Thank you to Supply Chain Management Review for publishing our latest article, “A New Model for Retailer-Supplier Collaboration” in the March/April edition of their always excellent magazine.
The article outlines a new approach to collaborative inventory planning, based on the profound insight of Dr. Joseph Orlicky and the ideas and concepts developed and implemented by our long-time colleague, Andre Martin.
We’d also like to thank two forward-looking companies, Princess Auto Ltd and Watson Gloves, for agreeing to be featured in the article, demonstrating that the approach works and benefits consumers and both retailer and supplier.
It turns out that Joe and Andre are right – you should never forecast what you can calculate!
“Life can be improved by adding, or by subtracting. The world pushes us to add because that benefits them. But the secret is to focus on subtracting.”
- Derek Sivers
People don’t subtract.
Our minds add before even considering taking away.
Don’t believe me?
Leidy Klotz is a Behavioral Science Professor at the University of Virginia and a student of “less”. He conducted a series of experiments that demonstrate people think “more” instead of “less”.
Consider the following diagram and the ask.
Thousands of participants were asked to make the patterns on the left and right side of the dark middle vertical line match each other, with the least number of changes.
There are two best answers. One is to add four shaded blocks on the left and the other is to subtract four shaded blocks on the right.
Only about 15 percent of participants chose to subtract.
Intrigued, Professor Klotz and his research assistants concocted numerous additional experiments to test whether people would add or subtract. They all produced the same result and conclusion – people are addicted to and inclined to add. It wasn’t close.
Big fucking deal, right?
Not so fast. Unfortunately, adding almost always makes things more complicated, polluted, and worse. You’d be better off subtracting.
A great example in supply chain is demand planning.
Demand planning, according to many, is becoming the poster child of adding. Let’s factor in more variables to produce an even more beautiful and voluptuous forecast. Are you sure you all these additional variables will improve the demand plan?
I doubt it.
First, many companies are forecasting what should be calculated. It’s been proven that the farther away from end consumption you’re trying to forecast, the more variables you’ll try to add. And the resulting forecast usually gets worse the more you add – since you’re often adding noise.
We have a retail client that is forecasting consumer demand at the item/store level only and calculating all inventory flows from store to supplier – what we call Flowcasting. Their demand planning process only considers two variables to calculate the baseline forecast: • the sales history in units • an indication if the sales was influenced by something abnormal (e.g., like promotions, clearance, out of stock, etc.)
All “other” variables that the “experts” say should be included have been subtracted.
Yet their planning process consistently delivers industry leading daily in-stocks and inventory flows to the store shelf.
The idea is simple, profound, and extremely difficult for us all. For process and solution designs, and pretty much everything, you need to remove what’s unnecessary.
“If a plant gets nothing but sunlight, it’s very harmful. It must have darkness too.” – Robert Pirsig
Did you know that if a plant gets nothing but sunlight, it’s extremely harmful and even deadly? It must have darkness as well. In the sun, it converts carbon dioxide to oxygen, but in the dark, it takes some oxygen and converts it back into carbon dioxide.
People, as it turns out, are the same. We need periods of darkness – essentially doing nothing – to develop ideas and/or internalize new ones. We often refer to it as “soak time” – the time where you let your mind just soak stuff in, subconsciously thinking about things. This, inevitably, helps your understanding and allows your creative juices to work.
Turns out many creative folks embrace the concept of soak time.
The film director Quentin Tarantino outlines his creative process and the role of soak time. This is his approach. He basically writes during the daytime. Then after a while, he stops writing. Now comes the key part of his process, he says. “I have a pool, and I keep it heated. And I jump in my pool and just float around in the water…and then, boom, a lot of shit will come to me. Literally, a ton of ideas. Then I get out of the pool and make notes on that. But not do it. That will be tomorrow’s work. Or the day after. Or the day after that.” Another filmmaker, Darren Aronofsky, said, “procrastination is a critical part of the process. Your brain needs a break…so that even when you’re not working, you’re working. Your brain is putting shit together.”
In his excellent book, Deep Work, Cal Newport teaches the benefits of downtime. One study by Dutch psychologist Ap Dijksterhuis showed that when working on a complex problem or decision, you should let your unconscious mind work on it as much as possible. Anders Ericsson wrote a seminal paper, “The Role of Deliberate Practice in the Acquisition of Expert Performance,” which showed that our brains have a limited window for cognitively demanding efforts. “Decades of study from multiple fields within psychology,” Newport writes, “all conclude that regularly resting your brain improves the quality of your work.”
For us, soak time is a core component of our approach to help people change and embrace new technologies and ideas like Flowcasting. It’s why we start the education process very early – so people have time to soak in the new thinking, ponder it and slowly accept it (hopefully).
Designing new processes and work methods also benefits from regular and ongoing doses of soak time. Instead of plowing through a design phase, grinding your way through session after session, a far better approach is to work on some aspect of the design, then let it sit, or go dark for a while. Subconsciously though, that beautiful brain of yours can’t turn off the tap – and will be thinking and pondering even when you’ve gone dark on that topic. The result? Better designs and solutions, guaranteed.
When I consult with retail clients, I’m aghast at how little soak time is built into people’s calendars, especially for folks that work in Home Office or Support Centres. Everybody seems to be busy doing busywork, and there’s barely time to schedule a 30-minute session, let alone have some soak time. The organization would be far better off by scheduling 20-50% of slack time for all these folks – essentially blocking off time for them to daydream, read, walk, or just do nothing at all. Let the mind wander and subconsciously connect things.
In both my Canadian and UK home offices I have a couch. When I need to let things soak, I sometimes go for a walk, or most of the time, I just lay down and do nothing. Just rest and relax and let the mind soak for a while. I do it often, almost every day and for some period.
Does it help? Yes, I think it does. Sure, over time, most of my ideas have been shit, but the odd decent one slips through. I’m convinced it’s because of nurturing it with soak time.
If you’re delivering projects or have a job that requires you to develop new ideas and initiatives, then my advice is simple: plan and schedule lots of soak time.
Maybe also get a couch so when you need to, you can just lie down and relax, breath slowly and let your mind wander and connect stuff, all while converting oxygen to carbon dioxide.
“Never forecast what you can calculate.” – Dr. Joseph Orlicky
Collaboration promises much to the retail supply chain, and rightly so. Retailers and their trading partners are beginning to understand they are not alone. The retail supply chain does not act as a series of islands – each independent entity working for its own purpose. Rather, smart companies understand that they are really working as part of one, completely integrated network that is designed (or should be) to deliver products to their end customers.
Almost 50 years ago, at the 1975 APICS conference in San Diego, Dr. Joseph Orlicky (the pioneer of MRP – Material Requirements Planning) made a profound statement regarding supply chain planning. Having just learned of Andre Martin’s idea to calculate factory demand from the distribution centre requirements, he told Andre that his idea was good since you should “never forecast what you can calculate”.
Leveraging this profound truth is the key to improved collaboration, addressing the shortcomings of CPFR and, importantly, making a significant dent in stock outs, overstocks, and the bullwhip effect.
The retail/CPG supply chain should be driven only by a forecast of consumer demand – time-phased by item/selling-location (e.g., store, webstore, etc.). The consumer demand forecast should then be used to calculate a series of integrated, time-phased product flow plans and planned shipments (for a 52+ week planning horizon) from the store to the supplier factory – what we call Flowcasting.
Sharing planned shipments allows the retailer to inform the supplier about future product flow requirements, by item and shipping location, with all known variables factored in – what we often refer to as the supplier schedule. This allows the supplier to eliminate all efforts previously expended to attempt to forecast that retailer orders. The planned shipments replace all this effort – improving the supplier order plan and allowing the collaborative process to work using the profound power of silence.
In the new collaborative model, since the planned shipments provide a long-term view of future required inventory flows, the expectation is that the retailer and supplier work to the principle of “silence is approval”. What that means is that the retailer expects the supplier to be prepared to deliver to the up-to-date, forward-looking schedule and only when they cannot supply to the schedule and/or they don’t understand the projected schedule, is collaboration required.
Collaboration based on a shared view of planned shipments (i.e., the supplier schedule) allows for the collaborative model to become more strategic and value added. In this new approach retailers and suppliers will collaborate on strategies to drive sales and potentially inventory plans – in essence, the inputs to drive joint business plans.
That’s a complete reversal of the traditional CPFR model where each company developed their own independent order forecasts and then spent considerable time and effort to reconcile these forecasts. In the new approach, the collaboration mostly focuses on a common language: sales to the end consumer. And, again, largely by exception. There is no need to collaborate on the plethora of retail forecasts and planned shipments since these have been automatically translated into the requirements, product flows and various languages of the business (e.g., dollars, cube, capacity, resource needs) for all trading partners.
The following diagram depicts the paradigm shift in collaborative planning between retailers and their merchandise suppliers – collaborating primarily on the inputs to the joint business plans, and only by exception if any issues or opportunities arise based on the resultant operational product flow plans:
Leading retailers and their suppliers will collaborate where they believe it is worthy of each partner’s time and largely on strategies (i.e., inputs to the joint plans) that drive growth and/or improved performance. That could be on promotional forecasts, new items, and ideas and concepts about product flows – to name a few. Both partners understand that the planned shipments resulting from these strategies are calculated – so collaboration on these shared projections is only needed if supply is at risk.
Dr. Orlicky’s famous and profound quote, “never forecast what you can calculate” is embedded in my mind and cemented in all the retail clients I’ve worked with. We can, and should, build on this profound truth and work to ingrain this thinking and practice between retailers and their trading partners…
A few days after losing the 2010 French Open Final, Novak Djokovic said to his coach, Marián Vajda, that he wanted to quit. He was ranked third in the world, a grand slam winner, and one of the favorites to win Wimbledon.
His coach asked him, “Why do you play?”
Djokovic immediately sensed the problem: He was focusing on rankings, titles, and playing to impress others. As a result, he said, “I was really messed up, mentally.”
As he pondered the question, he realized something. Most of his fondest childhood memories included his “favorite toy” – a small tennis racket and a soft foam ball. He started playing, “because I loved holding that racket.”
“Do you still love it?” his coach asked. Djokovic thought about it, got excited, and said: “I do. I still love holding a racket in my hand. Whether it’s a final on center court or just horsing around, I like playing for the sake of playing.”
His coach then nodded and said, “That’s your inspiration. That’s what you need to tap into. Put aside rankings, titles and other external stuff, and just play, for the love of it.”
Djokovic agreed. And he has never looked back.
The following season, Djokovic enjoyed one of the greatest seasons in sports history. He won 43 straight matches, including his first Wimbledon title. And he finished the year as the No. 1 ranked player in the world.
“I started to play freely,” he said. “I became the kid again, who just loved to play.” There’s a word for doing something for the love of doing it:
Autotelic.
The word stems from the Greek auto (self) and telos (end) – an autotelic is “someone that has a purpose in, and not apart from, itself.”
For an autotelic,” The work is the win,” as Ryan Holiday says. “You need to get to a place where doing the work is the win and everything else is extra.”
Today I’d like to celebrate an inventory planning autotelic – my colleague and collaborator, Darryl Landvater, of the Oliver Wight Americas Group.
Before we became colleagues, Darryl worked with Andre Martin to build and implement the first Distribution Resource Planning (DRP) system at Abbott Labs in Montreal – connecting distribution and manufacturing operations, working to a single set of numbers, and changing how distribution and manufacturing operations were planned forever.
We met and began our collaboration at Canadian Tire, in Toronto, Canada in the mid-1990s. The team I was leading was in the process of re-engineering how product flow planning was done. Darryl (and Andre) helped us convince the Executive team that our design – essentially Flowcasting – would work and also helped us during the initial implementation, especially with respect to education and supplier scheduling.
Shortly after, he and Andre took their idea of an integrated supply chain to see some of the big technology players in the supply chain planning space – with a goal to get them to build a store-level, integrated solution – even offering to help in the process. But every one of them said no. They didn’t believe the market need was there and/or a solution could be built to scale to the retail volumes and specific planning challenges.
Undaunted, and in keeping with an autotelic philosophy, they said “fuck it, we’ll build it ourselves. And they did. Darryl was the chief architect, along the way teaching himself Java and how to code again.
The result was a stunningly simple and elegant solution, including developing leading retail solutions for slow sellers, seasonal planning, promotions, scalability, and true daily net-change planning, among others.
The love of the work inspired him…and still does.
In fact, he’s just finishing re-architecting the solution to a leading-edge, ultra-modern platform to provide clients a robust, flexible, infinitely scalable, and affordable solution.
At any time, someone is always the best in the world.
In tennis, it’s Novak.
For Flowcasting solutions, it’s Darryl.
Perhaps there’s a lesson here.
Maybe, to be the best in the world, you need to be autotelic!
It’s September 1981 and I’d walk into and sit down at my first class at the University of Waterloo, in Waterloo, Ontario. It’s algebra, taught by Professor Lee Dickey. After he introduces himself, he walks to the large blackboard and proceeds to write Fermat’s Last Theorem on the board – a world famous mathematical theorem that Fermat had claimed he’d had a brilliantly wonderful proof that he hadn’t written out before he unexpectedly passed away.
It’s a theorem that had eluded the brightest minds in mathematics for 350 years. Professor Dickey told the class that if anyone could prove this, they’d be immortalized in the mathematics community. After class, I considered looking at it, but instead decided to go to the bomb-shelter (the campus pub) with some new friends for a dozen or so pints.
Mathematics is a wonderful discipline, providing foundational constructs and principles for engineering, computing, and architecture, to name only a few. But mathematics is hard. Differential equations, calculus, algebra, probability distributions, number theory, string theory, etc. – the list of branches of mathematics is amazing.
And, of course, mathematics plays a huge role in business, especially in supply chain management.
In business, one math concept stands out as the most influential, but also the hardest to instill and master.
That concept would be “subtraction”.
Whether you’re designing new products or business processes, everyone worships at the altar of simplicity. And, with good reason.
Simplicity sells. It sticks. Simplicity made hits of the Nest thermostat, Fitbit, and TiVo. Simple brought Apple back from the dead. It’s why we have Netflix. The Fisher Space Pen and the Swiss Army Knife are some of our most enduring products. All marvels of simplicity.
Yet while many mechanical marvels of simplicity remain true to their original form, many electronic ones don’t.
Travel back in time to use an early microwave and you’ll likely see a box with three buttons (High, Medium, Low) and a timer. Today, one of LG’s current models boasts 33 buttons. Do you press Auto Defrost or Express Defrost? And what does Less/More do? None of these make your popcorn or pizza cook faster, or taste better. And it’s not easy to use. Why do products almost always become more complex as they evolve?
“Simplicity is about subtraction,” says Mike Monteiro, author of Design Is a Job. “We live in a culture of consumption, where quality is associated with more. Designers and manufacturers tend to believe that to succeed you must provide more”.
Consider Apple. Simplicity saved the company. Starting with the iMac, it rolled out a series of stunningly simple hits: OS X, iTunes, the iPod, iPhone, and iPad. Google was also built on simplicity. Google won dominance with its sparse and very simple search page. Simplicity made Google a verb.
Executives, managers, and project teams alike struggle with keeping things simple. That’s because they can’t subtract. I read a recent Wall Street Journal report that workers now spend over two full days a week either in meetings or on emails. That’s incredibly ineffective and hardly the way to innovate or drive change.
To innovate or change, your calendar needs white space. Lots of it. Ideas rarely happen in meetings. They usually occur when you’re daydreaming, showering, walking, taking a dump, or when you’re bored and not doing anything. So, why don’t we have more white space in our calendars? Easy – we can’t seem to subtract those meetings.
The same chronic issue happens with meeting sizes. Most of the time there’s too many people, who could have been more easily informed or communicated with via email. Again, most people can’t subtract participants from the sessions.
It’s a similar phenomenon in product and process design. Virtually everyone wants to add when you really should be looking to subtract. Is it any wonder that most business processes and their corresponding solutions are too complex?
Simplicity is quite easy to say, but very hard to achieve. It requires paring things away when market forces want you to add. It means removing layers rather than adding them.
An accountant and a former pig farmer would take the elevator and head to the 9th floor of an office building located at 2180 Yonge Street in Toronto, Canada. It’s fall, 1994. They’d make their way to a corner of the floor and be joined by a few other new teammates. A recent economics graduate, an operations research PhD candidate, an engineer from overseas, a former grocery IT analyst, and a person from a large multi-national CPG company with an educational background in history and geography.
There they’d meet their team leader – a dude that had worked in industry and in consulting and was self-described as “a bit of a maverick, who had little regard for hierarchy and was equal part genius, equal part buffoon”.
Their mandate?
Completely change the way product was planned and flowed in a retail supply chain, from factory to store shelf, for this $5billion Canadian retailer with more than 450 stores from coast to coast.
To say this team was unconventional was an understatement. As an example, every team was given the latitude to select their own furniture for meeting rooms and workspaces. After reviewing various options and costs, the team would decide that instead of a costly large meeting table they’d instead buy a ping-pong table and use it for working sessions. It was considerably cheaper, and at lunch and during breaks, they could play ping pong.
The introduction of a ping pong table as a work area became the stuff of legends. Lunch times were dominated with ferocious matches and the Senior Vice President of Supply Chain (the ultimate boss of this team) would famously have his ass handed to him one day during a match with one of the team members. No one worried about taking it easy on him. Both his forehand and backhand were weak and, as a result, he got what he deserved – crushed!
Work wise, the team would stutter and stumble. They’d take too long and get bogged down numerous times. They’d spend considerable time in stores, listening to store owners lament about poor product flows and shit service levels. Several ideas were documented, debated, and eventually scrapped.
One idea, though, would survive and the team continued to refine and improve it. Eventually, the idea of what we now call Flowcasting would be documented, and the team was certain the idea was simple, intuitive, and potentially game changing.
Unfortunately, the Senior Executive team didn’t concur. Several executives considered the idea a pipe dream and told the team, “Change the design since this will never work”.
Luckily the team leader was also a bit of a c*nt and was not too keen at being “told” to change the design, especially by speculators – no one knows if something will work before you do it, so how can anyone say, with certainty, that “this will never work”. Never is long time.
As it turned out, one of the technology team members would connect the business folks with Andre Martin and Darryl Landvater and they would reassure the team with the fact that they had already conceived and ran some pilots of this design idea a few years before. A turning point for the design and the Flowcasting concept in general.
They would help convince the Senior Executive team that arrival-based, integrated, time-phased planning (the foundation that Flowcasting is built on) would be a critical capability retailers would need to enable their supply chains to flow product and deliver. The design direction would be approved, and subsequently implemented from DC to supplier and the rest is history.
What was the secret sauce of that pioneering team from Canadian Tire?
Diversity.
There’s lots of talk today, and rightly so, about diversity. I think, however, many companies and especially teams are missing the real key to diversity – that is, cognitive diversity.
Are you looking for ways to inject fresh perspectives and innovative thinking into work?
Step forward, cognitive diversity.
Numerous studies have shown that people like working with others who think like them and have similar values.
The problem, however, is that it leads to groupthink, stifles creativity, and can limit the solutions that are proposed. Instead, you should embrace cognitive diversity, which means forming teams of people who are quite likely to disagree and bring widely varying perspectives and experiences to the table.
Look for people with different beliefs and/or personalities. Seek out colleagues with different educational backgrounds, widely different work experiences, from different parts of the world, or with different levels of risk acceptance.
The best teams, who deliver real and meaningful change, are ones with diverse perspectives and skills that complement each other. The best teams are cognitively diverse.
Think about many supply chain transformation initiatives. More often, the teams are composed of people with a similar background – type A personalities with a technical, mathematical, or engineering background. And what does that almost for certain guarantee? Groupthink and that the designs will be factual and logical.
Everyone who’s implemented something knows that logic plays a small role. Implementations are about people and people have feelings, emotions, wants and needs. They can, at times, seem quite illogical. A cognitively diverse team will have better understanding, wider perspectives, better questioning & listening skills, and more empathy – all ingredients needed for successful change.
So, the next time you need to recruit a new team member and you have a candidate that’s got pig farming (or other seemingly oddball experiences that don’t fit the standard mold) in their experience, my advice is to hire them.
We’re happy to announce that our recent Harvard Business Review article (A Better Way to Match Demand and Supply in the Retail Supply Chain) about Flowcasting was selected to be included as a chapter in an upcoming Harvard Insights Series book entitled, “Supply Chain: The Insights You Need from Harvard Business Review”. This book will outline the latest thinking, insights, case studies and leading practices in supply chain, from several authors.
Thank you, HBR, for including our piece in this upcoming book (due out in October in paperback and as an eBook) and for recognizing the strategic significance of Flowcasting and a consumer-driven, integrated inventory flow planning process.
There’s an old saying that “timing is everything”. And while it may not always be true, more often than not, it is. Especially when it comes to implementing new planning approaches, like Flowcasting.
Even though implementing Flowcasting usually means implementing new technology, it’s got very little to do with software. It’s about changing the mental model and how organizations work, plan, and collaborate. As a result, these implementations are about change – helping people unlearn old ways, learn, and ingrain new ones.
And that requires time for change.
Here’s a beautiful view of change management, highlighting the critical importance of timing:
About 25 years ago we were blessed with a dose of shit luck. We were working as employees at one of Canada’s most iconic and successful retailers, designing and implementing what we now call Flowcasting. As luck would have it, two former Oliver Wight planning pioneers would somehow emerge from the wilderness and join the party. They would ingrain the project team with an implementation approach, called the Proven Path – aptly named given thousands of successful implementations of integrated planning over several decades.
Over the years we’ve retail-ized the approach but the basic principles and fundamentals have endured.
At the heart of the approach is early and repetitive education for executives, management, planners, and suppliers. The diagram above nicely outlines the importance of engaging people early – teaching them how the new process will work, what’s different and why it will be better.
We’re often asked why start educating and engaging people so early. It’s simple, yet instructive. People really don’t like to be surprised and they need time to think. The term we use is “soak time”. The sooner people begin to understand the change, the longer time they can think about it, question it, challenge it, even improve on it. Of course, education is not a one-time event and constant and refresher education happens throughout the change.
It’s why we typically follow up educational sessions with process prototypes – where people, who are now more knowledgeable, can “test” the new approach in a guided, lab-like environment.
And what does that do? It gives people time to experience the new process and more time to “soak” in the new approach and thinking. Helping the change effort considerably.
The reason the diagram above is so instructive is that it reflects the difference between super successful implementations and successful ones. Many teams view these implementations from a technology lens. You’re installing new software to improve things. With a view like that, typically teams scrunch the change effort much closer to when the software go-live will be. And, almost always, it’s too much, too fast for people and the implementations suffer.
In contrast, if you understand that the implementation is about changing people’s behaviors and corresponding mental models (throughout the extended organization, including suppliers) then the importance of starting early should be apparent.
To drive the point home, years ago the Oliver Wight team surveyed over 1000 companies regarding how successful their implementations of integrated planning were. The results were enlightening. The companies that started the change program early, with early and ongoing education, realized an average Return on Investment (ROI) of 200%, compared with 30% for the companies who thought they were installing software.
I suppose if you’re looking for a super successful implementation and a big, fat, juicy ROI then timing is, indeed, everything.
