quite the reverse. Traditional Trade is a very important part of many businesses yet most fail to pay sufficient attention to the continued development and growth of the TT channel.

SKU - Sales Keep Upping. Introducing new SKUs really should be a cross business decision taken within the context of S&OP and with sound financial analysis. Sadly, this does not happen very often as businesses rack up lengthy SKU lists where the tail items do not even pay for themselves in turnover and/or profit.

KPI - Keep People Interested. The old adage of “if you don’t measure it then you cannot improve it” is certainly true here. Be careful not to have too many KPI’s but make sure you have a small set which ensures everyone knows how they impact team performance and results. Reward against the relevant KPIs and your staff will target them keenly.

3PLP - 3 People Loading Products. Think long and had before outsourcing your logistics operations to a 3rd party. They may not be ready to take on your business seamlessly.  Prepare thoroughly and ensure you know exactly what you want from them and the relationship. A big step that is difficult to reverse so be very careful!

WMS - Where’s My Stock? Your 3PLP partner should be left to run their own business as that is what you pay them for. However, you need to be involved in the stock counting process or you will lose sales through out of stocks (OOS , there's another one) and experience costly year-end write offs.

4PLP - 4 People Loading Products ………..but perhaps slightly faster? If you have successfully used 3PLPs for some time you might wish to take a look at what a 4PLP can offer your business. This is not for everyone but can be very effective.

RTM - Retail Takes Money. Whether your focus is on IKA or TT how you manage your distribution network will be a key driver of your success in the market place. It is a fact that companies spending time and effort getting their TT distributor networks in good order are far more successful.

There are many, many more initials used in Supply Chain but this set will do for a kick off so TTFN!

Tags: SKU, FMCG, Route to Market, Dave Jordan, KPI, Traditional Trade, S&OP, Logistics Management, Distribution

Time to Spring Clean your Supply Chain in FMCG?

Posted by Dave Jordan on Thu, Mar 22, 2018

Are market conditions getting any better, really? Many big name companies are heading for indifferent full year 2017 results and all caution about the continuing “difficult market conditions”. Ok, so 2017 has been put to bed but many will be paying the price for the mammoth last quarter efforts which must have made the advertising and promotional agencies extremely wealthy. I wonder what a snap-shot of bottom line profitability looked like over the final 3 months of 2017?

If the economy is not much better than last year what exactly can you do differently to keep ahead of your competitors in 2018?  If you had all the time in the world you could apply all of the Top 10 New Year Supply Chain Resolutions. You might not have the time and resources to tackle all of them but there are a couple you can take advantage of for some quick wins. Give your Supply Chain a much needed Spring Clean (I know, it is snowing heavily as I type this in Bucuresti) and see the difference this can make.

Most businesses will have carried out a stock count at year end. You do count your stock don’t you? If you don’t then I suspect you will have less inventory than you thought! You should now have a clear list of those items which are clearly overstocked, close to expiry, old label etc. Every day you keep hold of this stock destroys value as the expense slowly but surely chips away at your bottom line making your life unnecessarily difficult. Get rid of it! Give it to charity. You could even sell it! If you clear out your stocks you will naturally create a slightly more responsive and faster Supply Chain that focusses on value creating SKUs.

FMCG_SKU_COMPLEXITY_REDUCTION_SPRING_CLEAN.jpgDo you know how many “must have” core and promotional SKUs you added in 2017 in order to get as close as possible to top down HQ targets? In difficult times it is easy for processes and procedures to be overlooked in the search for ever more sales. Every SKU costs you money even if it may be  difficult to quantify in your business. 

Do all of the SKUs actually contribute to profit? If you do not monitor profitability by SKU then a considerable proportion may exist for little or worse still, negative benefit. You need to be dispassionate about culling SKUs that are not performing. As far as possible you should keep Sales and Marketing out of that decision making process until your business case is water-tight. Otherwise, these colleagues will always come up with a reason why XYZ SKU is critical to the future of the universe!

Each of these initiatives is relatively straightforward and certainly not resource intensive. Carrying out this simple Spring Clean and getting your house in good order will help you focus your efforts on winning in the market place.

Image courtesy of Stuart Miles at freedigitalphotos.net

Tags: SKU, FMCG, Dave Jordan, Pharma, Inventory Management & Stock Control

A Practical Guide to FMCG SKU Complexity Reduction 

Posted by Dave Jordan on Tue, Mar 20, 2018

If your business is struggling to cope with day to day sales while managing innovation and range extensions then give your SKU list a thorough review. Not just a cursory glance but a scientific evaluation of what brings in the profit and what eats at the same. Few businesses are lucky to operate with just one or two monster SKUs but an excessive list of items on the price list can severely affect your customer service performance.

In the customer service link above we looked at the cost to have a single SKU on the books and it is not insignificant when you take all elements of supply into account. If SKUs do not pay for themselves and contribute to the bottom line then why do they exist? SKUs plodding along with low margin AND low sales turnover cannot be worth the cost and effort of maintaining them, can they? They are simply getting in the way of potentially more profitable SKUs.

If you could base your business on high margin/high turnover SKUs then of course you would. Life is not that simple and the market place is ever more competitive so you need to constantly review the wisdom of what you are putting in front of consumers. Unless your business is in dire straits a large proportion of your SKUs will be either low margin/high turnover or vice versa. Both situations can provide reasonably healthy growth but wouldn’t it be better if you could edge them towards the high/high green quartile as per the diagram below?SKU ComplexityThe first step is to make a very rough estimate of what your business spends on keeping an SKU on the price list. This is not an accurate science but you need to put a “stake in the ground” and agree a number, say 30,000Eur. If the margin of a particular SKU does not at least break-even then delisting should be considered. Staff who look after those SKUs in the yellow segments need to be challenged on a quarterly basis to get their SKUs away from the red and towards the green, or delist.

If you carry out such an assessment and find that a majority of your SKUs are in the red segment then you might benefit from a professional spring clean of your portfolio. Such an approach will remove any emotion and bias when clinically assessing what you should be placing on shelves.

Image courtesy of Enchange at Enchange.com.

 

Tags: SKU, FMCG, Dave Jordan, Performance Improvement, Pharma, Supply Chain Analytics

FMCG SKU Proliferation: You DON'T need lost sales in Q4

Posted by Dave Jordan on Mon, Nov 13, 2017
Extra SKUs sneak onto price lists when nobody is looking. Sales & Marketing colleagues prefer new launches with lengthy SKU lists different flavours, different sizes, different colours, new packaging etc. How many shelf facings do they want? How do these decisions get through S&OP meetings? (You do run an S&OP process, don't you?)

Do you know this SKU proliferation is likely to affect your customer service? Rather than delighting more and more customers you maybe disappointing them and wasting countless Euros at the same time. Introducing an SKU is a cross business decision, or should be! When considering new SKU introduction at your next Board or S&OP meeting then the supply chain people should ask some testing questions.

Cost per SKU. Have you ever sat down with your Management Accountant and calculated how much it costs to have an SKU on your price list? Sales staff will bemoan the rising listing fees but in reality the cost of an SKU is much, much more. Including, e.g.

  • An employee must spend time buying the different label, dyestuff, cap, box, etc.
  • The new raw material/packaging must be stored in a warehouse.
  • Someone must call it off at the factory.
  • The factory must schedule and make the SKU.
  • The finished product is stored in a warehouse.
  • Someone at the operating company must plan the SKU.
  • Transport into and ex-factory.
  • Transport to Distributor or Retailer etc, etc

All of these activities and many, many more ensure that the cost of having an SKU on the books is significant. In a very rough rule of thumb the cost of having any 1 SKU on the books of a medium-sized company is typically 30,000 Euros per annum.

Factory complexity. Time is money in factories as they try and make their assets sweat and get as much out of the gate as fast and cheaply as possible. Each colour or perfume change or label or pack size adjustment stops the production line and steals valuable time which you cannot recover.

Logistics. Each individual SKU requires a dedicated pallet or rack or bin location. The more SKUs you have the more money you are paying for space. When you have 16 variants of the same shampoo pack size you can understand why picking errors occur, lowering your customer service and causing lost sales.

Interim_Management_FMCG_Dave_Jordan_SKU_Complexity.jpgPlanning. At year-end low value SKUs really drag your business down as resources are applied to plan and deliver SKUs to market which may increase your volume number but not your profit line. Your scarce resource should be focussed on delivering those SKUs that make a real difference to profit rather than spending time on low value/slow moving SKUs which may actually have to be written off in the long term.

SKU rationalisation. Ok, so despite the above you are drowning under SKU complexity. Far too many organisations launch a new SKU and then fail to revisit the data assumptions on which it was first introduced. Firstly, if a new SKU is not even expected to deliver at least 30,000 Euros (or whatever your in-house figure may be) profit then DON'T LAUNCH IT! For all SKUs on your price list you should carry out an SKU Rationalisation exercise preferably quarterly but at least annually. SKUs that do not meet profit/margin/volume/GP criteria should be placed on watch. If they remain below your cut off points then it is time to propose a delisting.

The ideal time to carry out that rationalisation exercise is before you submit Annual Plan 2018 and certainly before the end of 2017. Your staff will be concentrating on the day to day operation so recruitment of an external resource to carry out the segmentation is advisable. The temporary recruit will be dispassionate and unbiased and will deliver a proposal which is right for the business and not just right for some. 

Of course, there will always be special cases like SKUs that constitute a range or a niche local jewel but as long as these are the exceptions then you have a chance of a fast flowing, efficient and reliable supply chain ready for 2018. 

Need more expert advise from readily available talent to address SKU Complexity? Please click here. 

Image courtesy of Supertrooper freedigitalphotos.net

Tags: Customer service, SKU, FMCG, Dave Jordan, S&OP, Interim Management, Sales

Supply Chains – A second look: What do all those initials really mean?

Posted by Dave Jordan on Wed, Feb 08, 2017

In common with many business functions Supply Chains adopt multiple initials and/or acronyms to describe various tasks and processes they manage on a daily basis. Those not familiar with SC-speak will often sit bemused as various initials are quoted and debated and then usually blamed for some tenuous lost sales claimed by Sales and Marketing.

Here I take a fresh look at just a small selection of those Supply Chain initials and acronyms.

SC – Super Colleagues. Well, I may be biased but that is what you usually find. Supply Chain people must react to wildly varying demands and impossible timings but more often than not they succeed to get stock to the right place at the right time.

SOP - Supports Outstanding Performance. If you do not follow an S&OP process and your business is doing well and is robust then a pat on the back is deserved. However, if your business is struggling then you might consider the benefits of S&OP which can make all the difference.

IBP – Irritating But Productive. Often considered to be a more mature version of S&OP, Integrated Business Planning can be similarly difficult to get started but when everything clicks, business benefits.

Supply_Chain_FMCG_Initials.jpgSAP - Spreadsheets Are Preferred. The use of spreadsheets is prevalent in many businesses and equally common is the number of CEO’s who believe spreadsheets are NOT being used in their workplace! They almost certainly are but what can you do about this?

IKA- Irritating, Keep Away. In mature Western European markets, big name International Key Accounts are firmly established but in many other parts of the world the reality is quite the reverse. Traditional Trade is a very important part of many developing businesses yet most fail to pay sufficient attention to the continued growth potential of the TT channel.

SKU - Sales Keep “Upping”. Introducing new SKUs really should be a cross business decision taken within the context of S&OP and with sound financial analysis. Sadly, this does not happen very often as businesses rack up lengthy SKU lists where the tail items do not even pay for themselves in turnover, margin or profit.

KPI - Keeping People Interested. The adage of “if you don’t measure then you cannot improve” is certainly true here. Take care to manage your KPI’s closely and frequently but make sure you have a set which ensures everyone knows how they impact collective team performance and results. Visibly reward against the relevant KPIs and your staff will keenly follow them.

ERP – Everyone Requires Products. The whole purpose of your Enterprise Resource Planning is to get your products to the right place at the right time and at optimum cost. Occasionally, priorities must be made between demanding customers and a good ERP will guide your decisions.

PLP -  People Loading Products. Think long and had before outsourcing your outbound logistics operations to a 3rd party as they may not be ready to take on your business, seamlessly.  Prepare thoroughly and ensure you know exactly what you want from them and the relationship. A big step that is difficult to reverse without pain so be careful!

WMS - Where’s My Stock? Your 3PLP partner should be left to run their own business as that is why you pay them. However, you need to be involved in the stock counting process or you will lose sales and experience costly year-end write offs.

4PLP - 4 People Loading Products. If you have successfully used 3PLPs for some time you might wish to take a look at what a 4PLP can offer to the business. This is certainly not for everyone but can be very cost effective.

RTM - Retail Takes Money. Whether your focus is on IKA or TT how you manage your distribution network will be a key driver of your success in the market place. It is a fact that companies spending time and effort getting their developing market TT distributor networks in good order are more successful.

FIFO – Find It, Fuss Over. When you (or your 3PLP) operate a tight warehousing operation you will know where your stock sits, how old it is and what needs to move out to avoid write off costs and the inevitable poor customer service.

OTIF - Often The Invoice Fails. If you fail to deliver orders on time and in full you invite the customer to challenge the invoice and delay payment until you have made financial adjustments.

There are many, many more examples of SC-speak but this set will do for a KO so TTFN!

Image courtesy of boulemonademoon at freedigitalphotos.net

 

Tags: SKU, FMCG, Route to Market, Dave Jordan, KPI, Traditional Trade, S&OP, Logistics Management, Distribution, Inventory Management & Stock Control

UK NHS Supply Chain: bed-busting benefits of patient SKUs

Posted by Dave Jordan on Wed, Jun 29, 2016

Some time ago I looked at the often dreadful customer service offered by FMCG and Telecoms companies in CEE. Of course, this avoidable malaise is not restricted to that part of the world. After being in UK for a few weeks I have experienced really poor service from organisations you would think had top notch, high performing supply chains.

The Royal Mail and all those “black and white cat” types will be the subject of a later blog but first in line for critique is the National Health Service.

The NHS in the UK is a precious gem and really is the envy of most other countries where credit cards have to be produced before you hear the Marigold’s snap on. The NHS is supported by a seriously complex, unpredictable and volatile supply chain. On this occasion supply chain certainly includes the provision of medical supplies, equipment, foods to multiple locations around a hospital site. (I am tempted to bang on about the quality food or to be more exact, the amount of wasted food as most of what I see is not going to win any awards.)

My bone of contention with NHS service is about beds, the availability of which is a constant battle which is seemingly never won. Operations are regularly postponed when there are no beds available for post-op recuperation. Yes, some beds are certainly blocked by long term patient residents but my observations suggest there are actually many beds woefully under utilised. To alleviate the problem, I am certainly not suggesting bed sharing which does occur elsewhere. (I have personally seen a single bed with 4 occupants at the same time in a certain country.)

While it is important patients are treated with the utmost dignity and with the best care in the world I think NHS bed availability would be improved if patients were considered as SKU’s on a supermarket shelf. Just take the emotion away for a moment and consider how this might work.

Each bed is shelf in a shop and the optimum situation is to see all these shelf locations full and more importantly, replenished as soon as stock (patients) moves off the shelves (beds). As with transferring stock from the Lidl back of store to gondola ends, this should not be rocket science. And quite right too as long as decisions are made in the optimum sequence and information is in full flow.

Admittedly based on my massive sample of 1 hospital, I see the following sequence of activities:

  1. NHS_SUPPLY_CHAIN_BED_PLANNING.jpg1. Patient gets ready to leave and sits in a chair waiting for discharge.
  2. 2. Nothing happens at the bed.
  3. 3. A patient leaves the bed and is discharged.
  4. 4. Nothing happens at the bed.
  5. 5. The bed is stripped and all cups, jugs etc. are removed.
  6. 6. Nothing happens at the bed.
  7. 7. Bed and surrounding area are cleaned and the bed re-made.
  8. 8. Nothing happens at the bed.
  9. 9. Eventually, a new patient arrives to fill the bed but this can be several hours and often overnight, after the vacancy was first identified.

Just a little bit of basic demand and supply forecasting plus timely information transfer would see a far higher utilisation of available bed space and over the period of a year, noticeably shorter waiting times.

Ok, so I know little about the intricacies of the NHS and maybe other hospitals are slicker in their bed allocation but I feel it is a huge opportunity. A change in mindset and a willingness to learn from other supply chains could prove invaluable. I did offer my services to look at this acute bed shortage problem and was welcomed as long as I had previous experience of working within the NHS…….

Isn’t that the problem? If you are not open to new ideas and innovative solutions, you will get nowhere while the NHS wastes money on incestuous internal studies and reviews. Remember Einstein, who probably did have good knowledge of rocket science; “Insanity: doing the same thing over and over again and expecting different results.”

Image courtesy of Suriya Kankliang at freedigitalphotos.net

 

Tags: SKU, FMCG, Dave Jordan, Forecasting & Demand Planning, IT, Information

Why S&OP and IBP are invaluable all year round but especially at Christmas

Posted by Dave Jordan on Wed, Dec 09, 2015

All rather too quickly Noddy Holder is already gargling on the festive gravel. Roy Wood and Wizard are wishing we could grossly over eat and drink on 365 or 366 days of the year and although they never met, Bowie and Bing are dueting about peace on earth – a likely story in today’s world.

Together with the usual sincere festive releases from talentless “celebrities” from reality TV we also hear some old favourites.

“Dashing through the snow
In a one horse open sleigh…"

How many of you actually started to sing then? Yes, the festive period is fast approaching and the biggest and best Supply Chain in the world is almost ready to activate. There is no way Santa Claus could achieve his annual success without sticking rigidly to an S&OP or IBP process, i.e. Santa & Opening Presents or Incoming Boxes of Presents.

The process starts every year on the 26th December just when all the children start to play with the empty Christmas wrapping and packaging instead of their much sought after gifts. Their engorged parents lounge sleepily in front of the television watching The Great Escape or Jason and the Argonauts – again! The loyal Elves are given their end of season bonus – taxed of course - and packed off back to Eleveden Forest in Suffolk. Didn’t you know that is where they live for most of the year?

Before too long, those lovely people who design toys and games quickly introduce new and more exiting models which will become must-haves for countless girls and boys across the globe. Toy shops are visited and catalogues scanned as millions of children quietly note those presents they would like Santa to bring them the following Christmas. Demand slowly builds until it is time to bring the Elves back from Suffolk, UK on the eleventh day of the eleventh month – no surprise there! The first job for the Elves is to get the global and regional toy factories ready to run once again.

SOP_Planning_Cycle.jpg

 

In parallel, millions of children around the world unzip their pencil cases with a purpose. Using their best handwriting they tell Santa they have all been well behaved this year and then they list all the presents they would like to receive. This accumulated demand allows the Elf factories to start making production plans to meet a deadline that is set in stone and stuffing and snow.

Money does not grow on trees so “Santa” has to quickly check what can be afforded from the budget. Remember, wish lists are always too long and you do not want 100% Customer Service  – keep ‘em hungry I say – or too much inventory. The Pre-S&OP takes place with all stake holders involved to ensure everything is ready to go. You want to avoid stock-outs just as much as you need to avoid expensive write-offs.

After necessary adjustments are made to the planned volumes by SKU, the final S&OP meeting takes place. Santa is fully dressed in his best red uniform and takes his seat at the head of the table. If Pre-S&OP actions have not been carried out then there is unlikely to be much “yo ho ho-ing”. Fortunately, everyone has completed their tasks and there is agreement before the final set of receiving child and gift numbers is rubber-stamped. Everyone involved in the Christmas S&OP/IBP must operate on the same set of numbers or somebody will be bitterly disappointed.

The big day comes and Rudolph leads the reindeers in pulling the sleigh across the world. Santa makes sure all the presents are delivered on time before little heads lift from pillows to wake parents at 4am! (Well, I woke mine at that time.)

And before you know it there we are again on 26th December and the same robust and reliable S&OP/IBP cycle starts all over again amongst the discarded wrapping. See you next year Santa.

“Dashing through the snow
In a one horse open sleigh
O'er the fields we go
Laughing all the way
Bells on bob tails ring
Making spirits bright
What fun it is to laugh and sing
A sleighing song tonight” 

 

Tags: SKU, FMCG, Dave Jordan, Supply Chain, S&OP

FMCG SKU Proliferation: How this affects your Customer Service

Posted by Dave Jordan on Wed, May 13, 2015

Complex_SKUFMCG SKUs sneak onto price lists when nobody is looking! Sales & Marketing colleagues prefer new launches to have lengthy lists of SKUs; different flavours, different sizes, different colours, different shapes. How many shelf facings do they want and how many do they really need? How do these decisions get through S&OP meetings? (Assuming you do actually run a Sales & Operational Planning process......)

Do you know how this proliferation is likely to be affecting your customer service? One thing for sure is that it is affecting the same and always negatively. Rather than delighting more and more consumers you are likely to be disappointing them and wasting countless Euros/Pounds/Dollars at the same time.

Factory complexity. Time is money in factories as they try and make their assets sweat and get as much out of the gate as fast as possible and as cheaply as possible. Each colour or perfume change or label or pack size adjustment stops the production line and steals valuable time and money.

Each individual SKU requires a dedicated pallet or rack location. The more SKUs you have the more money you are paying for space. When you have 16+ variants of the same shampoo pack size you can understand why picking errors occur, stocks become inaccurate leading to lower customer service levels.

Cost per SKU. Have you ever sat down and calculated how much it costs to have an SKU on your price list? Sales staff will bemoan the rising listing fees but in reality the cost of an SKU is much, much more. Including, for example

  • Someone has to develop the product/pack/bottle case.
  • A colleague has to find suitable suppliers.
  • An employee has to buy the different label, dyestuff, cap, box etc.
  • The new raw material/packaging has to be stored in a warehouse.
  • Someone has to call it off at the factory.
  • The factory has to make the SKU.
  • The finished product is stored in a warehouse.
  • Someone at the operating company has to supply plan the SKU.
  • Transport ex factory.
  • Storage at operating company warehouse.
  • Transport to Distributor or Retailer.

All of these activities and more ensure that the cost of having an SKU on the books is significant. In a very rough calculation the cost of having 1 SKU on your books is typically 30,000 Euros in a medium sized business.

SKU rationalisation. Ok, so you are in FMCG and drowning under SKU complexity. Far too many organisations launch a new SKU and then fail to revisit the data assumptions on which it was launched. Firstly, if a new SKU is not even planned to deliver at least 30,000 Euros profit (or whatever your in-house rule of thumb figure may be) then DON'T LAUNCH IT! For all SKUs on your price list you must carry out an SKU rationalization exercise at least annually and preferably quarterly. SKUs that do not meet profit/volume/margin criteria should be placed on watch. If they remain below your cut off points then it is time to propose a delisting.

Of course, there will always be special cases like SKUs that constitute a range or a niche regional product. As long as these are the exceptions then you have a chance of a fast flowing, efficient supply chain.

Introducing an SKU is a cross business decision, or should be! When considering new SKU introduction at your next Board or S&OP meeting then the supply chain people should be asking some very testing questions.

Need more expert advice on SKU complexity and how to define necessary complexity? Contact Dave!

Image courtesy of Gualberto107 at FreeDigitalPhotos.net

Tags: SKU, FMCG, Dave Jordan, S&OP, Inventory Management & Stock Control