About Mike Doherty

Mike Doherty

Secret principles of Amazon, Flowcasting

The recent acquisition of Whole Foods by Amazon has sent shock waves throughout the grocery industry and, indeed, the retail industry as a whole.  While I’m quite sure retail is not dead, as some proclaim, I’m convinced it is and will undergo massive change in the years ahead.

Early pundits and supply chain professionals were very quick to scoff at Amazon and their business model. The experts predicted that they would never make money selling things over the internet and delivering directly to your home.  And, for a number of years they were right.  However, a combination of scale, volume and innovation has disproven this, as evidenced by the chart below:

Amazon-profits

Clearly, Amazon is doing well financially and have become a profit machine.  Further evidence of the fruits of their labour can be seen in the following chart, which outlines the change in major retailer’s gross margins over the last few years:

Amazon-margins

The story of success of Amazon is not really about scale and volume to ensure their supply chain costs are competitive.  Sure, that’s important and something they continue to work on, but the success of Amazon is really built on its culture and three fundamental principles that Jeff Bezos has instilled in the organization.  In his own words, they are:

  1. Put the Customer first
  2. Invent
  3. Be patient

Customer First
Amazon, no one can deny, puts the customer first.  Think of all the innovations they have introduced and almost all of them have been designed to improve the customer experience. Bezos takes the view of the customer seriously, and rumour has it that at executive meetings sits an empty chair.

This chair is reserved for the customer. And, when they are debating ideas and concepts, Mr Bezos will turn to the empty chair and ask, “what does the customer think”?, and a customer focused discussion ensues.

Invent
The following number says it all:

Amazon-patents

That’s the number of patents that Amazon has been awarded.  Yup – one thousand, two hundred, and sixty three and counting.

Amazon is an innovation factory and, given the turbulent times and unprecedented change on the horizon, what better organizational capability to have.

If you’re competing against Amazon (and there’s a decent chance you are or will be), here’s a question: how many patents has your organization been awarded?

Be Patient
Again, you would be hard pressed to argue that Amazon is not patient.  They have also been smart and have had the good fortune of convincing their employees and shareholders to be patient as well.

They take the long view and are not driven by short term goals.  Being patient also ensures that they give the innovation machine time to work.  Change takes time.  And Amazon seems like they’ve got all the time in the world – to patiently make sure the innovation works, or they learn something from it.

These are the three principles that Jeff Bezos has believed in and instilled in the very fabric of the Amazon culture.  This is the secret to their success and is, no doubt, difficult to replicate or change an existing culture to embrace.

Parallels of Flowcasting and Amazon
The evolution of Flowcasting has, in many ways, paralleled the principles of Amazon.

Customer First – Flowcasting, as you know, is based on the tenet of “never forecast what you can calculate”, and the entire retail supply chain is driven by a forecast of consumer demand.  Flowcasting is definitely a Customer First philosophy.

Invent – Flowcasting is an innovation on how the retail supply chain works.  A single forecast of consumer demand, by item/store/selling-location can be translated into all product, financial, capacity and resource flows throughout the entire supply chain.  This is not how retailers and their trading partners have worked (or still do for virtually all of them) and is an invention in supply chain planning.

Patience – Flowcasting is only now starting to gain traction, with our client, Princess Auto, being the first retailer to implement the process properly and completely. Did you know that the idea of Flowcasting was conceived about 35 years ago, and improved upon by a small group of folks about 20 years ago?  Andre Martin and core members of the Canadian Tire team (including yours truly) have had the patience to see Flowcasting work as intended.

Ralph Waldo Emerson summed it up nicely when describing the importance of principles:

As to methods there may be a million and then some, but principles are few”.

Spot on Ralph.  Spot on.

Flipping your thinking

When students at Segerstrom High School in California attend calculus class, they’ve already learned the day’s lesson beforehand — having watched it on a short online video prepared by their teacher, the night before.

So without a lecture delivered by a teacher, students spend class time doing practice problems in small groups, taking snap quizzes, explaining concepts to the class, and sometimes making their own videos while the teacher moves from student to student to help kids who are having problems.

It’s a new form of learning called Flip – because the idea has flipped traditional education on its head – homework is for the lecture, while the classroom, traditionally reserved for the lecture, is for practice and deeper learning and collaboration.

Flipped learning is catching on in a number of schools across North America, as a younger, more tech-savvy student population – including teachers – now make up the typical classroom.

When it comes to supply chain planning, the concept of flipping applies nicely and most people, and most companies, could benefit greatly by flipping their thinking.

Let’s take CPG manufacturers.  When it comes to demand planning, they have it difficult.  Trying to forecast what their retail and other customers are going to do and want is difficult and it’s not getting any easier.  The empowered consumer, changing and dynamic retailer-led strategies are just two examples of shifts that are making it almost impossible to predict the demand, with any level of reasonableness.  The result?  Additional inventory and buffer stock required to respond, “just in case”.

There are a number of studies that prove this point.  Forecast accuracy has not improved and, in most cases, it’s getting worse.

Supply chain practitioners and experts are responding in the typical fashion.  We need better algorithms, fancier formulas, maybe even artificial intelligence and some big data sprinkled on top in order to find a better forecasting engine.

Sorry folks, that’s not working and as consumers and customers become more demanding and expectations rise, it’s going to get worse.  What’s needed is to flip the thinking and to change the paradigm.

CPG manufacturers, for the most part, are forecasting what should be calculated.  The demand plan they are trying to predict for their customer, should be provided to them in the form of a supplier schedule.  And that schedule should reflect the latest knowledge about the consumer, and any and all associated strategies and tactics that will entice the consumer’s buying patterns and/or product flows.

Forecasting consumer demand is, as has been proven, simpler and easier that trying to predict dependent demand – that is, the resulting demand on DC’s and plants based on ordering rules, lead times, and other constraints that tend to “pollute” the dependent demand plan.

When it comes to demand planning, Joe Orlicky had it right some 40 years ago: you should never forecast what can be calculated.

Of course, what we’re talking about is a retailer using the Flowcasting process to plan all flows from supplier to consumer – factoring in any and all constraints that translate the consumer forecast into the purchase projection from retailer to supplier.

Why is this so much better than the traditional approaches?  First, the entire retail supply chain (or any industrial supply chain) is driven by only one forecast – consumer demand.  All other demands can and should be calculated.  The effect is to dramatically simplify planning.  The retailer and manufacturer are working to a single, shared forecast of what’s expected to sell.

Second, the entire supply chain can be re-planned quickly and effortlessly – making the supply chain agile and dynamic.  Changes are and can be viewed almost in real-time and the changes are automatically translated for all partners in the supply chain – in units, cube, weight, dollars, capacity or any language needed throughout the supply chain.  The result is that the entire supply chain is working to a single set of numbers.

Third, when you embrace the idea of Flowcasting as it relates to planning, you get so much more than a better forecast.  Unlike traditional approaches that are trying to mathematically predict the demand, the supplier schedules that are a resultant of the Flowcasting process, calculate the demand by aggregating product flows.

Therefore, trading partners can see, well into the future, projected product flows between any two locations and this provides tremendous insight and flexibility to improve and smooth flows, as well as proactively put in place solutions to potential flow issues before they happen.  The retailer and manufacturer can actually work, using the same system and process, as if they were one company – all oriented to delight and deliver to the consumer, in the most profitable manner possible.

Finally, in addition to providing product flows the approach also produces projections of sales, inventory, purchases, receipts and, as mentioned, flows in any language of the business – units, cube, weight and capacities for operations folks and dollars for financial folks and Management in order to get better control of the business and ensure that plans stay on track.

If you’re planning the retail supply chain, you get so much more when you forecast less.

So, what is the path forward for manufacturers?

They need to flip their thinking and understand that they are trying to forecast what should be calculated – and that this practice will soon be obsolete.

Next, they should engage and work with their key retail and other customers to help educate their customers that a process like Flowcasting not only helps them (in the form of a supplier schedule and complete visibility), it provides even more value to the retail customer.  In fact, to date, it’s the only planning approach that consistently delivers in-stock levels of 98%+, even during promotions – crushing the industry averages of around 92%.

Once they are successful, a CPG manufacturer, over time, can be working with their top retail customers and receiving valid, up-to-date, supplier schedules that in most companies account for 70-85% of their volume.  The additional demands can then be forecasted using the latest approaches – demand sensing, etc.

Imagine, for a moment, what that would mean to the retail industry and the CPG manufacturers in general.  The impact would be enormous – from increased sales and profits, to significant reductions in inventory and working capital.  Not to mention the impact to consumers and customer loyalty.

Is all this possible?

Sure, but to make it happen the first step is to flip your thinking.

Prototyping the prototype

If someone asked me to summarize myself, I’d probably say that I’m a life-long student – an avid reader and someone who knows that things can always be made better – a lot better.

Some recent experiences have got me thinking about our approach to designing and implementing Flowcasting-like solutions for our clients.

First, what has made our approach so successful?  It’s really an obsession with simplicity and a deep understanding that instilling new behaviors is about people and process.

At the heart of the approach is what we call a process lab, or process prototype.

Think about how successful products are created.  They are designed.  Then a prototype is created.  Then it’s tested.  Then it’s revised.  Prototyped again.  Tested again, and the process continues until the product sees the light of day.

Why can’t a process change also be prototyped?

It can and we do.

We work with teams to design new processes and workflows on paper then build a lab-like environment and prototype the process with real end-users.  It helps people see and feel the process first-hand, and also provides us critical early feedback on the process – how it works, what people like, what they struggle with, where it can be improved, etc.

It’s all consistent with our belief about change – that people rarely believe what you tell them, but they always believe what they tell themselves.

On our recent implementation of Flowcasting for a hard goods retailer in Western Canada, I was fortunate to experience what could be described as rapid prototyping, with respect to the technology solution.

To set the stage, the Flowcasting solution we used was an early and immature solution.  However, the fundamental foundation and architecture, along with the retail focused functionality was second to none.

Of course, even though we designed and did our prototype lab work with the team and users, a number of things emerged that we needed to revisit as we made the journey.  As luck would have it, we were working with the actual architect of the solution and, over a couple of months, we made some important and elegant revisions to the solution that improved it considerably.

Essentially we did a series of small, software-focused prototypes (to support our process thinking, of course) that were quickly designed, tested then deployed.  It was one of the most exhilarating experiences I’ve been involved in and I’ve been doing project work since the dawn of civilization (at least it feels like that!).

The result was equally impressive.  Even though the RedPrairie Collaborative Flowcasting solution was already an excellent one, the changes that were prototyped and implemented transformed the solution into something special and unique.

In my professional and expert opinion the solution solves all the major retail planning challenges, is intuitive, scales like stink on a monkey and is so simple that even an adult can learn and use it.  Even. An. Adult.

Not long after this experience I read an interesting book called Scrum – about an approach for designing and implementing new technologies that relied on rapid prototyping.  The basic idea was to design things quickly, make the changes, test it and demonstrate it to people and adjust accordingly.  Then rinse and repeat.

Boom!  It was essentially the approach that we’d used so successfully to transform the Flowcasting solution.  And, it got me pondering.

Why wouldn’t we apply the same thinking to our implementation framework?  After all, the idea of a process prototype was not foreign to us – in fact, it’s a cornerstone of our approach.

Perhaps we should do more than one…just like this:

Prototype picture

The idea would be to do shorter bursts of design and lab work, then engage the users, get them to work with the process, and provide feedback and adjust.  I have no idea how many of these micro-prototypes we might need but the approach could be flexible to have as many as required – depending on the magnitude and scope of the change.

I really like the idea and hopefully will test it soon.  We’re working with a great bunch of folks at a Canadian retailer and hopefully we’ll get the opportunity to help them with the implementation.  If that happens, I’m sure we can leverage this thinking and incorporate it into our approach.

It will be like prototyping the prototype.

Saying No

The folks that know me well, understand that I’m a pretty humble guy.  Today I’m going to toot my own horn a little, and share my deepest, closely guarded secret.  If bragging and self-indulgence offend you, then I suggest switching to a different channel.

I’ve had the good fortune to have led two of the most important and foundational planning implementations in retail.  I’ll give you a little background on each, then follow with what I believe are the secrets of success.

First up: Canadian Tire in the mid to late 1990’s.    While the design was essentially what we now call Flowcasting, the implementation focused on the introduction of integrated, time-phased planning from DC to suppliers and linking and collaborating with 1500+ suppliers who, to this day, receive a rolling 39-week projection of planned product purchases.

The implementation was a first in a couple of key areas.  It was the first complete implementation of DRP (Distribution Resource Planning) in retail and also the first widespread use and adoption of supplier scheduling across a retail vendor base.

The solution deployed was Manugistics (now part of JDA) and was also a very early implementation of client-server technology.

The implementation was very successful – improving a number of key metrics like service levels, inventory turns and supplier lead time and delivery performance.

The second implementation was the recently completed implementation of the Flowcasting process at Princess Auto Ltd.  This implementation is a world first.  They are the first retailer to plan their entire, integrated supply chain based on a forecast of consumer demand.  The business is being managed using a single set of numbers and they have achieved the vision outlined in our book (http://www.flowcastingbook.com/).

In terms of results, store in-stock has risen nicely and they consistently have store in-stocks of 97%+, even for promoted products.  Inventories are more productive and the entire business is using the Flowcasting projections to manage to a single set of numbers.

The solution deployed was the Collaborative Flowcasting solution, a joint venture with RedPraire and the Retail Pipeline Integration Group, now also part of JDA.

Obviously, I’m pretty proud of these implementations. While there are a number of things we could have improved upon during the implementations, these two implementations have pushed the thinking and practice of retail supply chain planning and integration.

Now, lean in, real close, for I’m about to share the real secrets of success.

The success of these implementations is a direct result of being able to say…   No.

Great innovations and implementations are, in my opinion, largely a result of being able to say no to suggestions and ideas that don’t support the vision.  Steve Jobs described it as “saying no to a thousand things”.

The same principle applies in supply chain planning and especially the introduction of supporting technologies.

My approach is to build simple designs and only use technology and code where a computer algorithm can do a better job than a human.  Instead of trying to algorithm our way to greatness, the focus is on changing the process and thinking rather than changing computer code.

For example, in my Flowcasting world, I would never allow us to go down the path of ordering product from a supplier at two different lead times – one for regular and one for promotional volumes.   I have consistently said no to this inevitable request – instead, helping the design team understand the complexity of this thinking and, then orienting them to educate and work with suppliers so they can plan and deliver to a single lead time.

This, of course, is just one of many situations where I happily get to say No.  Over time, people begin to realize the impact of saying yes to everything…the design and solution is too cumbersome, too heavy, hard to implement and manage and often collapses under its own weight.

Now, of course I’m not saying to say No to everything suggested.  Usually the suggestions are grounded in decent thinking and needs.  The art is to understand what people need and to deliver the needs, but not necessarily in the manner they have suggested – which, inevitably they do.

Imagine if planning system architects subscribed to the Doherty/Jobs doctrine?

We’d have elegant, simple and intuitive planning solutions – not the complicated, rigid solutions that tend to dominate the market today.

One notable exception was the Flowcasting solution we used during the Princess Auto implementation.  It’s a solution that was designed for Flowcasting from the store/shelf and the architect is also a master at “saying no to a thousand things”.

As a proof point, the initial implementation of the Flowcasting solution was rolled out company-wide using a single business consultant (yours truly) and less than a third of one person’s time from the technology provider, in an elapsed time of 18 months.

Furthermore, the solution was cloud-based and integrated with their existing ERP system using 5 simple integration points (i.e., interfaces) and with No customizations and No system workarounds.

There’s that word No again.

It really is the secret to success.

At least mine.

Flowcasting Implementation - Lessons Learned

As loyal readers know, we’ve recently completed the implementation of the Flowcasting process for the Canadian hard goods retailer, Princess Auto. As a reminder, at a high level, here’s how their planning process works using the Flowcasting process and solution:

  • A single, time-phased forecast of consumer demand, at item/store level drives all planning activity from store to supplier
  • Long term visibility is calculated using the concept of dependent demand, shared throughout the organization and automatically translated into the language of the business (units, cube, weight, dollars)
  • Everyone is working and planning to a single set of numbers and a true model of the business exists inside the Flowcasting planning system
  • Transfers and orders are planned in advance, but are only committed to at a single lead time, regardless of the volume (i.e., promotions orders are created at the same lead time as regular orders)
  • Each day, based on any change, the entire supply chain is re-synchronized so everyone is working with the latest information

Recently, I had the pleasure to give a talk with them at the Supply Chain Management Association Ontario annual conference, and it afforded me the opportunity to grab a couple of beers with Ken Larson and to talk about lessons learned.  Mr. Larson was the Business Sponsor of Flowcasting during the design and implementation, and played a key role in its success.   Given a number of retailers are likely to embark on a Flowcasting journey, here then, are our lessons learned.

It’s about Behavior Change
Flowcasting is first and foremost about people, process and changing behaviors – or as Ken likes to refer to it, “the mental model”.  While you cannot implement the process without a system, paradoxically the more time and effort you spend addressing people and process, the better.

The approach we used was an approach that we’ve honed over the years and has its seeds originating from the Proven Path approach that’s been successfully applied thousands of times by the Oliver Wight Group.  Over the years, we’ve improved on this approach and added details and activities to help ensure that people come to the conclusion themselves that the change is a better way of working.

It’s an approach that requires lots of time and effort on education, process labs, pilots and coaching.  I can still remember Ken initially questioning the amount of education we were planning.  As we were finishing up the rollout out he said to me, “you know, you can’t do too much education”.

Big Leaps aren’t that difficult
Flowcasting looks like a massive change and leap of faith for any retailer.  While it’s true, there is a lot to change for most retailers, our experience is that it’s not nearly as difficult as some might think.   That’s because the process and change are intuitive and natural.

After all, the Flowcasting process plans the way we do business.  We create the forecast only at the store level, because that’s where sales happen.  The DC’s demand and plans are to satisfy the store.  The supplier schedule is to satisfy what the DC’s need.   The lesson here is that even a big change on the surface doesn’t have to be that difficult, especially if it is natural and makes sense.

Process harmony is more important than collaboration
Read any literature regarding supply chain planning and it’s very likely collaboration will surface.  One of the most counter-intuitive lessons learned during the implementation was that, for a retailer utilizing the Flowcasting approach, collaboration was not nearly as important as process harmony and integration.

First, let’s address collaboration and its cousin, consensus.  Since the planning process is driven by a forecast of consumer demand, by item/store, the ability for different groups to improve the forecast by adding valuable knowledge is quite limited.  The retailer holds all the information that are the essential drivers of consumer demand and what we determined is that other groups, particularly the manufacturers, either had some of the same information, or were missing large pieces of information entirely.  It would be almost impossible for them to improve the consumer demand forecast.

Now, suppose we decided to go through the effort to share with them all the same information – POS history and all the attributes that drove promotional sales, for example.  Why would the supplier derive any better forecast using the same information?  The same thinking largely held true internally between the Demand Planner and the Buying Team.  There’s an old saying “in business when two people always agree one of them is unnecessary”.  We think a similar axiom holds true in forecasting consumer demand.

What we discovered, and believe it will be true for most retailers, is that a retail demand planner has the information and knowledge to determine the consumer demand forecast.  Sure, in some cases for things like limited history promotions, the demand planner may need to collaborate and come to consensus internally with the Buying/Merchandising/Category Teams, but this is proving to be an exception rather than the norm.

What’s more important is what we call process harmony and integration.  The demand and supply planning processes do not work in isolation.  They need to integrate closely with key Merchandising processes like Assortment Planning/Line Review and Promotions Planning, to name two.   These processes need to work in harmony and to a heartbeat that works for the business.

For example, new products cannot be introduced and planned violating lead times required to get the product on the shelf.  The same is true for promotions planning as this process needs to be performed far enough into the future so that all parties can plan to fulfill the demand.

Harmony and integration are achieved by co-designing the Flowcasting process with these processes and ensuring that the entire company is educated and understands these key process linkages and timelines.

Software is important and should be largely invisible
As mentioned above, it really is all about people and process.  That of course, is only true as long as you have software capable of supporting the Flowcasting process.   Using the wrong software will be the kiss of death to your efforts, as most of the time will be spent jury-rigging software not suited to the job.

As an example, I know of a number of retail companies that have attempted to enable the Flowcasting process starting, of course, with a forecast of consumer demand at item/store level.    However, since the solutions didn’t have the capability to forecast at the item/store level, attempts were made to forecast at a higher level and then spread this forecast down to each store.  Unfortunately this hasn’t worked well and it dramatically complicates the forecasting process.

The solution we used was designed for the job and as a result the focus of the implementation was a polar opposite to most implementations.  We spent most of our time on process, people, educating, and changing the mental models of people, rather than on the software and integrating it to their legacy ERP system.  And, isn’t that the way a Flowcasting implementation, or any behavior/change implementation, should be?

Our lesson is simple.  Find a solution that works for the task at hand and then the implementation can be largely focused where it should be. What we found is that the software was largely invisible to the effort – that is, not a lot of effort, focus, discussion or issues were as a result of the software.

Summary
I’d like to thank Ken Larson and the entire Team for their work, commitment and sponsorship to help make the Flowcasting implementation at Princess Auto a success.  We’re very hopeful that you take these lessons to heart as you embark on a Flowcasting journey, or any change for that matter.

Small data

Lowes Foods, a family-owned grocery chain with stores located throughout North and South Carolina, is one of the region’s largest retailers, but in the late 2000’s they had a problem.

Declining revenues, triggered by the onslaught of ultra-competitors like Walmart and Amazon threatened the very existence of this 100-or-so retail chain, and unless something was done Management contemplated the closing of a number of stores – which, as everyone knew, would really flip the switch to the inevitable death-spiral of cost cutting and downsizing.

Fortunately, Management took action.  They turned to data analytics to help – even before analytics was in vogue. But instead of utilizing what now is known as Big Data, they retained an analytics expert in a different, and more important, field.  The retained the services of Martin Lindstrom.

Martin is one of the world’s leading branding experts and, arguably, the leading guru in a different form of analytics.

He’s a genius using Small Data to uncover stunning and brilliant insights that, in turn, form the basis of new strategies and tactics that help organizations, like Lowes Foods, thrive.

Instead of slicing and dicing volumes of data – which, as a retailer, Lowes had – his work focuses on very small learnings and observations about customers and indeed, Americans in general.

It’s his contention that Small Data, done well, provides the insights and clarity needed that are almost impossible to find with volumes of data.

Big Data is about information. Small Data is about people – finding the needle in a haystack.

For Lowes, he studied American culture – everything from values and beliefs but importantly very small clues that helped formulate his insight and strategy for Lowes.

As an example, he noticed that American hotels are hotels where the windows are locked.  Coupling that with the number of gated communities and a few other small clues, he concluded the following: despite what they tell you, Americans live in fear.

Studying people around the world, one person at a time, he concluded that the last time people were not afraid was when they were children.  Kids, regardless of culture, are by and large care-free.

So his strategy centered on making Lowes Foods more kid-like.  More fun. More entertaining. The place to go.

The entrance was revamped to include both ChickenWorks and SausageWorks – where busy shoppers could buy ready-made meals.  However, in keeping with the kids theme, the purveyors behind each offering were dressed up characters, complete with costumes that put on a show all day long.  They would argue, shout at each other and generally give each other the gears.  It was pure retail-tainment.

Now, Lowes Foods was always known for the quality of its fresh prepared chicken. In keeping with his insights, Lowes also implemented a new ritual.  When batches of new chickens were removed from the oven, a notice came over the loud speaker and all employees, including Management, would break into their “happy chicken dance”, accompanied by a specific ditty to celebrate hot, fresh, quality chicken.

Another important piece of small data Martin leveraged was the passing of business cards in many cultures. In many cultures, how you hand your business card to someone is an important sign of respect and is done by slightly bowing down and passing the card with two hands.

This small data insight led to a change in how ChickenWorks dealt with customers. Now, purveyors of the chicken would pass the chicken to customers using two hands, while slightly acknowledging the customer in the process. This signals respect to the customer and that what is being bought is of high value – both for the customer, and also for the employee.

All small insights. All based on Small Data – observations and learnings by watching and talking to one person at a time.

And it worked. Sales of ChickenWorks and SausageWorks skyrocketed. And Lowes Foods became known as the place to shop – a fun, unpredictable establishment where customers could buy good quality products, but enjoy themselves in the process.

For us supply chain planners, we’re bombarded every day with people touting the virtues and significance of Big Data. And, to be fair, Big Data is and will be important.

But so is Small Data. Small Data provides insights about people. Small Data opens clues to problem resolution that Big Data would suffer to uncover.

Small Data often provides the tiny clues and insights that drive real, significant change. Here’s a great example from supply chain planning.

For long time readers of our blog you know that the capability now exists to forecast and plan slow and very slow selling products at store level (or any final point of consumption). Hopefully you’re also aware that this allows us to Flowcast every product – that is create time-phased sales, inventory, supply and dollar projections, thereby providing the business with a consistent planning process and a single set of numbers across the organization.

Did you ever wonder how the solution for slow selling products came from?  It came from Small Data (a data point from a single person).

The story goes like this. The architect of the solution was talking about planning at store level with a retail store manager in Canada, when the manager proclaimed the following, “I have no idea when these products will sell, all I know is that I’ll sell about 2 every quarter”.

Boom!

And the idea for integer forecasting and forecasting using different planning horizons (e.g., weekly, monthly, quarterly) was planted. Eventually this nugget of Small Data would be parlayed into the world’s leading and, to date, best solution for planning slow and very slow selling products at store level.

The architect of the slow selling solution didn’t get all sorts of slow selling data and then slice and dice the data to try to uncover a solution. Had he tried that approach, he’d likely still be working on it – just like most technology firms and academics.

When it comes to planning slow selling products, we owe Small Data some thanks:

First, Ken for the small data insight.

And then, Darryl for turning insight to solution.

Only a few

Flowcasting has often been referred to as ‘the Holy Grail’ of demand driven supply chain planning (and rightly so). Driving the entire supply chain across multiple enterprises from sales at the store shelf right back to the factory.

So is Flowcasting a retail solution or a manufacturing solution? Many analysts, consultants and solution providers have been positioning Flowcasting as a solution for manufacturers.

They’re wrong.

While it’s true that some manufacturers have achieved success in using data from retailers to help improve and stabilize their production schedule, the simple fact is that manufacturers can’t achieve huge benefits from Flowcasting until they are planning a critical mass of retail stores and DCs where their products are sold and distributed.

For a large CPG manufacturer, this means collecting data and planning demand and supply across tens of thousands of stores across multiple retail organizations, all of which have their own ways of managing their internal processes.

At the end of the day, a manufacturer initiated Flowcasting implementation results in what amounts to a decision support/reporting system that isn’t directly integrated to the actual product movements that will occur from the factory to the store shelf.

Flowcasting is a retail solution that will greatly benefit manufacturers over time as more and more of their retailer customers adopt the concept.

Flowcasting is not a data collection and calculation exercise. It’s a planning philosophy that requires the folks on the front end of the supply chain (retailers) to change most of their business practices to be forward looking, such as:

  • Assortment planning and line review (including planogram resets)
  • Seasonal planning
  • Promotions planning
  • Network realignments (including store-to-DC network mappings and changes of source)

The retailer holds complete control over all of the above decisions. To the extent that they can change their processes to plan these activities in advance (and share those plans with manufacturers in a language they can understand), everyone in the supply chain benefits.

To the extent that folks on the back end of the supply chain (manufacturers) attempt to ‘work around’ retailer customers who are not thinking or operating in a time-phased manner, we are still left with a disconnected supply chain (perhaps with fancier tools).

You can’t push a rope, as they say.

The perception that Flowcasting is a manufacturing solution has led many people to conclude that Flowcasting is really applicable to only a few companies. If that perception were true, then the conclusion would be correct – but it’s not.

When we conceived of Flowcasting, we were really outlining the concept of totally integrating a retail supply chain – from point of consumption (consumers) to point of origin (the manufacturer’s manufacturers).  I believe it’s why we called the book “Flowcasting the Retail Supply Chain”.

Now, the last time I checked there were more than only a few retailers.

Does Flowcasting apply to virtually every retailer?  I believe it does.  After all, don’t they sell products to consumers using physical stores, virtual stores, or a combination of both and supply those products via a network of distribution points?  Couldn’t that be Flowcasted?  Shouldn’t it be?

Our retail client in Winnipeg Canada is managing their entire business driven by a forecast of consumer demand, by item, by store (including web store), and translating those forecasts into the demand, supply, capacity and financial requirements for a 52 week planning horizon – including sharing purchase projections with their suppliers.

They have implemented and are doing what’s outlined in our book.  They are Flowcasting.

Another misconception about Flowcasting is that all of the data must be in one place and being used by planners from both the retailer and manufacturer organizations. While this is an admirable (and likely achievable) goal, the Flowcasting planning process can be (and has been) achieved without it.

Flowcasting is about seamlessly integrating the entire retail supply chain from one forecast and working a common plan and a single set of numbers. Can and should a retailer manage their business this way?  Without question and our retail client has proven it.

The point is that separate companies can be using the same numbers and executing the same plan without logging into the same system. We need to collectively get a grip on this and learn to determine the difference between what’s cake and what’s icing (and in this particular case, a few sprinkles on top of the icing).

To extend the thinking of Flowcasting even further, consider Flowcasting as a concept and a philosophy.  A philosophy to drive the entire, integrated supply chain from a forecast at the point of consumption.

A couple of years ago, I had the pleasure to visit One Network Enterprises at their Dallas headquarters to talk about supply chain planning.  Inevitably we got talking about Flowcasting.

During the conversations, Aaron Pittman and Richard Dean proclaimed to me that Flowcasting, as a concept, had widespread application.  They insisted that the concept of driving a supply chain from point of consumption to point of origin applied to any industrial supply chain.

If you think about it, they are right.

Had we spoken to them before we wrote the book, undoubtedly we would have more aptly named it “Flowcasting the Supply Chain”.

So if you think the concept of Flowcasting applies to only a few companies…you’re right…Flowcasting does apply to only a few…

Only a few thousand!

First

Normally these newsletters focus on wisdom we’ve gleaned with respect to supply chain planning, specifically as it relates to Flowcasting.  This month’s is going to be a little different.  It’s time for a celebration and to recognize a first in retail!

We’d like to congratulate our client, Princess Auto Limited (PAL), on their successful rollout and implementation of the Flowcasting process and philosophy.

For those of you who don’t know PAL, they are a growing Canadian hard goods retailer with stores from coast to coast, supported by a multi-tier distribution network that flows product from all over the world into their consumer’s hands.

I remember getting a call from one of the Vice Presidents, Tammy and she said, “Hey I read the Flowcasting book you guys wrote and I really like the idea and concept”.  So, I replied, “Great Tammy, I really like it too!”.  And so it began.

Just recently they completed the initial implementation and are completely managing the flow of product using the Flowcasting approach and solution.

As originators of the concept, co-authors of the book and retail focused implementers, we could not be more proud of their efforts and achievements.  Here’s what they have accomplished:

They are managing the entire supply chain from a forecast of consumer demand, by item, by store (and web store).  The forecasting process and solution is elegant, simple and intuitive and is not fraught with unnecessary complication.

The consumer demand forecast accounts for a number of different selling situations and demand patterns, including:

  1. Regular selling products that sell all year round
  2. Seasonal and highly seasonal products
  3. Products on promotions
  4. Slow sellers and very slow sellers
  5. One time buy products that are purchased and sold during a very short time period or when the inventory is available

As an organization when it comes to demand planning they have shifted their thinking and everyone, including the Demand Planners and the Merchandisers, is speaking the same language – “what we think we will sell”.

They use the consumer demand forecast to calculate a series of integrated, time-phased plans (for a 52-week planning horizon) from the store to the supplier factory adhering, like heroes, to the mantra “never forecast what you can calculate”.

The projections of product purchases are shared with their merchandise vendors in the form of a supplier schedule so the vendors have visibility to see future requirements and plan accordingly.  The vendors are beginning to use these projections to plan raw materials and production and are adhering to the concept of “silence is approval” – that is, if they see something in their schedule that looks odd, they contact their respective Analyst – otherwise, they are expected to supply.

Product transfers (from Stores to Distribution Centres) and purchase orders (from Vendors to Distribution Centres) are cut, automatically, at the agreed upon lead time between any two locations.  Since all partners in the supply chain have visibility they are working to a single lead time between two nodes in the supply chain – even promotional requirements are automatically converted to an order at the same lead time as regular demand.  In fact, their thinking has evolved to the point where they understand that, in retail, there really is no difference between a “regular” order and a “promotional order”.

The unit projections at all levels are automatically translated to different languages of the business:

  1. In dollars for finance to aid in budgeting and gaining control of the business
  2. In cube and weight for distribution, transportation and retail operations to provide volume projections and automatically convert the projections to capacity requirements

In terms of planning they are using the Flowcasting process and solution to greatly simplify and improve a number of common retail planning scenarios.  These include:

  1. Product introductions
  2. Product discontinuations that phase out products, store by store, based on available inventory and the store specific consumer demand forecast
  3. New store openings to predict future dated sales and replenishment by product
  4. Promotions, including national and regional events
  5. Seasonal planning to ensure that residual seasonal carryover inventory is minimized
  6. Distribution Centre openings whereby future store requirements are mapped to the new DC in order to properly depict the ramp up demand on the new DC, while simultaneously showing the draw down demand on the older DC

To summarize:

They are managing their business to a single set of numbers and have created a dynamic model of the business – driven by the consumer!

I think you’d agree that’s pretty impressive and, in my opinion, they deserve a round of applause and perhaps even a standing ovation for their accomplishments.

Folks, this is a first in retail supply chain planning and a first for Flowcasting.  A retailer is managing their entire business using Flowcasting and is already beginning to see improvements in on-shelf availability, inventory performance and operational performance – not to mention starting to gain control of the business by connecting the business plan with the day-to-day operational plans.

To the folks at PAL and to the small, dedicated Flowcasting Team that we’ve worked with, I have only this to say….

Congratulations, and well done!!

Philosophy

Tony Dungy is a legendary NFL football coach and one of the most respected figures in professional sports.  Dungy has a coaching philosophy that produced some great teams, a Super Bowl win and a key to the front door of the Football Hall of Fame in Canton, Ohio.

Dungy however, had waited and labored hard to get his first big coaching break.  For 17 years he paid his dues as an assistant coach – first at the University of Minnesota, then with the Steelers, followed by the Kansas City Chiefs, and finally back to Minnesota.

Four times he’d interviewed for an NFL head coaching position and four times he’d come up short.  His philosophy to coaching was his problem.  His philosophy, he explained, was to get players to change their habits.

Most NFL owners just didn’t think he could do it and wondered how he would be able to teach new habits to hardened NFL players.

But Dungy was smart enough to understand that he wasn’t going to create new habits for his players, rather he was going to change old ones.  Habits are a three step loop – the cue, the routine, and the reward.  Dungy knew that it was easier to convince people to adopt a new behavior if there was something familiar at the beginning and end.

In 1996 the woeful Tampa Bay Buccaneers bought into Dungy’s philosophy, hired him, and the rest is history.  Dungy turned the Bucs into one of the winningest teams.  He would become the only coach in NFL history to reach the play-offs in ten straight years, the first African American coach to win a Super Bowl and his coaching techniques would spread throughout the league.

I think Dungy would make a fantastic supply chain project manager who’s mandated to implement a new planning system, like Flowcasting for example.  In fact, I dare say that Dungy is better equipped to deliver lasting, transformational change then most.

Why?

Because Tony understands that the key to long term success is to change behaviors.  And that’s as true for supply chain planning systems as it is for NFL systems.  In fact, it’s true for any people system.

To date, the vast majority of retail time phased planning system implementations haven’t been successful.  In fact, most would be considered rubbish.  Years of fruition and frustrations, millions of dollars pissed away, a complicated and convoluted solution, people that don’t understand, and a solution that can’t be sustained.

Ever wonder why?

Dungy’s story provides the clues.

Most retail time-phased planning system implementations are focused on screwing in the software, not about changing behavior.  It’s so bad that we have spawned an entire industry and discipline of what are referred to as “system integrators”.

Too bad they spend their efforts mostly on data flows rather than mind flows.

We’ve been fortunate to understand Dungy’s lesson (probably because we’re practitioners) and have ingrained this fundamental principle into our approach.

Process and principles-based education, integrated designs, people-focused workshops, process labs and pilots, experiential training, and behavioral coaching and support dominate the way we help companies implement.

Sure, we also help implement the system along the way – it’s just we consider that pretty easy compared to the work of changing behaviors and habits.

You have a choice.  You can implement a system or you can change behaviors.

One will get you a key to the Hall of Fame, while the other will get you nowhere.

If you don’t believe us, just ask Tony.

Brilliant Boredom

Are you bored?

Chances are, you’re not and that’s a problem.

As a society we’ve won the battle against boredom. You probably have a smartphone in your pocket, maybe a game console in your den, perhaps a kindle or iPad in your briefcase.  Congratulations, you’ll never suffer a minute without stimulation. Yippee!

Here’s the problem. Experts say our brains need boredom so we can let our minds wander and be creative. I think they’re right. If you’re like me, then your best ideas always seem to bubble up when you’re bored and lacking outside stimulation.

Being bored is, actually, the critical factor in creativity – whether that’s for folks like us who need to develop new supply chain models or solutions, or anyone working in a creative endeavor.

Boredom allows the mind time to wander.  And a wandering mind is not only a beautiful thing, but also a brilliant and productive thing.  It allows you, subconsciously, to make connections and to reuse ideas and concepts in new and novel ways.

William Shakespeare is widely considered the greatest writer of all time and Romeo and Juliet is one of his finest works. But Bill didn’t create those characters of out the blue. He got the idea for the play from a 3000-line poem by Arthur Brooke, published 30 years earlier.  He got the idea because he was bored and his mind wandered and made a connection.

Henry Ford became the world’s first billionaire by making the connection and applying the idea of the overhead disassembly line of a meat packing plant to create the Detroit assembly line of the Model T.

Steve Jobs used his boredom and wandering mind and followed the lead of Nike. Instead of focusing his advertisements on their products, he turned the lens toward the people who would buy Apple products. As a result of making this connection, he was able to deposit 11 billion dollars into his pocket.

The ideas and concepts of Flowcasting are, in reality, the repurposing of ideas and concepts from manufacturing.  They stemmed from boredom and someone letting things “soak” in their minds and then asking some questions and making connections.

After all, if time phased planning works at a manufacturing or distribution facility, why would it not work at the store?

It appears that Solomon was right. “There is nothing new under the sun.”

If you want to be creative, develop new models and solutions then you need to repurpose the proven. That is, find a successful pattern from somewhere else and use it as a blueprint.

For that to happen, you need to be bored.  You need to let your mind wander – give it “soak time”, free from the endless drivel and distractions it is currently served.  Give it time to make connections.

It worked for Shakespeare, Ford and Jobs and it will work for you too.

So, shut off your cell phone, put down that iPad, close your Kindle reader and do the following: absolutely nothing.

Be bored.

And then, be brilliant.