About Mike Doherty

Mike Doherty

Fundamentals

Imagine you’re a hotshot US high school basketball player during the late 1960’s. You’re all American and can pretty much choose any collegiate program you want, with an almost for certain scholarship attached and a better than decent chance that someday you’ll play professionally in the NBA.

You finally decide to join the famed UCLA program, under the tutelage of the acclaimed John Wooden, aptly named The Wizard of Westwood – an eventual winner of 10 NCAA titles in 12 seasons, including a still record 7 in a row.

I think it’s safe to say you’d be both nervous and excited.

First practice day arrives and you’re intrigued to see what you’ll learn from the Wizard. What techniques does he employ? What’s his secret sauce? How has he been so successful?

Wooden arrives, promptly introduces himself and his staff and new recruits begin to practice a drill that Wooden starts every season with…

learning to put on your socks and tie your laces.

Astonished, your first practice with the top program in the country would include practicing, over and over, how to put on your socks and tie your shoe laces.

John Wooden understood how important fundamentals are. If the players got blisters from their socks or improperly laced shoes, they wouldn’t be able to move as well. If they couldn’t move as well, they couldn’t rebound or shoot as well and they’d miss shots. And if they missed rebounds and shots, they’d lose.

Master the fundamentals, Wooden realized, and the team would excel.

It’s impressive thinking and very insightful for all us working in supply chain planning.

Flowcasting is based on fundamentals. I remember talking recently to an Executive from a technology-focused and hyped firm who proclaimed to me, “Flowcasting is not new or innovative”. After all he proclaimed, “the concept has been around for more than 15 years and the book is 12 years old”.

Ok, so what’s that got to do with anything? Does something have to be new, exciting and, to date, unproven to add value? I think not and I know you do too.

Flowcasting is based on sound fundamentals that will stand the test of time. A forecast of consumer demand, at customer touchpoint only, is used to calculate and translate that only unknown into all resource requirements in the extended retail supply chain (or any industrial supply chain).

Joe Orlicky, one of the Godfathers of time-phased planning, MRP and DRP, said it best, almost 50 years ago when he proclaimed ”Never forecast what you can calculate”.

I’ve never met Dr. Orlicky or Dr. Wooden but I believe that they are kindred spirits. They understood the power and importance of fundamentals.

Now you do too.

A Symphony of Placid Beauty

Game6-FinalPosition

July 23, 1972. Reykjavík, Iceland. An event would occur that day that would rock the chess world and would continue to be talked about, even to this day. It was game 6 of the acclaimed world chess championship match between the World Champion, Boris Spassky of Russia, and the challenger, Bobby Fischer of the United States.

Fischer opened 1. C4, the English Opening – the first time in his entire career that he’d deviated from his beloved 1. E4 opening move. Spassky quickly transformed the opening into the Queen’s Gambit Declined, for which he was one of the world’s foremost experts in this line of defense.

What followed was a masterpiece. Fischer’s moves were new, exciting and novel on a variation that had been played by chess grandmasters for centuries. The moves were pure, clean and deceptively simple, yet powerful and profound.

When Spassky resigned after Fischer’s 41st move, not only did the crowd stand and applaud, so too did Spassky. They all knew that they’d witnessed a masterpiece. A game of such beauty and purity – still talked about to this day, as chess perfection.

Dr Anthony Saidy, a Fischer confidant and assistant described it magically when he proclaimed, “it was like a symphony of placid beauty”.

Fischer’s play in game 6 captures his signature style: crystalline – transparent but ingenious and incredibly profound and powerful. Nigel Short, the highest ranked British Grandmaster of all time sums up Fischer’s play nicely, “The thing that strikes me about Fischer’s chess,” he says, “is that it’s very clear. There are no mysterious rook moves or obscure manoeuvrings. There’s a great deal of logic to the chess. When you look at it you can understand it – afterwards. He just makes chess look very easy.”

There are a lot of parallels to Fischer’s chess, particularly game 6 from 1972, and Flowcasting.

Flowcasting, as you know, seamlessly connects the supply chain from the consumer to the factory in a natural and logical way. That’s easy to understand and most people seem to get that.

However, like analyzing Fischer’s moves, the nuances of the process are deceptively powerful and profound. I’ll outline a couple of important ones, though there are others and they follow the Fischer-like mantra – deceptively easy to understand, simple, yet profound.

The forecasting approach used by the leading Flowcasting solutions does not use any sophisticated algorithms. Instead it uses and builds on profile based forecasting techniques that have been around for decades – the subtle improvement (like some of Fischer’s novelties in game 6) is the use of differing forecast time periods by SKU, converting them to integer forecasts for slow selling items and then consuming these forecasts as actual sales happen.

Why is that placid-like beauty? Because if you study retail, and real sales history, you’ll uncover that the vast majority of products sell less than 26 units per year per store for virtually any retailer. Trying to find a fancy algorithm that can predict when these sales will occur is a fool’s game.

The simple combination of integer forecasting, consumption and daily re-planning simplifies the solution to deliver results. And, once explained to planners, makes sense to them and is easy to understand and manage. Much like Fischer’s moves, the ideas and concepts are deceptively simple and profound.

Consider also the simple and profound concept within Flowcasting of daily, net change re-planning. At our most recent implementation the solution works like this: for any product that had a sale or change that occurred yesterday, then the entire supply chain is re-forecast and re-planned from consumer to factory for that item.

In retail, on a daily basis, only about 5-15% of the products experience a change daily. Only these are re-planned daily, adjusting the future flows of inventory to ensure you remain in-stock and your inventory is productive. All projections are easily and simply converted into the language of the business so that the entire organization is working to a single set of numbers. One other benefit of net change, daily re-planning is that it also dramatically reduces system processing requirements.

Flowcasting is an easy concept and solution to understand and most people wholeheartedly agree with the premise. The trick to making it successful is to understand the nuances, embrace its simplicity and instill, over time, that kind of thinking in your planning organization.

Once you do, then, from experience, your supply chain and indeed your company will work like a Symphony of Placid Beauty!

 

Telephone Poles

telephone poles

It’s no secret that the Navy Seals are one of the most elite teams on the planet. Highly skilled, trained and motivated, they operate with exceptional levels of commitment and teamwork, performing missions around the world that demand excellence and pinpoint precision – like the missions to kill Bin Laden, or rescue Captain Phillips.

If you visit their training facilities in either Coronado or Virginia Beach you’re likely to notice one of their secrets to consistently churning out elite teams.

You’ll notice a stack of telephone poles.

They look like remains from a construction project or a stockpile for a utility, but for Seal Commanders they are sacred. They form the basis of a training routine called Log PT – an approach that instills teamwork, discipline, vulnerability and commitment.

Log PT is not complicated. Essentially six trainees perform a collection of maneuvers that look more like a barn raising. They lift them. Roll them. Carry them and move them from shoulder to shoulder. Do sit-ups while cradling them. Stand for long periods holding them above their heads.

There is no defined strategy for a team of trainees to follow. They must learn to work together, to build commitment and teamwork.

When done poorly, the poles buck and roll, and the team fights with each other, boiling emotions. However, when done well, it looks smooth, quiet and efficient. It has nothing to do with strength – rather it’s performed well when teamwork and harmony emerge. When a team member falters, almost invisibly another team member adjusts their efforts to keep the poles level and steady.

Log PT is the brainchild of Draper Kauffman, a WWII Veteran who got the idea for Log PT (and others that help form the core of Seal training) from being stationed with and serving with the Corps Franc, on the front lines in Germany.

Log PT was designed and first implemented in the late 1940s. And still, to this day, is used to train and prepare elite teams.

Think about that for a moment. With all the new and exciting technologies available today, a simple program based on teams working together and in harmony moving telephone poles around is the core technology used to produce elite teams and performance.

Let that sink in and the lesson on offer.

Everyday, if you’re like me, you’re being bombarded with claims of incredible breakthroughs of potential future performance with new and brilliant technologies – like AI, Big Data, Augmented Reality, Virtual Reality, Internet of Things, just to name a few. And to be fair, I believe the potential is and will be enormous.

The lesson here is that the most elite producing teams on the planet has yet to see the need or benefit of changing their approach – an approach that literally hasn’t changed since the 1940s.

Here’s an example from one of our clients that is consistent with the lesson.

When we demonstrate the Flowcasting planning process for one of our retail clients, many people are shocked to understand how the promotional sales forecast is derived.

It’s basically built from a demand planner looking at POS sales history for that item from past promotions and then, if needed, collaborating with the Category Leader – for situations where there is limited or no history and/or the promotional offer is significantly different than past offers.

They agree on what they think they will sell for the event and the system spreads that forecast down to the participating stores based on simple rules about that items contribution to sales, store by store.

That’s it. Pure simplicity.

Yet, like Log PT, it is delivering awesome results – better than any approaches used before. Helping to deliver industry leading in-stock for promotional events – a thorn for most retailers.

Planners and Category Leaders understand they need to work together, and they do, building commitment and accountability for the promotional sales forecast.

Please don’t think that I’m shitting on new technologies like AI, IoT and any others. I’m not. I believe that there is and will be enormous potential for these technologies and that they will also largely deliver on these promises.

But, I also believe in what is simple and works.

So do my client’s customers.

Ungrain

In 1983 Benjamin Libet, researcher in the Department of Physiology at the University of California, performed one of the most famous and controversial experiments in the history of neuroscience.

In simple terms, Libet’s experiment measured and timed the response of the neural circuitry of the brain, based on some very basic commands – like moving your left wrist, followed by your right wrist.  What he discovered is that there is a time lapse between the decisions our neural circuitry makes for us and our awareness of the situation.

What that means, in a nutshell, is that for basic operations and requests the brain has already been hardwired, or ingrained, into a conditioned response, basically without thought.  The brain has seen this movie (or ask) so many times that the response is automatic.

For us folks who are working on changing people’s behaviors and habits, we can relate.  People become ingrained in current practices, processes and ways of thinking and it usually takes considerable time and effort to change – the thinking and the response.

Libet, however, didn’t stop there.  Further work, research and experiments concluded that there were generally only two ways to change the history of the brain as it relates to a specific ask or task.  They are asking WHY and making a JOKE of the situation.

Let’s look at an important supply chain planning example and focus on the WHY.

To date, most retail planners, consultants and solution providers have firmly cemented and ingrained the thinking that to systemically create a forward looking time-phased forecast by item/store (or webstore) requires that you forecast at multiple levels and then spread the higher level forecasts down to the lower (store) level.

Initially the thinking was that the aggregate level forecast would be more accurate, and that is usually the case.  But some people realized that the higher level forecast was of no value – it’s the lowest level of forecast that drives the integrated supply chain.

Asking and wondering WHY enough times eventually surfaced that the higher level forecast was really only helpful in determining a selling pattern, especially for slower selling products where a pattern was difficult to detect.

Our colleague, Darryl, not only understood but asked WHY it was necessary to forecast at a higher level.  Couldn’t the pattern be determined, at the selling location, without the need and complexity of forecasting at a higher level.

Eventually, he arrived at a simple, sensible solution.  In a previous newsletter, I outlined the key elements of the approach but the key elements of the approach are:

  • An annual forecast is calculated, along with a decimal forecast (by day and week) for the 52 weeks that comprise the annual forecast
  • A category or department level selling pattern is calculated at the store location (or other’s if needed)
  • Simple user forecast thresholds are applied against the annual forecast to determine the forecast time period and how to determine the selling pattern – including using the category/department level pattern from above for slow sellers (to get the sales pattern)
  • The same thresholds determine whether to convert the decimal forecast to integers
  • For the forecasts that will be converted to integers, a random number between 0 and 1 is calculated, then the small decimal forecasts are added from there and once the cumulative forecast hits 1, then an integer forecast is 1 is used in that period, and the counter and randomizer starts again…this logic is applied to the 52 week forward looking forecast

Now, while the above is tougher to write to help understand, our experience in outlining this to people is that they not only understand, but it makes intuitive sense to them.

This solution was originally key functionality of the RedPrairie Collaborative Flowcasting solution and is now available within the JDA solution set, aptly named JDA Slow Mover Forecasting and Replenishment.

Yes, but does it work?

The graph below outlines the sales forecasts of our recent implementation of Flowcasting at a Canadian hardgoods retailer, using this exact approach:

Slow-sellers2

As you can see, a significant number of products are slow or very slow sellers (54% sell less than one unit per month at a store).  However, using this approach the company was able to improve in-stock by 6%, while also reducing and improving inventory performance.

Having an integer-like forecast for all these item/store combinations is important since it allows them to calculate time-phased DC and vendor replenishment plans, along with complete capacity and financial projections – allowing them to work to a single set of numbers.

In addition, the solution is so much simpler in terms of understanding, flexibility and processing requirements.

Given the above, people should embrace this solution full tilt.  This should be a no-brainer, right?

Nope, wrong.

Our old villain, ingrained, has helped cement the view of higher level forecasting in retail.

It’s ironic, and a little sad, that a number of people and companies who advise and help companies change and learn new and presumably better ways have not embraced this approach, and instead are still pushing old, tired and ineffective solutions.

They need to ungrain their thinking (ungrain is the opposite of ingrain and yes, I made this word up!).

My advice is simple: if you’re a retailer who is forecasting at a higher level, or you’re someone who’s pushing this approach, please stop.

Learn. Understand. See it yourself.  Ask WHY.  And, importantly…

Ungrain the old and begin to ingrain the new.

A beautiful mind

Do you remember the movie “A Beautiful Mind”?

The film is based on mathematician Dr. John Nash’s life, and, during one part, attempts to explain how Nash got the idea for his equilibrium theory as a part of game theory. In the scene Dr. Nash is at a bar with three pals, and they are all enraptured by a beautiful blond woman who walks in with her friends.

While his friends banter about which of them would successfully woo the woman, Dr. Nash concludes they should do the opposite – Ignore her. “If we all go for her,” he says, “we block each other and not a single one of us is going to get her. That’s the only way we win.”  That’s the moment when he formulated his idea.

The idea that pops into Dr. Nash’s head at that moment is very instructive in the innovation process.  Often, real innovation happens because you are in a situation and you’re paying attention, or listening, and you just connect the dots.  It’s the subconscious mind at work, finally coming to grips with something you’ve likely been pondering for a while.

It’s a great film and a beautiful story.

Here’s another beautiful story of essentially the same approach that was used to create the breakthrough thinking and solution in demand planning at store level – which, as we know, drives the entire Flowcasting process.

In retail, forecasting at store level, systemically, has been a major challenge for a long time.  Not only do most retailers have millions of store/item combinations, they also need to deal with virtually every imaginable sales pattern.  But, by far, the largest challenge, is the large number of slow selling items – accounting for 50%+ of virtually any retailers assortment.

The main issues with slow selling items is twofold: finding a selling pattern amongst sparse data, and ensuring that the forecast reflected the somewhat random nature of the actual sales.

The hero in our true story is named Darryl.  Darryl is the architect of the RedPrairie Flowcasting solution (now part of JDA) and, specifically, the profile-based, randomized integer forecasting approach that has simplified retail store level forecasting to a beautiful, elegant, intuitive process that does something incredible – it works and is very low touch.

The baseline forecasting process works like this:

FcstApproach2

In Darryl’s approach, unlike that of other attempts, he first calculates an annual forecast by item/store.  Then simple user defined sales thresholds automatically doing the following:

  1. Determine what time period to use to forecast in (weeks, months, quarters, semi-annual)
  2. Determine which level of already pre-aggregated history to use to spread the annual forecast in the time period
  3. Determine whether to convert the forecast into integers – which he randomizes by store/item, ensuring that the same item across many stores will not have an integer forecast in the same week

How did he think of this?  Well, similar to Dr. Nash, he found himself in a situation where someone said something very interesting and it sparked his thinking and helped him connect the dots.

Rumour has it that Darryl was walking around a Canadian Tire store years ago and was talking to the owner of the store.  They approached a section of the store and the owner grabbed a particular product and said something like, “I don’t know when we’ll sell these, all I know is that we’ll sell two every quarter”!

BOOM!  The idea for a different time period for forecasting by item/store popped into Darryl’s head and this event triggered the thinking and eventual development of the baseline forecasting process.

This is a significant development – so much so that it has been patented and is now available with the JDA product solution set.  What it has done is obsolete the need for multi-level forecasting approaches that, to date, have been the norm in attempting to create store/item level forecasts.

This approach is simple, intuitive, elegant and is computationally blazingly fast – another key requirement in retail store level forecasting.

Oh, and it also works.  We implemented this exact approach during our very successful implementation of Flowcasting at Princess Auto.  The solution is forecasting items in all varying time periods and is creating store/item forecasts for products that sell from 1 unit a year at store level, to over 25,000 units a year.

Even more important is that the people that would become demand planners (with no prior knowledge or experience in demand planning) would understand and become proficient using this approach.  Just another benefit of simplicity.

John Nash looks like any other bloke.  But, without a doubt, he’s got a beautiful mind.

The hero in our story, Darryl is just like John.  If you met him, you’d immediately think he’s another Vermont farmer who’s good with hydraulics.  But behind those coveralls and hay-stained hands is…

A beautiful mind.

The EACH Supply Chain

It’s no secret that retail is undergoing some pretty big changes and will undoubtedly see even more significant shifts in the coming years. While most people are extolling the impact of digitization on retail, there is, in my opinion, a very fundamental and profound shift underway.

The shift is to the EACH supply chain.

Supply chain efficiency is about density. Filling up trucks, planes and trains. Delivering bigger orders. Driving the unit handling cost down. Makes sense and for any retailer, having a reasonable and competitive cost structure is important.

The world, however, is changing. Two major shifts are driving us towards the EACH supply chain – customer expectations and product proliferation/marketing.

Most retail supply chain professionals gained their supply chain knowledge in the world of logistics. It was about moving boxes and cases between facilities. Many, even to this day, don’t really consider the store part of the supply chain. They’ve been conditioned to be content once the product leaves a facility, destined to a store. And measures, to date, reflected that. Fill rates were measured and reported on based on if orders left a facility on time and in full.

It’s only relatively recently that retail supply chain executives began to measure store in-stock and, sometimes, on-shelf availability. Try to find a retailer that measures and reports on store inventory accuracy? It’s a tough search. Yet, having an accurate on-hand balance at store level is becoming more and more a necessity – not only to deliver an excellent customer experience but, importantly, to enable the supply chain to perform, particularly in an omni-channel world.

Retail supply chain thinking, however, needs to extend beyond the store. It needs to, and does, include the customer. The customer is now empowered – armed with finger-tip product and delivery knowledge and their expectations are on the rise.

Customers buy in EACHes, not cases – whether in store, or online and, as we all know, online volume is increasing and that trend will likely continue. Meaning, of course, that the retail supply chain needs to be re-thought and re-architected to deliver in EACH.

When omni-channel was in its infancy, many retailers set up a dedicated distribution centre (DC) to process and fulfill online orders. DC’s, however, traditionally don’t deal with EACHes very well. Combine that with the cost of home delivery and omni-channel fulfillment has been, to date, a losing proposition for most retailers.

Retailers have traditionally set their shelf configurations to hold more than a case quantity and have set their replenishment strategy such that once the on hand balance reaches a minimum level, then an additional case can be ordered to, hopefully, flow directly to and fit on the shelf.

The problem is that all these cases take up too much space and inventory and, often, the arrival of a case of a specific product results in enough inventory to last for weeks and sometimes months. What retailers are beginning to realize is that if they can flow product closer to the EACH rate in which they are demanded, more products can fit on the shelf and be available in the store for presentation to customers.

It’s hard enough for retailers to encourage and entice customers to shop in store and one way is to increase the breadth of assortment – along, of course, with making the shopping experience unique, entertaining and fun.

Marketing and advertising is also evolving to an EACH philosophy and that’s also pressuring the retail supply chain to be EACH-capable. The proliferation of mobile device ads and offers are targeted specifically to people based on data and learnings from individual consumers shopping and search habits. The result? Further demands in EACHes.

Product proliferation is also necessitating the EACH supply chain. The “endless aisle”, as it’s sometimes called, is upon us, and think about the number of possible products available for purchase from Amazon, or on the web in general – it’s staggering and, again, will only increase.

Amazon, of course, is the poster-child of the EACH supply chain. Think about what they’ve been up to over their 20 years of existence. Making online shopping as easy and seamless as possible, while slowly and steadily moving fulfillment closer and closer to the consumer – reducing times and costs in the process. Inherently they understood and have shaped the thinking towards the EACH supply chain and continue to work to reduce costs and, more importantly, cycle times and customer friction.

As customers shift more of their consumption to online this necessitates thinking and designing the flow of inventory from supply to consumer. What’s emerging as a viable model is for retailers to leverage the store to deliver to the customer – either by encouraging/rewarding for picking up in store, or by delivering from store to home.

On the planning front, Flowcasting should be considered a foundational process to facilitate and enable the EACH supply chain. Given many retailers will evolve to delivering the EACH demand from store level, then it’s logical and sensible to plan the total consumer demand from store level. Some of the sales in the store will be through the cash register, some by customer pick-up and still others by shipping from store to home.

Regardless, it’s still a sale and this sales history would be used, in aggregate, at store level to forecast future consumer demand for that store/supply point. Since Flowcasting re-forecasts and re-plans the entire supply chain daily, shifts in demand are quickly assessed, and translated into meaningful plans for all partners in the retail supply chain.

Retail and retail supply chains are undergoing massive changes. I believe that, at the heart of this transformation, is the shift to the EACH supply chain.

Of course, you may not agree and that’s cool.

After all, as the old saying goes – to EACH their own.

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.