Concealing Your Shame

 There is no shame in not knowing; the shame lies in not finding out. – Russian Proverb

Customer expectations of brick & mortar retailers are changing.

Most retailers are failing miserably at meeting those expectations with regard to providing information about stock availability at their stores online.

I’m not talking about whether or not they have sufficient stock to meet customer demand – it’s even more basic than that. When a customer is looking to visit your store can you even properly tell him/her what your stock status actually is?

Recently, I decided to anecdotally put one particular store to the test on this. I chose this store for the following reasons:

  1. They actually publish their store on hand balances online for all the world to see in real time.
  2. They offer a “buy online, pick up in store” option.
  3. I visit the store fairly frequently and it’s about 1 kilometre from my house.

On the day of my “study”, I only had 2 items I needed. Before leaving, I called up the pages for those items on my iPhone and went to the store. When I got there, I refreshed the pages to retrieve the most up-to-date stock information and compared that number to what I actually found on the shelf. After that, I wandered around the aisles and picked a few other items at random and did the same thing.

Now before I share the results, there are some rather significant caveats that I need to mention:

  1. The inventory is updated in real time, but obviously it’s based on POS transactions. When I did the “physical count” on the shelf, it’s certainly possible that some other customer had picked the item off the shelf but had not yet paid for it.
  2. The study was performed on a busy Saturday afternoon about 4 weeks before Christmas. Not exactly ideal timing for ensuring that the store was stocked neatly or that there wasn’t a lot of product floating around in customer baskets as per point 1 above.
  3. I know that this store has a very large back room and doesn’t keep separate on hand balances for shelf stock and backroom stock. In cases where my count is short, it’s certainly possible that the product was in the back room or displayed elsewhere in the store.
  4. When I got a count discrepancy, I did not ask the staff for help in locating the “missing” items. As I mentioned, we are only weeks away from Christmas and I wasn’t about to waste people’s time finding items that I had no intention of purchasing.

The first item on my list was a carbon dioxide cylinder for our SodaStream. Note that I’ve attempted to crop out any information that would reveal who the retailer is (logos, shelf tags, product identifiers, etc.). This won’t stop some of you from recognizing them, but I can’t do much about that.

Okay, back to the SodaStream cylinder. When I reached the shelf and refreshed the page on my phone, here’s what I got:

Wow, 337 units in stock! (As an aside, this retailer almost always shows the aisle number in the store where the product can be found, which is stellar – not sure why it’s not shown in this case, but it’s a product I buy often, so I knew exactly where to go).

Now here’s the shelf:

You can’t see them all in this image, but the actual count was 18 units, far short of 337. Obviously this is either a massive inventory record error or there’s a pallet of them on a secondary display or in the back room. So long as they sell fewer than 18 per day, buyers of this item will be happy.

RESULT: INCONCLUSIVE

The second item on my list was a large, bark deterring dog collar for my mother-in-law’s dog (it uses vibration or noise to deter barking, not electric shocks, so don’t judge me!). As you’ll see below, my phone told me to go to aisle 56 to find 1 unit:

Unfortunately when I got to the aisle, there was none to be found. I spent a few minutes searching all of the overheads, pegs and bins in this aisle and one aisle over in each direction and couldn’t find it.

RESULT: FAIL

While in aisle 56, I picked another random item (mulberry scented dog shampoo) and looked it up on my phone:

And here is the shelf:

6 units – right on the nose.

RESULT: SUCCESS

Now, how about this Bissell Little Green pet stain remover?

This item is on promotion for $25.00 off and I found an end aisle display with 12 units:

…and one more unit in the home in aisle 60:

So that’s 13 on the shelf vs 32 units reported on hand. But because this item is promoted, there is almost certainly more in the back room to replenish the shelves.

RESULT: INCONCLUSIVE

On to aisle 17 to check out the Stanley chalk line reels.

Hoping to find 5…

…and 5 it is.

RESULT: SUCCESS

You get the picture (no pun intended). I also documented a few other items in the same way, but I’ll spare you the photographic evidence:

  • Richard Self Adhesive Drywall Tape: 3 online, 4 on the shelf (RESULT: PRETTY CLOSE)
  • T.S.P. Heavy Duty Cleaner (400g): 10 online, 4 on the shelf (RESULT: FAIL)
  • Soft Glide Cabinet Hinge: 12 online, none to be found anywhere (RESULT: EPIC FAIL)
  • OOK Picture Hanging Kit: 14 online, 13 on the peg (RESULT: PRETTY CLOSE)

In summary:

  • There were 3 failures out of 9 (I’m counting “Pretty Close” and “Inconclusive” in the success column for fairness)
  • 2 of those 3 failures could have resulted in a lost sale on that day (i.e. the reported on hand was > 0, but there was no stock to be found on the sales floor).
  • With regard to the bark deterrent collar (one of the items I actually wanted to buy), there’s more to the story:
    • When I got home, I ordered the item for in store pickup and the on hand immediately dropped to zero
    • Later that day, I received an email notification and a phone call informing me that the item wouldn’t be available for pickup until the next day
    • From this, I’m surmising that they couldn’t find it in the store and had one delivered from a nearby store overnight
    • The next day, I picked up the item at my home store – lost sale averted

So what was the point of all this and why did I choose “Concealing Your Shame” as the title? Am I trying to shame this retailer for what (anecdotally and with all of my previous caveats applied) looks like imperfect performance?

Au contraire!

Store on hand accuracy is not easy to achieve and this retailer is to be highly commended for their confidence and willingness to be as transparent to customers as possible.

No, the shame is reserved for those retailers who have on hand balances readily available in their systems but choose not to share it. I guess the thinking is that you can’t fail if you don’t try.

I say it again: customer expectations are changing.

If you’re afraid to share your on hand balances with your customers, I have 2 questions:

  1. Why? (you already know why)
  2. What are you doing about it?

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!

Accuracy or Precision?

 

It is the mark of an educated mind to rest satisfied with the degree of precision which the nature of the subject admits and not to seek exactness where only an approximation is possible. – Aristotle (384 BC – 322 BC)

barn

My favourite part about writing these articles is finding just the right quote to introduce them. Before we get started, go back and read the quote from Aristotle above if you happened to skip past it – I think it both accurately and precisely summarizes my argument.

Now in the context of forecasting for the supply chain, let’s talk about what each of these terms mean:

Accuracy: Ability to hit the target (i.e. how close is the actual to the forecast?)

Precision: Size of the target you’re aiming at (i.e. specificity of product, place and timing of the forecast)

I’m sorry to be a total downer, but the reason this article is titled Accuracy or Precision is because you can’t have both. The upper right quadrant in the illustration above ain’t happening (a bit more on that later).

In the world of forecasting, people seem obsessed with accuracy and often ask questions like:

  • What level of forecast accuracy are you achieving?
  • How should we be benchmarking our forecast accuracy?
  • Are we accurate enough? How can we be more accurate?

The problem here is that any discussion about forecast accuracy that does not at the same time account for precision is a complete waste of time.

For example, one tried and true method for increasing forecast accuracy is by harnessing the mystical properties of The Law of Large Numbers.

To put it another way – by sacrificing precision.

Or to put it in the most cheeky way possible (many thanks to Richard Sherman for this gem, which I quote often):


Sherman’s Law:
Forecast accuracy improves in direct correlation to its distance from usefulness.


So how do we manage the tradeoff between precision and accuracy in forecasting?You must choose the level of precision that is required (and no more precise than that) and accept that in doing so, you may be sacrificing accuracy.

For a retailer, the only demand that is truly independent is customer demand at the point of sale. Customers choose specific items in specific locations on specific days. That’s how the retail business works.

This means that the precision of the forecasting process must be by item by location by day – full stop.

Would you be able to make a more accurate prediction by forecasting in aggregate for an item (or a group of items) across all locations by month? Without a doubt.

Will that help you figure out when you need to replenish stock for a 4 pack of 9.5 watt A19 LED light bulbs at store #1378 in Wichita, Kansas?

Nope. Useless.

I can almost see the wincing and hear the heart palpitations that this declaration will cause.

“Oh God! You’ll NEVER be able to get accurate forecasts at that level of precision!” To that I say two things:

  1. It depends on what level of accuracy is actually required at that level of precision.
  2. Too damn bad. That’s the requirement as per your customers’ expectation.
With regard to the first point, keep in mind that it’s not uncommon for an item in a retail store to sell fewer than 20 units per YEAR. On top of that, there are minimum display quantities and pack rounding that will ultimately dictate how much inventory will be available to customers to a much greater degree than the forecast.Forecasts by item/location/day are still necessary to plan and schedule the upstream supply chain properly, but it’s only necessary for forecasts at that level of precision to be reasonable, not accurate in the traditional sense of the word. This is especially true if you also replan daily with refreshed sales and inventory numbers for every item at every location.

There are those out there who would argue that my entire premise is flawed. That I’m not considering the fact that with advances in artificial intelligence, big data and machine learning, it will actually be possible to process trillions of data elements simultaneously to achieve both precision and accuracy. That I shouldn’t even be constraining my thinking to daily forecasting – soon, we’ll be able to forecast hourly.

Let’s go back to the example I mentioned earlier – an item that sells 20 units (give or take) in a location throughout the course of a year. Assuming that store is open for business 12 hours out of every day and closed 5 days per year for holidays, there are 4,320 hours in which those 20 units will sell. Are we to believe that collecting tons of noise (whoops, I meant “data”) from social media, weather forecasting services and the hourly movement of soybean prices (I mean, why not, right?) will actually be able to predict with accuracy the precise hour for each of those 20 units in that location over the next year? Out of 4,320 hours to choose from? Really?

(Let’s put aside the fact that no retailer that I’ve ever seen even measures how accurate their on hand records are right now, let alone thinking they can predict sales by hour).

I sometimes have a tendency to walk the middle line on these types of predictions. “I don’t see it happening anytime soon, but who knows? Maybe someday…”

Well, not this time.

This is utter BS. Unless all of the laws of statistics have been debunked recently without my noticing, degrees of freedom are still degrees of freedom.

Yes, I’m a loud and proud naysayer on this one and if anyone ever actually implements something like that and demonstrates the benefits they’re pitching, I will gleefully eat a wheelbarrow of live crickets when that time comes (assuming I’m not long dead).

In the meantime, I’m willing to bet my flying car, my personal jetpack and my timeshare on the moon colony (all of which were supposed to be ubiquitous by now) that this will eventually be exposed as total nonsense.

The Autonomous Self-learning Supply Chain

I have to admit, its hard work trying to keep up with the latest lingo and thinking when it comes to supply chain planning. Suffice it to say, the concept of digitizing the supply chain is not only cool, but offers tremendous value to those companies that achieve it…and it will, over time, become the norm, in my humble opinion.

A number of companies and supply chain technologists are pursuing a vision they describe as the Autonomous Supply Chain – a supply chain that is largely self-learning, adapting and holistically focused on continuously meeting the needs of consumers and customers.

A lot of folks, when they hear this, shutter at the thought, or dismiss it out of hand…poppycock they say, this will never happen and is a futurist’s wet dream.

I beg to differ and not only essentially agree with the vision, but can offer initial proof that the concept not only has merit, but also tremendous potential.

At one of our most recent retail clients, they use the Flowcasting process to plan and manage the flow of inventory from supplier to consumer. What’s brilliant and consistent with the idea of the autonomous and self-learning supply chain is that they have, within their Flowcasting solution, a digital twin of their entire, extended supply chain.

What’s a digital twin?

A digital twin is a complete model of the business, whereby all physical product flows, both current and planned, are digitally represented within the solution – a complete, up-to-date, real time view of their business; containing all projected flows from supplier to consumer for an extended planning horizon of 52 or more weeks.

The Flowcasting solution and digital model of the business enables what we often refer to as continuous planning.

The process and solution re-plans and re-calibrates the entire value chain, digitally, based on what happens physically. Changes in sales, inventories, or shipments will result in re-forecasting and re-planning product flows – to stay in stock, flow inventory, and respond to real exceptions or unplanned events. The process, solution and supply chain is self-learning.

The result is that the Flowcasting process/solution can manage the flow of information and trigger the movement of goods, digitally, on auto-pilot, a vast majority of the time—requiring planner input only when judgment and experience are needed.

When I think about how our client is using the Flowcasting process/solution to plan, I would estimate 95% of the product flows are initiated automatically (e.g., digitally) based on the solution interpreting what yesterday’s sales and inventory movements mean, and then re-adjusting, self-correcting, and altering current and planned product flows.

Furthermore, as part of the implementation, we worked with the planners and semi-automated how they would handle certain exceptions, based on learning from initial planners responding to these exceptions. It’s certainly not a stretch to think that, at some point, a machine/algorithm could learn too and respond to these types of anomalies in order to enable the smooth and continuous flow of product.

And what are the results of using a self-learning, self-correcting and fairly autonomous planning process (i.e., Flowcasting)?

Highest in-stocks in company history, increased sales, improved inventory turns, reduced costs and, most importantly, happier customers.

Please understand I’m not talking about a Skynet scenario here. I firmly believe that supply chain planning solutions can largely become autonomous and self-learning, but will always require some human input for situations where intuition and judgement are required. But, I’d argue this will be the exception and is also a form of a self-learning supply chain (e.g., people learn from experience).

The autonomous, self-learning supply chain is quite a vision. And, like all visions, it needs initial pilots and examples to move the ball forward, provide initial learnings and help people understand what is and might be possible. Our recent retail implementation of Flowcasting, we believe, helps the cause and should provide food for thought for any retailer.

So to the folks and companies pursuing this vision (most notably JDA Software), I can only offer best wishes and the advice from Calvin Coolidge…

“Press on. Nothing in this world can take the place of persistence”.

Customer Convenience in the Eye of the Beholder

Beauty is in the eye of the beholder and it may be necessary from time to time to give a stupid or misinformed beholder a black eye. – Miss Piggy

woman-heart-and-eyes-e1452497074558

From a customer’s point of view, what is convenience?

Let’s start with the basic premise that customers are looking for:

  • Products they want
  • Where they want it
  • At a price they’re willing to pay

Thankfully, the rhetoric around the so-called “retail apocalypse” has slowly morphed from “Everyone except Amazon is dead!” to “Retailers who are doing poorly at all 3 of those things are dead.”

To be sure, the era of online retailing ushered in by Amazon has moved the goal posts with regard to all 3 of those customer criteria. Traditional brick and mortar retailers have picked up the mantle and have actually (in my opinion) put Amazon at a bit of a disadvantage (for now) by offering customers the option to buy products online and pick them up in a nearby store.

But the experiences customers are looking for vary not only by customer, but also by the nature and reason for the transaction. In the last month, I have purchased products using the 3 most common delivery methods (buy online with home delivery, buy online and pick up in store, and kicking it old school by walking into a store, filling up the cart and checking out).

After reflecting on each of those experiences, I came to realize that, as a customer, I need different types of “convenience” in different situations and every shopping experience comes with positives and negatives.

Scenario 1: Buy Online with Home Delivery

The leather satchel that I’ve been using for years has started to get a little long in the tooth (2 zippers were broken and the shoulder strap was nearly ready to snap). As a consultant, I travel frequently with my laptop (along with all the accessories that go with it) and I thought that I would switch things up and go with a padded backpack instead.

I had a very specific set of needs and I wasn’t in a huge rush to get it. However, I envisioned a scenario whereby I would have to visit multiple stores in order to find what I was looking for at a reasonable price. In this case (for me), Amazon was the answer.

I began with a search for “laptop backpacks”, got approximately 17 trillion results and started narrowing things down from there. Truth be told, the number of choices made shopping a less than pleasurable experience for me, as it took a fair amount of time to read descriptions, dimensions, features, etc. before I was able to come to a decision. But I feel that getting the exact product that I wanted from all available choices was worth the time and inconvenience of having to wait a couple days to get the product, while also not having to run all over creation hoping to find it on a shelf somewhere.

Scenario 2: Kickin’ It Old School

Okay, I admit it – I enjoy grocery shopping. I always go with a list and I always come home with a few items that weren’t on my list. I also come home without items that were on my list because the store was out of stock.

I’m not really much of an impulse shopper. More often than not, when I buy an item that’s not on my list, I do so because seeing it on the shelf is a reminder that I actually need it, but I neglected to put it on my list.

Thus far, online shopping has been woefully inadequate at replicating that experience, which is what leads me to believe that the traditional supermarket is here to stay for quite some time yet. I couldn’t imagine putting together an online grocery order for 50+ items.

That said, it would be nice if they were in stock, which leads me to my next experience…

Scenario 3: Buy Online, Pick Up In Store

It was Wednesday before an annual weekend (25 years running by my count) where a bunch of us head up to a friend’s cottage for 3 days of music, laughs, fairly heavy drinking and general merriment. The weekend traditionally begins on Thursday night with a steak barbecue.

On Tuesday of that week, I noticed that my local grocery store had frozen lobster tails on sale for $3.50 each, so I thought I’d grab a dozen of them to accompany the steaks on Thursday night. I had a few other essentials to pick up while I was there, so I composed a small list and went to the store. I went straight to the seafood department first and they were out of lobster tails. That was my main reason for going, so I left without getting anything else on the list.

That same grocer had another store not far away, but I figured my chances of getting lobster tails there was low, plus I didn’t have the additional time to spend on a treasure hunt that may turn up nothing. Disappointed, I went home.

As I was doing the normal work from home stuff (documents, emails, conference calls, etc.), I remembered that this store offered a buy online, pick up in store service, so I navigated to their website and placed an order for 12 lobster tails (plus the 6 or so items that were on my list) to be picked up the next day (Wednesday), which would still give me time to thaw them in the refrigerator overnight before heading to the cottage on Thursday.

I was fully expecting to be informed by email on Wednesday morning that I was still out of luck on the lobster tails. This would have sucked, but it would have sucked even more if I had wasted  another trip to the store in order to find that out.

As luck would have it, I was able to get everything on my list (including the lobster tails) delivered right to my car in the parking lot in an appointment window of my choosing. And yes, the lobster tails were delicious.

Even though that customer experience had a satisfactory ending, was I actually using the BOPIS option for “convenience” or as a stock reservation mechanism due to lack of trust that the store was going to be in stock prior to my arrival?

The point here is that there is no catch-all definition of convenience that suits every customer in every situation. I know people who buy toilet paper online and have it shipped to their house. I also know people who would never buy anything on a website for fear of identity theft. And yes, sometimes trucking your butt to the store and rolling a cart through the aisles is actually the most convenient way to shop.

The truly great retailers of the future will be the ones who can execute well on all 3 of those experiences (plus others that haven’t been invented yet).

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.

Sacred Cows

 

I cannot call to mind a single instance where I have ever been irreverant except toward the things which were sacred to other people. – Mark Twain

sacred-cows

sacred cow (noun): an idea, custom, or institution held, especially unreasonably, to be above criticism

They are prevalent in all aspects of life and business and the management of the retail supply chain is no exception.

I like to think of sacred cows as “universal assumptions masquerading as universal truths”. What makes them particularly insidious is that there’s a kernel of universal truth in every universal assumption.

Promotional Ordering

The universal truth is that promotions to consumers can have a significant impact on the supply chain known as the “basketball through a garden hose effect”, meaning that operations and suppliers need to see the volume spikes coming well in advance in order to properly prepare for it. Further, promotions are particularly important to retailers, because it’s not a good look when customers are enticed to sacrifice their time and energy to make a trip to the store only to find bare shelves for items that are being promoted.

The universal assumption that springs from this universal truth is that the planning and ordering process for promotions must be separate and distinct from the process for satisfying “baseline” sales. Large orders need to be placed with suppliers months in advance, even though the normal lead time is 7 days. Shipments of promotional goods (both inbound to the DCs and out to the stores) need to be segregated with a big red bow on them so that everyone knows how important they are. And when promotional stock arrives at the DC, it must be immediately allocated to the stores as soon as possible to make sure everyone is ready.

Here’s the problem: Every survey published for the last 20+ years has shown that retail out-of-stocks average 8% overall, but that number climbs to 15% when an item is on promotion. Mission NOT accomplished.

Maybe it’s time to start questioning some of those assumptions:

  • Do you truly need to violate the universal supply chain principle of postponement by committing to promotional volumes with a longer lead-time? What if you instead just updated your sales forecast and shared a continuously updated time-phased purchasing schedule with suppliers (which they would use for their production planning activities) and only locked in the order when it’s time for them to pick, pack and ship?
  • Is a “locked in order months in advance” the only way to notify the upstream supply chain about a large need, or can the same time-phased schedule be cubed out to see the impact on operations? Maybe in the grand scheme of everything that the operations will need to deal with during that period (promotional and non promotional volumes), the “big spike” on some particular items coming up on promotion may not even be noticed.
  • Is moving product to the stores far in advance of a promotion the best way to “be ready” or does it just result in backroom congestion until the promotion begins?
Line Reviews and Planogram Resets

The universal truth about new product launches is that – in a similar vein to promotions – there is a significant volume surge to fill the shelves with new items and considerable uncertainty about what will happen after a new item hits the sales floor. Similarly, the impact of increasing or reducing an item’s space allocation store by store may likewise cause artificial replenishment spikes or troughs.

The universal assumption is that, similar to promotions, the movement of stock from suppliers to stores to support product line changes must have its own unique process – purchase orders with red bows on them, separate allocations of stock to the stores, “DC holdback” schemes, etc.

Some questions spring to mind:

  • If the Line Review process defines the “start selling date” for new items and the planograms by store for the new product line, why not just plan directly with this information? The sales forecast at each store is zero until the start selling date and the minimum stock requirement as defined by the planogram is effective a few days prior in order to allow store setup time. Not every store will necessarily have the same start selling date or lead time to its servicing DC, so allowing the product to flow as required to meet the merchandising need can actually have a smoothing effect on the extended supply chain.
  • What to do about items that are being allotted more or less space? Isn’t that just a function of the store’s future inventory position at the time the new planogram becomes effective? The future minimum display quantity is known, but the exact future on hand balance is not. Plug in what you know and continuously replan (and share) the needs from the supplier to the shelf until it’s time to commit.
Approving Orders
The universal truth is that committing to purchase product from a supplier is a risk. You are relinquishing the company’s cash to buy assets that may or may not provide a suitable return on investment between the time the product ships from the supplier until it ends up in the hands of the customer. It’s important to make sure that the decision is sound.
The universal assumption to address the risk is that a human being needs to approve purchase orders before they are released.
But…
  • Is the order quantity not the ultimate culmination of current decisions and assumptions around assortment, sales, pricing and stocking policies? If you’re comfortable with all of the inputs, then why would you be questioning the output? If you’re NOT comfortable with the inputs, then isn’t that where time should be spent?
  • If you’re planning on a continuum, then sales are always happening, inventory balances are always changing and the net requirements are always being adjusted. How does it help anyone to make 11th hour changes to plans that have been continuously evolving for weeks or months?
To be fair, these “sacred cows” have sprung up over time out of necessity. Retailers have been burdened with siloed planning and replenishment processes that provide no upstream visibility beyond the next order and – quite often – no forecasting capabilities at all. The vast majority are still burdened with them today.
That said, it’s 2018, not 1988 when a lot of those universal assumptions were made. Perhaps it’s time to start making some “sacred cow meatloaf” – I hear it’s delicious.

 

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!

 

Franchisees and the Question of Control

 

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

helm_control

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

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

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

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

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

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

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

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

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

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

Because the franchisees would never relinquish their control.

Hmmm…

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

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

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

Common Goals

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

Transparency

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

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

Visibility

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

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

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

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

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.