Fossilized thinking

Fossilized

In August 1949 a group of fifteen smokejumpers – elite wild land firefighters – descended from the Montana sky to contain an aggressive fire near the Missouri River.  After hiking for a few minutes the foreman, Wagner Dodge, saw that the fire was raging – flames stretching over 30 feet in the air and blazing forward fast enough to cover two football fields every minute.

The plan was to dig a trench around the fire to contain it and divert it towards an area with little to burn.

Soon it became clear that the fire was out of control and the plan was out the window.  The fire was unstoppable so, instead, they’d try to outrun it, to safer ground.

For the next ten minutes, burdened by their heavy gear and tiring legs, the team raced up an incline, reaching an area that was only a few hundred yards from safety.  But the fire was unflinching, gaining ground like a wolf chasing down a wounded animal.

Suddenly, Dodge stopped.  He threw off his gear and, incredibly, took out some matches, lit them, and tossed them onto the grass.  His crew screamed at him but to no avail – when Dodge didn’t listen, they had no choice and turned and ran as fast as they could, leaving their foreman to what they believed to be certain peril.

But Dodge had quickly devised a different survival strategy: an escape fire.  By torching an area in front of him, he choked off the fuel for the fire to feed on.  Then, he poured water on a rag, put it over his mouth and lay down, face first, on the freshly burnt grass while the fire raged and sped past and over him.  In total, he’d spend close to 15 minutes living off the oxygen close the ground he’d just torched.

Sadly, of the rest of his crew that tried to outrun the blaze, only two would survive.

Wagner Dodge was able to survive not because of his physical fitness, but his mental fitness – the ability to rethink and unlearn.  The prevailing paradigm was that, at some stage for an out-of-control blaze, your only option is to try to out run it.  But Dodge was able to quickly rethink things – believing that, perhaps, by choking off it’s fuel line and providing his own small wasteland area, the fire might avoid him.  The ability to rethink had saved his life.

As it turns out, the ability to rethink and unlearn is also crucial for retails survival and revival.

It’s no secret, many retailers are struggling.  The same is true of many retail supply chains.

Do you ever really wonder why?

Lots of people blame retail’s generally slow adoption of new technologies and business models as the main factor, but I think it’s a deeper, more fundamental and chronic problem.

Technology is not eating retail.  Fossilized thinking is.

What’s fossilized thinking?  It’s people – at all levels in an organization – who are unwilling or unable to challenge their long-held beliefs.  Not only challenge them, but be able to rethink, unlearn and change them often.

As a case in point, many people who work in the retail supply chain don’t include the consumer as part of the supply chain.  Yet, if you think about it, the retail supply chain begins and ends with the consumer.  There are even a number of folks who don’t consider the store part of the supply chain.  Once the product has shipped from the DC to the store, then, incredibly, job done according to them.

Don’t believe me?

I won’t embarrass them, but just recently I read a “thought leadership” article from one of the world’s pre-eminent consulting firms regarding the top trends in retail supply chain management.  At #3, and I kid you not, was the growing view that the store was a key part of the supply chain.

Flowcasting tribe members know better and think differently.  The consumer and store have, and always will be, part of the supply chain.  That’s why we understand that, in retail, there is no such thing as a push supply chain – since you can’t push the product to the consumer.

In my opinion (and I’m not alone), fossilized thinking, not technology adoption, is the real disruptor in retail.

If you want to improve, innovate or disrupt then you must…

Constantly rethink, unlearn and challenge your own thinking!

The key to being in-stock

Key

Abraham Lincoln is widely considered the greatest President in history. He preserved the Union, abolished slavery and helped to strengthen and modernize government and the economy. He also led a fragile America through one of her darkest and most crucial periods – the American Civil War.

In the early days of the war, there were lots of competing ideas about how to secure victory and who should attempt it. Most of the generals at that time had concluded that the war could only be won through long, savage and bloody battles in the nation’s biggest cities – like Richmond, New Orleans and even Washington.

Lincoln – who taught himself strategy by reading obsessively – had a different plan. He laid out a large map and pointed to Vicksburg, Mississippi, a small city deep in the South. Not only did it control important navigation waterways, but it was also a junction of other rivers, as well as the rail lines that supplied Confederate armies and plantations across the South.

“Vicksburg is the key”, he proclaimed. “We can never win the war until that key is ours”.

As it turns out, Lincoln was right.

It would take years, blood, sweat and ferocious commitment to the cause, but his strategy he’d laid out was what won the war and ended slavery in America forever. Every other victory in the Civil War was possible because Lincoln had correctly understood the key to victory – taking the city that would split the South in half and gaining control of critical shipping lanes.

Lincoln understood the key. Understanding the key is paramount in life and in business.

It’s no secret that many retailers are struggling – especially in terms of the customer journey – most notably when it comes to retail out of stocks. Retail out of stocks have remained, on average, sadly, at 8% for decades.

So what’s the key to finally ending out-of-stocks?

The key is speed and completeness of planning.

First, we all know that the retail supply chain can and should only be driven by a forward looking forecast of consumer demand – how much you think you’ll sell, by product and consumption location.

Second, everyone also agrees (though few understand the key to solving this thorn in our ass) that store/location on-hands need to be accurate.

But the real key is that, once these are in place, the planning process must be at least done daily and must be complete – from consumption to supplier.

Daily re-forecasting and re-planning is necessary to re-orient and re-synch the entire supply chain based on what did or didn’t sell yesterday. Forecasts will always be wrong and speedy re-planning is the key to mitigating forecast error.

However, that is not enough to sustain exceptionally high levels of daily in-stock. In addition, the planning process must be complete – providing the latest projections from consumption to supply, giving all trading partners their respective projections in the language in which they operate (e.g., units, volume, cube, weight, dollars). The reason is simple – all partners need to see, as soon as possible, the result of the most up to date plans. All plans are re-calibrated to help you stay in stock. And the process repeats, day in, day out.

We have retail clients that are achieving, long term, daily in-stocks of 98%+, regardless of the item, time of year or planning scenario.

They understand the key to making it happen.

Now you do too.

Questions and Answers

Questions

Did you know that most, if not all, organizations and innovations started with a question, or series of questions?

Reed Hastings concocted Netflix by asking a simple question to himself…”what if DVD’s could be rented through a subscription-type service, so no one ever had to pay late fees?” (Rumor was that this was just after he’d been hit with a $40 late fee).

Apple Computer was forged by Woz and Jobs asking, “Why aren’t computers small enough for people to have them in their homes and offices?”

In the 1940’s, the Polaroid instant camera was conceived based on the question of a three year old. Edwin H. Land’s daughter grew impatient after her father had taken a photo and asked, “Why do we have to wait for the picture, Daddy?”

Harvard child psychologist Dr. Paul Harris estimated that between the ages of two to five, a child asks about 40,000 questions. Yup, forty thousand!

Questions are pretty important. They lead to thinking, reflection, discovery and sometimes breakthrough ideas and businesses.

The problem is that we’re not five years old anymore and, as a result, we just don’t seem to ask enough questions – especially the “why” and “what if” kinds of questions. We should.

Turns out our quest for answers and solutions would be much better served by questions. To demonstrate the power of questions, let’s consider the evolution of solutions to develop a forward looking, time-phased forecast of consumer demand by item/store.

Early solutions realized that at item/store level a significant number of products sold at a very slow rate. Using just that items sales history, at that store, made it difficult to determine a selling pattern – how the forecasted demand would happen over the calendar year.

To solve this dilemma, many of the leading solutions used the concept of the “law of large numbers” – whereby they could aggregate a number of similar products into a grouping of those products to determine a sales pattern.

I won’t bore you with the details, but that is essentially the essence behind the thinking that, for the retail/store, the forecast pattern would need to be derived from a higher level forecast and then each individual store forecast would be that stores contribution to the forecast, spread across time using the higher level forecast’s selling pattern.

It’s the standard approach used by many solutions, one who’s even labelled it as multi-level forecasting. Most retail clients who are developing a time-phased forecast at item/store are using this approach.

Although the approach does produce a time-phased item/store forecast, it has glaring and significant problems – most notably in terms of complexity, manageability and reasonableness of using the same selling pattern for a product across a number of stores.

To help you understand, consider a can of pork and beans at a grocery retailer. At what level of aggregation would you pick so that the aggregate selling pattern could be used in every store for that product? If you think about it for a while, you’ll understand that two stores even with a few miles of each other could easily have very different selling patterns. Using the same pattern to spread each stores forecast would yield erroneous and poor results. And, in practice, they do.
Not only that, but you need to manage many different levels of a system calculated forecast and ensuring that these multi-level forecasts are synchronized amongst each level – which requires more system processing. Trying to determine the appropriate levels to forecast in order to account for the myriad of retail planning challenges has also been a big problem – which has tended to make the resulting implementations more complex.

As an example, for most of these implementations, it’s not uncommon to have 3 or more forecasting levels to “help” determine a selling pattern for the item/store. Adding to the issue is that as the multi-level implementation becomes more complex, it’s harder for planners to understand and manage.

Suffice it to say, this approach has not worked well. It’s taken a questioner, at heart, to figure out a better, simpler and more effective way.

Instead of the conventional wisdom, much like our 3 year old above, he asked some simple questions…

“What if I calculated a rolling, annual forecast first?” “Couldn’t I then spread that forecast into the weekly/daily selling pattern?”

As it turns out, he was right.

Then, another question…

“Why do I have to create a higher level forecast to determine a pattern?” Couldn’t I just aggregate sales history for like items, in the same store, to determine the selling pattern?”

Turns out, he could.

Finally, a last question…

“Couldn’t I then multiple the annual forecast by the selling pattern to get my time-phased, item/store forecast?”

Yes, indeed he could.

Now, the solution he developed also included some very simple and special thinking around slow selling items and using a varying time period to forecast them – fast sellers in weekly periods, slower sellers monthly and even slower sellers in quarterly or semi-annual periods.

The questions he asked himself were around the ideas of “Why does every item, at the retail store, need to be forecast in weekly time periods?”

Given the very slow rate of sales for most item/stores the answer is they don’t and shouldn’t.

The solution described above was arrived at by asking questions. It works beautifully and if you’re interested in learning more and perhaps asking a few questions of your own, you know how to find me.

So, if you’re a retailer and are using the complicated, hard-to-manage, multi-level forecasting approach outlined above, perhaps you should ask a question or two as well…

1. “Why are we doing it like this?”
2. “Who is using the new approach and how’s it working?”

They’re great questions and, as you now know, questions will lead you to the answers!

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.

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.