About Jeff Harrop

Jeff Harrop

Franchisees and the Question of Control

 

I have a very strict gun control policy: if there’s a gun around, I want to be in control of it. – Clint Eastwood

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A number of years ago, utilities companies, telecommunications companies, insurance companies, etc. started offering customers automated payment options as a convenience.

The premise was simple: Why bother taking the time to pay your bills each month when we can simply (with your permission, of course) automatically take the funds from your bank account or credit card?

When this was first offered, I must admit that I resisted for quite some time. I preferred receiving the bills each month, logging into my online banking site, selecting the payee and filling in the dates and amounts. I had control.

Month after month, my bills would arrive, each time with an insert or a perforated flap on the return envelope encouraging me to just give them my bank account or credit card number (and relinquish my control) to make my life easier. I continued to resist.

On occasion, I would make a dumb mistake entering the amount or the payment date. As a result, I would get dinged with late payment fees or other charges. I considered these penalties a small price to pay for retaining my control.

After years of managing my bills this way – and for no reason in particular – one month I came to the realization that not once had I ever decided to pay any amount other than the amount due on any other date than the payment due date. Not once. Ever.

It turns out that I wasn’t truly “controlling my destiny”. I was just wasting my time.

So I started signing up for automated bill payment with everyone who offered it. The bill would still arrive a couple weeks before the due date so that I could review the amounts and challenge any mistakes (i.e. I still had control), but no longer did I have to bother with all of the administrative nonsense to actually make payments.

With good reason, more and more retailers are moving in the direction of centralized store replenishment. Each day, POS data is collected and shared with the home office. And in many cases, the stores keep perpetual on hand balances and active planograms for every item. By planning store replenishment centrally, retailers can reap huge rewards by extending the planning process from stores to DCs to suppliers in a tightly integrated fashion (how does 98% in-stock while simultaneously dropping inventory sound?).

It’s really a shame that retailers with franchisee, owner/operator or dealership models can’t likewise benefit from centralized store replenishment. And why not, you ask?

Because the franchisees would never relinquish their control.

Hmmm…

Do the franchisees all use their own separate systems for store operations and staff their own I.T. departments? Does each store owner have his/her own fleet of trucks to pick up shipments? Do they each deal directly and independently with suppliers to bring product into their own dedicated warehouses? Does each franchisee develop his/her own advertising and promotion campaigns to draw customers into the stores?

You see what I’m getting at. There is a long list of value added services that a franchisor already provides to its franchisee store owners. Why couldn’t store replenishment also be such a service?

Like with automated bill payments, there are a few simple elements required in a franchisee model to ensure that independent store operators retain their control, while only relinquishing administrative tasks that add no direct value to customers.

Common Goals

From a customer standpoint, there is no line of delineation between the franchisor and the franchisee. There is a shared brand that receives the blame for poor customer service (or the accolades for a job well done). The needs of the end consumer must always be recognized as the raison d’etre for both the franchisor and the franchisee and be built into the supply chain processes like at any other retailer.

Transparency

Consumer centric rules of engagement need to agreed upon and executed faithfully at all times. For example, when there is a supply shortage at the DC, available stock needs to be rationed. Every franchisee wants to get his/her shipment, but when there isn’t enough inventory to go around, stores at risk of losing sales (and alienating customers) must have higher priority than those whose displays contain sufficient stock, but just won’t look very nice for a couple of weeks.

Where rules cannot easily be made, open and direct communication is a great substitute.

Visibility

Ronald Reagan once famously quipped: “The nine most terrifying words in the English language are: I’m from the government and I’m here to help.” Many independent store operators will have a similar reaction if the franchisor says “Trust us to handle your store inventory.” Franchisees are business people. As such, they will likely not be in favour of blind trust as a way to manage the businesses that feed their families.

Instead, franchisees will be better served if they can see the replenishment plans that are being managed on their behalf (much like getting your bills a couple weeks before the due date) and have the ability set their own policies to suit their individual businesses.

From the standpoint of meeting the most basic needs of the customer, there is no difference between a franchisee retail model and a corporate store retail model. Customers want stock availability and a good experience (however they define that) at a price they’re willing to pay. The fact that the ownership of inventory may have changed hands at the back door of the store before getting to the shelf is – to the customer – administrative and immaterial.

Why, then, should the process for managing the supply chain from the supplier to the shelf be any different under a franchisee model than for a retailer with corporate stores?

Software Selection: Who’s In Charge?

Decide what you want, decide what you’re willing to exchange for it. Establish your priorities and go to work. – H. L. Hunt

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You’re living in a cramped 2 bedroom apartment and you decide it’s time to buy a house.

You have a spouse, 3 kids, 2 cars, a dog and a home-based business. On that basis, you determine that you’ll need a 2 storey home with 4 bedrooms, an office, a 2 stall garage and a medium-sized yard.

You give this information to your realtor and she compiles a list of houses for you to look at. Most of them are 2 bedroom bungalows with no garage on postage stamp lots.

In spite of your stated requirements, the realtor has determined that a 2 bedroom house is less costly to heat and cool, the cars can be parked outside and a small yard requires less effort to maintain. Most importantly, there’s an abundance of 2 bedroom houses on the market right now, so she’ll be able to get you into a house more quickly this way.

All of those things may be true, but you’re the one who’s going to be living there for the next several years, not the realtor. Sure, some tradeoffs are possible (even expected) – maybe the two youngest rugrats can bunk together until the oldest goes to college, or perhaps you can build your home office in an unfinished basement after you move in – but in this scenario, it seems as though the realtor is more interested in meeting her requirements.

All too often, a similar story plays out when companies embark on the journey of selecting new software to run their enterprise. We’ve seen it many times firsthand when it comes to supply chain planning software, but it really applies to any area of an organization that uses technology.

The burning platform may come from the business (“Our performance and productivity is suffering because of this clunky old legacy system!”) or from I.T. (“We can’t support this piece of crap any longer!”)

Regardless of the impetus for change, it’s the next decision where things start to go of the rails: “Well, since we need new software, then I.T. should be in charge of selecting it, right?”

Um, wrong.

I.T. certainly has a critical role to play, but if you’re the manager of a business process (and people) that will need to be supported by new technology, you take a back seat in the selection process at your own peril.

There are 3 things to always remember:

1. I.T. can’t read minds

I.T. folks love business requirements. Lots of them. With as much detail as you can muster. It helps them to shortlist candidates and research alternatives. If you don’t invest the time and energy to carefully think about what you want the future state to look like and write down your requirements, then you’re forcing I.T. to guess them. This would be like telling a real estate agent to ‘find me a house’ without providing any other details.

2. What I.T. considers important in a software package is not what the business considers important

Yes, the business has requirements, but so does I.T. A new software package must perform a number of functions in order to enable a new process. But it must also be supported (and supportable), process appropriate volumes and fit in with the established architecture of the systems that won’t be changing.

3. The business people will be using the new software each and every day to do their jobs

This speaks to the relative weighting between business requirements and technical requirements. The cheapest solution with the best processing speed and architecture that’s impossible for a user to understand and doesn’t support the business requirements isn’t much use. In other words, business requirements are more important and consequential to the running of the business than technical requirements – there, I said it.

So, suppose you get a good set of business requirements and a good set of technical requirements. A few software vendors come in to demonstrate functionality with the business folks and talk tech with the I.T. folks. You short list it down to 2 vendors:

  • Vendor A meets 80% of the critical business requirements, but 65% of the technical requirements
  • Vendor B meets 70% of the business requirements, but 75% of the technical requirements

What do you do now? The same thing you would do if the realtor at the beginning shows you a few houses that lacking in some way when compared to your ‘wish list’. You talk it through. You figure out which tradeoffs you’re willing to make. You discuss where workarounds might be used to bridge a functionality gap.

None of that is possible if you don’t give yourself the choice.

Last Mile Delivery: Really Folks?

 

One way to boost our will power and focus is to manage our distractions instead of letting them manage us. – Daniel Goleman

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Okay, first a confession out of the gate. The title, quote and image above might lead you to believe that I’m judging last mile delivery (and the broader omni-channel retailing discussion that goes along with it) as a ‘shiny object’ distraction.

I know that’s not entirely true. But I believe it is at least partially true.

To be sure, retail is changing and it’s changing rapidly. Customers want more choices in terms of how they make purchases and how they get those purchases to their homes – and they aren’t super keen on paying a lot more for these choices.

Retailers who put their heads in the sand and don’t actively address these challenges will (and in some cases already do) find themselves in serious peril.

Where is last mile delivery headed? It’s still evolving – but getting into those details is not the point of this discussion. I’m going to stay in my lane. At the risk of oversimplifying things, a sale is a sale and the supply chain planning challenge is to have the product available where the sale will be fulfilled.

The beef I have is that all of the discussion about last mile delivery seems to be making the blanket assumption that retailers have everything aced right up to the last mile.

As if to prove my point, I received an unsolicited email today (God only knows how many supply chain related online publications have my email address at this point) asking for my participation in a survey with the title: “Can we solve the last mile?” The opening two sentences read as follows:

“The last mile is bearing the brunt of the eCommerce boom. Yet, it represents a great source of angst and expense for retailers and last mile providers alike.”

After that is a ‘sneak preview’ of survey topics that focus solely on last mile problems – the implication (likely unintended) is that the challenges in the last mile are completely independent of all the activities that precede them.

Retail out-of-stocks have been a major problem since they started measuring it (8% on average and double that during promotions). The most prevalent cause cited by all of the major studies is inventory management and replenishment practices at store level. Not surprisingly, the lack of attention on solving for these causes means that they haven’t yet magically vanished. Perhaps someday, if we keep wishing really hard…

It’s pretty clear that ‘non Amazon retailers’ will need to make use of their bricks and mortar store network to enable whatever last mile delivery options they intend to pursue. How will they be successful in that regard with such abysmal out-of-stock performance and no idea what the accuracy of their electronic on hand records are (if they even have them at all)?

The day is coming when customers will expect to see store on hand balances on your web page before they submit a ‘click and collect’ order – what happens when the website says you have 3 in stock, but there isn’t any to be found when the customer goes in to collect?

Finally, we can’t lose sight of the fact that the ‘omni’ in ‘omnichannel’ is a latin prefix meaning ‘all’ or ‘every’. One of those ‘every’ channels is customers walking into a store, getting a cart, selecting products and paying for them at the checkout – kickin’ it old school to the tune of 91.5% of total retail sales.

Yes, e-commerce is growing like crazy, but it’s going to be awhile yet before online selling is truly dominant in retail as a whole.

And if (when) that day comes?

Again, I’m not suggesting that working out the last mile won’t be critically important. I’m just saying that retailers still have some work to do in getting basics right (like being in stock and knowing how much is on hand) in order to make it all work.

Princess Auto’s Flowcasting journey featured in Canadian Retailer magazine

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Our client Princess Auto Ltd. is the subject of a feature article in the inaugural Supply Chain issue of Canadian Retailer magazine (published by the Retail Council of Canada). Click here to learn about how they are using the Flowcasting planning process to significantly improve in-stocks and profits while unleashing a new omnichannel fulfilment model. You can also download a PDF copy here.

 

Virtual Reality for the Retail Supply Chain

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Whenever we discuss Flowcasting, we always describe it as ‘a valid simulation of reality inside a system’. This term originated with our longtime colleague Darryl Landvater and it is the most concise and accurate way to describe what Flowcasting really is that we’ve heard.

In fact, we use that term so much that I think we sometimes assume its meaning is self evident.

It’s not.

Over the last 11 years since Flowcasting the Retail Supply Chain was first published, I’ve noticed that, more and more, the terms ‘Flowcasting’ and ‘valid simulation of reality’ have been treated somewhat like ink blots, with some folks (intentionally or otherwise) using them to mean whatever they want them to mean.

To set the record straight, a true ‘valid simulation of reality’ for the retail supply chain has some very specific characteristics, all of which must be present. To the extent that they are not, the value of the plan suffers – as do the results.

Before diving into the nitty gritty details, consider this: Virtually all retailers have a data warehouse that captures daily sales summaries for every product in every location, all upstream product movements, every on hand balance and certain attributes of every product and every location. This data is usually archived over several years and the elemental level of information is kept intact so that rollups, reports and analysis of that data can be trusted and flexibly done.

Think of a valid simulation of reality for the retail supply chain as a data warehouse – with a complete set of the exact same data elements at the same granular level of detail – except that all of the dates are in the future instead of the past.

However, it must also be said that ‘valid’ does not mean ‘perfect’. Unlike the historical data warehouse that remains fixed after each day goes into the books, the future simulation can and will change over time based on what happened yesterday and new assumptions about the future. Updating the simulation daily at all levels is the key to ensuring it remains valid.

Now let’s get into some of the specifics. A valid simulation of reality has 4 dimensions:

  • Information about the physical world as of this moment
  • Forecasts of expected demand over the next 52 weeks for each individual product at each individual point of consumption (could be a retail store or a virtual store)
  • A simulation of future product movements driven by the forecasts and future planned changes to the physical world
  • Rollups of the elemental data to support aggregate planning in the future

While it may seem that meeting all of these requirements is onerous, it is actually quite simple compared to trying to do things several different ways to account for variations in how products sell or are replenished.

Current information about the physical world includes things like:

  • Master information about products (e.g. cube, weight, pricing, case packs, introduction and discontinuation dates) and locations (stores, DCs, supplier ship points)
  • Relatively accurate on hand balances
  • Planogram details such as store assortment, facings and depth
  • Source to destination relationships with lead-times that are representative of physical activity and travel times

This information is ‘table stakes’ for getting to a valid simulation of the future and is readily available for most retailers. High levels of accuracy for these items (even store on hands) is achievable – so long as the processes that create this information have some discipline – because they are directly observable in the here and now.

Forecasts of demand over the next 52 weeks must:

  • Include every item at every selling point
  • Model demand realistically for slow selling items (i.e. integer values as opposed to small decimals that will model an inventory ‘sawtooth’ that won’t actually happen)
  • Include all known positive and negative future influences for each individual item at each individual selling location (e.g. promotions, assortment changes, trends)
  • Allow for ‘uncertainty on the high side’ for promotions to be modeled independently from the true sales expectation so as not to bias the forecast, especially for promotions
  • Account for periods where inventory is planned to be unavailable at store level (e.g. sales forecast for a discontinued item should continue while the item is in stock and drop to zero when it’s projected to run out in the future)

The rule here is simple: if the item at a location is selling (no matter how slowly or for how long) it must have a sales forecast and that sales forecast must be an unbiased and reasonable representation of what future sales will look like.

A simulation of future product movements driven by the forecasts and future planned changes to the physical world means that:

  • Replenishment and ordering constraints are respected in the plan (e.g. rounding up to case packs if that’s how product ships, rounding at lane level if truckload minimums across all products on a lane are required)
  • Activity calendars are respected (e.g. an arrival of stock is not scheduled when a location is not open for receiving, a shipment is not scheduled during known future shutdown)
  • Carryover targets are respected for seasonal items (e.g. before the season even begins, the planning logic suppresses shipments at the end of the season so as to intentionally run out of stock at the stores and DCs)
  • Future changes to stocking requirements (e.g. changing the number of facings for an item or adding/subtracting it from the store assortment) are known in advance and the effect is visible in the plan on the future day when it will take effect
  • Future changes to network and sourcing relationships (e.g. changing a group of stores to be served by a different DC starting 2 months from now) are known in advance and the effect is visible in the plan on the future day when it will take effect
  • Future price changes (whether temporary or permanent) are known in advance and the effect is visible in the plan on the future day when it will take effect
  • Pre-distributions of promotional stock are scheduled in advance to allow display setup time ahead of the sale
  • Except in rare cases, the creation and release of orders or stock transfers at any location is a fully automated, administrative ‘non event’ that requires no human intervention

Here it can be tempting to take shortcuts that seem ‘easier':

  • ‘We don’t bother forecasting or planning slow moving items at store level. We just wait for a reorder point to trigger.’
  • ‘For items we only buy once from a vendor, we just manually buy it into the DC and push it all out to the stores.’
  • ‘We know our inventory isn’t very accurate for some items at store level, so we just get the store to order those items manually based on a visual review of available stock.’

In order to have a valid simulation of reality that supports higher levels of planning beyond immediate replenishment (see next section below), you need a system and process that can model these things in a way that is representative of what is actually going to happen.

If an item/location is selling/sellable, then it must have a forecast for those sales.

There is actually no such thing as ‘push’ in retail (unless you are able to ‘push’ product into a customer’s cart against their will and get them to pay for it).

Rollups of the elemental data to support aggregate planning in the future means:

  • You can do proper capacity planning with a complete view of the future because a common process is being used at the elemental level, cube/weight data is accurate and so-called shortcuts are not being taken at the elemental level
  • S&OP is possible because the elemental plans are complete, have future pricing changes applied – instead of looking in the mirror with ‘budget vs actual’, senior leaders and decision makers can look through the windshield and compare ‘budget vs operational plan

While all of these elements that define ‘valid simulation of reality’ may seem intuitive and reasonable, it doesn’t stop some people from saying things like:

  • ‘A lot of items, especially slow movers, can’t be forecasted, so the whole idea kinda falls apart right there.’
  • ‘That’s a great theory, but it’s actually not possible to use a pull-based system for every item.’
  • ‘Just because of sheer volume, it’s impossible to manage every product at every location in this way.’

Again, as mentioned previously, a single process framework that can be used for all possible scenarios is actually much simpler to implement and maintain over the long run.

Plus, well… it’s already been done, which kinda deflates the whole ‘it’s impossible’ argument.

We Can All Agree

 

We rarely think people have good sense unless they agree with us. – Francois de la Rochefoucauld (1613-1680)

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My family has a history of heart problems.

Although my blood pressure and cholesterol are both fine, I’m 47 years old, carrying 15-20 extra pounds and I don’t get enough exercise, which compounds that risk.

Family History + Being Middle Aged + Being Overweight + Not Enough Cardio = Increased Risk of Heart Problems

It’s hardly a mystery. Everybody knows this. I agree.

I can do nothing about my family history or my age, but I’ve been about the same weight for the last several years and have not meaningfully or sustainably increased the amount of daily exercise I get on a daily basis.

Ask any smoker if they are aware of all of the various health risks from smoking. They too will agree that smoking is bad. But they still do it.

Clearly, there isn’t a binary choice (i.e. agree or disagree), rather different ‘levels’ of agreement:

  • I agree with what you’re saying.
  • I agree that something needs to change.
  • I agree to change my behaviour.

In business in general (and supply chain in particular), significant improvement in results can only be achieved with process-driven changes to people’s behaviour.

We can all agree that the quality of a retailer’s customer service is directly tied to the accuracy of their store-item level inventory records – especially in an omnichannel world where a customer can demand product from a website and expect to pick it up in their neighbourhood store a couple hours later. It’s not a stretch to further agree that processes, procedures and measurement systems need to be in place to improve and maintain store level on hand accuracy.

And yet many retailers (40% of grocery stores according to a recent study) don’t even use a system on hand balance and those that do are not attacking their accuracy problems.

We can all agree that retail supply chains should be consumer driven to be efficient and profitable. And yet most retailers are using the same ‘old school’ processes for promotions, new product introductions and seasonal sales – ‘buy a ton, push it out to the stores and pray that it sells’.

While ‘agreement in principle’ is certainly necessary, it is clearly far from sufficient. So what is the secret ingredient?

I’ve seen it many times throughout my career in retail. I visit one store and the aisles are uncluttered, the shelves are faced out beautifully and the back room is organized and tidy. Then I visit another store with the same retailer and it looks like it was recently hit by a cyclone – even though both stores have the same systems, processes and training manuals.

The difference is that you have to care.

Don’t get me wrong. I’m not saying that the store manager with the messy store has no passion. I’m just saying that he doesn’t have passion for retailing.

It’s the same reason I’m a supply chain consultant and not a fitness instructor (at least for now). I agree in principle that I need to exercise and lose weight, but I care deeply about order, organization and process discipline in the retail supply chain.

So where does this passion come from and how can it be cultivated and spread throughout an organization?

God, I really wish I knew. I believe that everyone is born with passion, but not everybody is in a job they’re passionate about.

That said, I know that passion can be infectious enough that a very small group of uber-passionate people can change organizations – not necessarily by making everyone as passionate as they are, but by generating just enough force to overcome the organizational inertia.

And once the boulder starts rolling down the hillside, we can all agree that it’s very difficult to stop.

The E-Commerce Secret Weapon

All the secrets of the world worth knowing are hiding in plain sight. – Robin Sloan

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The end is nigh! If you still have physical stores with inventory, staff and cash registers, you’re a dinosaur and Amazon is coming to kill you! The future is online!

Okay, the rhetoric hasn’t been quite that sensational, but it wasn’t so long ago that ‘experts’ were on the verge of predicting the demise of retail as we know it.

As people (eventually) came to their senses on this, a new reality began to emerge, hidden in plain sight. It turns out that the decades of investments retailers made in their physical store footprint may not have been a complete waste of money after all. In fact, it’s actually a key competitive advantage that may result in Amazon playing some ‘catch up’ of their own in the not too distant future.

To be sure, the ‘buy online, delivery to home’ channel pioneered by Amazon represented a significant shift in how people buy goods. If you didn’t mind a bit of a wait and some extra delivery costs, you could shop without ever having to leave the house.

Over time, new products and services were added to build density, reduce shipping costs to customers and decrease delivery times for many in stock items. This could only happen cost effectively by positioning inventory closer to customers… kinda like what ‘NARs’ (‘non Amazon retailers’ – trademark pending) have been doing for decades.

For customers, that means brick and mortar retailers with an online presence can offer far more shopping and delivery options than Amazon (at least for now).

Click and Collect (or Buy Online, Pick Up in Store)

One way to look at click and collect is that it’s ‘not quite as convenient as home delivery’. In reality, click and collect isn’t necessarily a ‘convenience compromise’ in the mind of every customer – many (including yours truly) consider it to be a different (and more cost effective) kind of convenience.

This option allows customers to reserve their stock in advance and have store staff traverse the aisles on their behalf. And when customers get to the store to pick up their online order, they have the additional option to grab a few last minute or forgotten items. Or maybe they just want curbside pickup so they can get the items loaded directly into their trunk without even having to park.

And for customers who truly view click and collect as a convenience compromise vis-a-vis home delivery, Walmart now allows them to trade in some of their convenience for savings by giving them a discount for choosing click and collect over home delivery.

Third Party Personal Shoppers

This is a relatively new phenomenon, but companies like Instacart have been partnering with retailers to take orders online, shop local stores and home deliver to customers, offering cool features like chatting so that the personal shoppers can make real time decisions with the customers for substitutions or to take advantage of in store promotions.

Home Delivery from Stores

Because retailers already have inventory geographically close to customers, they have the ability to take advantage of cheaper modes of transit (i.e. ground vs air) to deliver in a 2 day time window.

But they also have the opportunity to make delivery promises in hours rather than days in their more densely populated markets, through the use of local couriers or even their own store employees.

Will all of these delivery options (plus a few others that haven’t been dreamed up yet) be popular and/or profitable? Click and collect seems like a done deal – time will tell for the others.

The point here is that these options are only available to retailers who have a retail store network in place. Far from being outmoded or passe, the ‘brick and mortar’ store network is becoming a critical linchpin in meeting customers’ online shopping expectations.

You never would have imagined it a few years ago, but the popularity of online retailing has actually served to enhance the importance of the old fashioned brick and mortar retail store rather than to diminish it. And as such, planning the supply chain from the store level back using Flowcasting becomes even more critical to a retailer’s success than ever.