All That Glitters is Not Gold

Man is a credulous animal and must believe something; in the absence of good grounds for belief, he will be satisfied with bad ones. – Bertrand Russell (1872-1970)

While the pandemic has recently pushed the trend into overdrive, click & collect has been steadily growing for years. And by all accounts, it will continue to grow in the years to come.
 
The two main reasons most often cited for why click & collect is so popular with consumers (versus home delivery) are:

  • Avoidance of delivery charges
  • Faster fulfillment (i.e. they can most often get the items they’re looking for at a nearby location on the same day, rather than waiting for it to ship from a remote fulfillment centre)

What seems to have escaped notice is that there’s another fulfillment method that delivers both of those benefits to customers: Driving to the store, getting the product themselves and bringing it home.

In fact, with regard to the second benefit (faster fulfillment), the “go get it yourself” method is superior. Depending on how far away the store is, a customer can have an item in his/her possession within minutes of deciding they want it, without having to wait for a pickup email.

This begs the question (that nobody seems to be asking, at least as far as I can tell): For customers who are looking to avoid delivery charges and fulfillment delays, why would they choose click & collect versus just picking it up themselves, given that both methods require a trip to the store anyhow?

In the absence of surveys or studies on this topic, I’ll postulate an explanation based on my personal experience. I do frequently use click & collect, but not because I find it convenient. I use it as a tool to avoid inconvenience.

Here is an early version of my personal “click & collect customer journey”:

  1. I determine that I have a need for Product A.
  2. I know that Retailer X sells Product A and that Retailer X has a location (Store 1) near me.
  3. I check Retailer X’s website and it shows that they have 6 on hand at Store 1.
  4. I drive to Store 1 to pick up one unit of Product A.
  5. When I get to Store 1, the shelf is empty. I ask a team member to help me, but after 10 minutes of searching, they can’t find it either.
  6. I angrily drive home and look up Product A at Store 2. It’s not as close, but still within a reasonable driving distance. The website shows that Store 2 has 4 units on hand.
  7. Before driving to Store 2, I place a click & collect order for Product A and wait for the pickup email. Even though I have time to go get it now, I’m not in a particularly trusting mood – I’m not willing to spend more time and gas driving there only to find that Store 2 is out of stock too.
  8. The pickup email doesn’t arrive that day, so I go to bed.
  9. The next afternoon, I receive a “your order has been cancelled” email from Store 2. I check the on hand balance on the website and it now shows that Store 2 is out of stock on Product A. Clearly they went to pick it, couldn’t find any and zeroed out their on hand balance.
  10. I give up and order Product A from Amazon and just wait for it to be delivered to my home (so much for the click & collect benefits).


On the basis of that experience, I’ve streamlined the process to jump straight from step 1 to step 7 – let the retailer spend their time and energy trying to find it before I waste any of mine.
 
To be sure, there are some customers out there who do find click & collect “convenient” in its own right – being able to (hopefully) get what they want on the same day without having to push a cart through the aisles, even though they still need to make a trip to the store.
 
But in many cases, click & collect may not be the “win-win” that everyone is claiming it to be. Customers aren’t necessarily rewarding retailers for providing added convenience – they may be punishing them after being burned for poor in stock performance now that click & collect has given them the opportunity to do so. And retailers now need to pay staff to perform tasks that customers used to do for free, in addition to losing out on impulse purchases and cross-selling opportunities in the store.

Perhaps retailers should be working harder on the basics (keeping stock accurate, in stock and on the shelf) to make it truly convenient for customers to get what they want where they want it and when they want it.

Jimmy’s Jenius

It’s funny how you sometimes recall something from years ago, often triggered by a recent event, and it helps to cement or solidify your thinking.

Flashback to 1992 and, after working for a prestigious Canadian Management Consultancy since my 1986 graduation, I decide it’s time to leave consulting and get an industry job. I’d land at National Grocers (NG), at the time the distribution and logistics division of Loblaw Companies Limited. My job, along with the newly minted Director (who was a colleague from consulting), would be to establish the logistics function in the company – taking an end-to-end view of the entire supply chain, both from a technology and physical flow perspective.

NG, at the time, had retained Jim Woods, the former VP of distribution for Kroger – the massive US based grocer – in an advisory role. He was full of stories, ideas, insights and on some days, other stuff as well. On most Friday’s we’d head to a restaurant called The Greek to listen to Jim’s Jenius, so to speak. One thing he said to me that I’ll never forget went something like this…

“Mike, I’m not sure what the future of supply chain will be but the best advice I can give you is never slow the product down”.

I was intrigued and have subconsciously been pondering that ever since.

I recently read an awesome book, Arriving Today, chronicling the global journey of a single USB charger, from factory to front door. A couple of chapters highlighted and not only solidified the advice Jim gave me thirty years ago, but likely outlines the fundamental paradigm shift of retail supply chain management.

As the USB chargers make their way to an ultra-modern Amazon fulfillment centre, what blew me away is what happens next, architected on Amazonian principles. The inbound shipment of USB chargers is de-palletized, and each individual USB charger is stored, in single units, in a random bin that the system had moved to the receiver.

So, a receiver would store a shipment of 48 chargers, randomly in 48 different bins amongst several shelving units. Storing items randomly mimics the basic architecture of computers and the process is called “random stow” – the idea that the best way to get products in and out of shelves in a warehouse is to put them anywhere they’ll fit, rather than trying to design some sort of system to organize them.

In addition to the significant improvement in storage capacity, the individuating of products facilitates something even more profound – optimizing for and enabling the each-supply-chain. Amazon has architected its supply chain for the consumer, rather than distribution – recognizing that most customer orders are in units of one (i.e., each-es), rather than cases or pallets. When a customer orders one of these USB chargers, then a bin is selected that contains only one charger and is moved to an order filler to select this single unit and get the order on its way.

Most retail supply chains are distribution-centric, rather than consumer-centric.

But could Amazon be onto something here? What if we applied the same thinking to a modern omni-channel retailer, complete with a network of distribution centres and stores?

Surely, I’m not saying to ship in each-es, both to the consumer and to replenish the stores. Um, er,…, that’s exactly what I’m saying.

Most retail supply chains don’t heed Jimmy’s advice. They slow the product down by shipping in cases and pallets. The conventional wisdom says that you need density to fill up trucks to go to the stores and most supply chain folks have ingrained the paradigm that larger shipments, by product, saves considerable handling costs.

All true, to a certain extent, but have you considered the other costs and benefits of architecting flows to the consumer?

First, outbound trucks from DC’s to stores could still be filled – it’s just the composition would be smaller, individual product shipments. The ability to stay in stock would be improved, since the inventory at each DC would only be shipped in units of one (or smaller shipments), rather than cases. In addition, in virtually all situations, product could flow directly to the shelf.

In two recent retail clients, both demonstrated that inventory accuracy improved significantly for products where the required inventory fits on the shelf selling location – rather than having top stock, overstock, or backroom stock. For these types of products, the inventory accuracy was 85%+, a significant improvement from the retail average of 50-60%.

This would be true for all stores and would also be an important benefit for consumers – since they are asking retailers to display their inventory availability, as evidenced by this recent Forrester research of US consumer expectations:

• 65% say it’s important for retailers/brands to show in-store product availability on the website
• 68% think it’s important to know when items will arrive, before placing orders online
• 30% checked for a product online before purchasing it in a store
• 33% are less likely to go into a store if inventory is not available online

In addition, replenishing in each-es could have a very significant impact on store inventories and space. I recently took a random store from a recent client and compared the inventory and space requirements from their current distribution-centric replenishment philosophy (i.e., replenishing in cases) to a consumer-centric philosophy (i.e., replenishing in each-es) and the impact was significant. Both overall inventory and space requirements were 40-50% less.

Now, of course, I realize that costs in the distribution centre will increase and the flows and operations inside these facilities would need a complete re-think and potentially a new operating model. However, if you step back and think about the retail supply chain, and include the consumer in it, it changes your perspective.

Online demand is usually in each-es. For most retailers, a significant percentage of item/store sales are less than one per week. Thus, I’d argue that we’re largely operating in an each-supply-chain today and that will likely proliferate in the years ahead. The issue is that we’re still burdened with distribution-centric thinking, slowing the product down and altering product flow as a result.

“Never slow the product down”.

It was great advice in 1992 and even better advice today.

Jimmy really was a Jenius.

Hunting Unicorns

Perfection is achieved not when there is nothing more to add, but when there is nothing left to take away.

Antoine de Saint-Exupery (1900-1944)

Here’s my high level analysis of the technology landscape for retail planning systems:



I’ve seen systems that intersect with any two of those circles, but I’ve never seen one in the “sweet spot”:

  • Built for retail
  • Holistic supply chain planning capabilities
  • Commercially available with a solid track record


Built For Retail and Commercially Available, Limited Supply Chain Planning Capabilities

Systems falling into this category generally have the “look and feel” that retailers are looking for and speak the language that most retailers find natural: orders. Suggesting orders. Optimizing orders. Managing the release of orders. 

Over time, these systems have evolved to include long term demand forecasting, time-phasing out their ordering logic into the future and even connecting time-phased store order plans to distribution centres in an attempt to encroach into the “Supply Chain Planning Capabilities” circle. But the logical DNA of these systems is to work out the administrative part of the supply chain (the orders) first and understand the shipments and arrivals after the fact.

While these systems are demonstrably and significantly superior to traditional reorder point and min/max approaches when it comes to replenishment, they struggle to provide a valid simulation of reality that can be rolled up to support flow planning, capacity planning and business/financial planning, particularly in scenarios where the “steady state” is being disrupted:

  • Changes to network flowpaths, such as realigning DC outbound schedules or changing the inbound source of supply
  • Properly constraining ship dates for things like Chinese New Year and scheduled supplier shutdowns
  • Properly constraining arrival dates to account for receiving schedules at stores or DCs

These systems are generally streamlined and slick, but will struggle when the following question is posed:

How would you configure the system to accurately plan for a scenario where we are currently sourcing a bunch of items domestically, but will start sourcing those same items from overseas in 5 months?

Supply Chain Planning Capabilities and Commercially Available, Not Built for Retail

Systems falling into this category trace their lineage back to manufacturing and distribution where the discipline of supply chain planning began. Planning stock movement in a backward stepwise fashion from demand to supply (i.e. demand triggers arrivals which trigger shipments which trigger orders for every item at every location) is built right into their DNA.

Over time, these systems have evolved to be able to process the gargantuan data volumes common in retail, but only through brute force and by the grace of Moore’s Law. And bolt-ons have been developed to plan for things like retail promotions and intermittent demand streams in an attempt to encroach on the “Built for Retail” circle.

While these systems excel at being able to holistically plan stock movement from source of supply to source of consumption, it only comes with unnecessary complexity. It’s not easy to genetically modify a system that was built for manufacturing and distribution into a retail solution. These systems are designed to follow the core principles of planning, but will struggle when posed with the following question:

How would a planner update their forecasts and safety stocks for 20 items across 500 locations, roll up the results and then make a few tweaks – all before 10am (on the same day)?

Built for Retail with Supply Chain Planning Capabilities, Not Commercially Available

Systems falling into this category have successfully translated the time-tested planning capabilities originated in manufacturing and distribution to specifically tackle the retail planning problem in a way that’s simple, intuitive and fast.

The biggest problem these systems face is the huge barrier to entry into the market. In spite of their shortcomings, the types of systems discussed previously have developed a track record for delivering significant benefits to their retail customer base – suboptimal planning is better than no planning at all.

These systems have everything retailers need (from a stock flow planning standpoint) and nothing they don’t. But in my experience, retailers aren’t generally known for their willingness to gamble on something new and unproven at scale. They will struggle when posed with the following question:

Tell me about your last 5 full scale implementations at a retailer our size with similar planning challenges?

If you’re a software provider (or a user of said provider) who thinks you’ve hit the trifecta, then I guess I’m implying that you don’t exist. Even though I have never heard of you, I would be thrilled to get to know you.

I’m skeptical, but I’m eager to be won over.

You know the types of questions I’ll be asking.

Learning to love beer

“Education is the most powerful weapon you can use to change the world.”

Nelson Mandela

If you’re like me, and most people for that matter, you love a nice ice-cold beer.

Think back, if you can, to the first time you tasted beer. What’d ya think? Probably didn’t really like it at first and it probably took time to enjoy the taste.

Driving change is a lot like getting comfortable with the taste of beer. It takes time. And repetition.

I recently read a great new book about change, called “The Human Element”, which outlined an interesting way to look at change. In summary, the book beautifully outlines the concept of fuel vs friction.

When it comes to change, most people focus almost all their energy on adding fuel to help sell the change – usually in the form of benefits, features, examples, and case studies, etc. However, as the authors point out, people are generally comfortable with and predisposed to the status quo and, therefore, at least as much effort should be spent on reducing friction – or why people naturally resist change.

One of the core strategies outlined is to acclimate the idea. Acclimate the idea through repetition and repeated exposure, which gives people time to think about, question and, over time, internalize the change. Much like the taste of beer, the sooner people are exposed to the change, the better.

It’s an idea and concept that we wholeheartedly agree with and is foundational to our approach to helping companies embrace, implement, and internalize Flowcasting. We expose people to the taste of Flowcasting through an early, ongoing, and repeated education program.

The education program is designed to help the organization understand and talk themselves into the changes required to enable the Flowcasting process to be instilled – from Executive Leadership throughout the extended organization, including merchandise suppliers since they will also change their thinking and processes to support the new ways of working. The goal of the education program is to not only disseminate knowledge but also, importantly, to build commitment and ownership since the change is driven by the executive team with an executive level of commitment.

Questions are at the heart of the education program and when we can, we always try to have clients embrace and deliver the process education through a model we call cascade education. The model works as follows…

The design team builds and records an educational webinar that explains the new process design and demonstrates it using a series of examples, including the fundamental principles of the process. The cascade works like this: The CEO reviews the online educational course and then requests that their direct reports do the same.

Once complete, the CEO would then lead a session (supported by the design team) with their direct reports, where a series of questions would be asked and discussed – ensuring not only a healthy dialogue ensued, but also, importantly, new questions would emerge that would be answered and potentially added to the list.

At the end of the session, the project team would revise the list of questions and the CEO would outline the expectation of their direct reports; each direct report would be responsible for ensuring their teams took the online course and, more importantly, attended a facilitated session (led by each direct report) where the questions would be discussed, and answers and opinions documented. The cascade would continue down the company hierarchy until everyone had taken the education and attended a principles-and-questions-based session to help people understand, begin to convince themselves and build commitment to the change.

The cascade model of education helps increase understanding of the change and reduce change reactance because the foundation of the approach is based on questions – some are asked but most are surfaced and answered by peers, helping people persuade themselves. Instead of the project team always telling, people are asking, listening, learning, and changing their thinking.

Education does not stop with the initial cascade. Additional sessions are built, tailored to specific teams and business scenarios. They are delivered, refined, and used to help people get comfortable with the changes needed throughout the extended organization, including all merchandise suppliers – which, given the number of suppliers a retail partners with, often requires hundreds of educational sessions to help them prepare and embrace the new ways of working.

Acclimate the idea. Early, often, and ongoing.

It works for giving you the time needed to love the taste of beer.

It’s also foundational for instilling change.

The Veil Has Been Lifted

You never know who’s swimming naked until the tide goes out. – Warren Buffett

Up until a couple of years ago, growth in online sales has been relatively slow and steady overall, with click & collect being the fastest growing channel. This put brick & mortar retailers somewhat back in the driver’s seat versus the pure online players like Amazon.

While brick & mortar retailers have struggled with execution in their online businesses, it represented a relatively small fraction of their sales. Most of their revenue came from foot traffic in their stores and retailers made steady progress investing in and nurturing their online businesses, with plans to grow those channels gradually over many years.

The COVID-19 pandemic changed all of that. Different retailers were affected in different ways depending on what they sell and where they do business, but many retailers needed to shift to nearly 100% online fulfillment for an extended period of time virtually overnight.

According to McKinsey, e-commerce experienced 10 years’ worth of growth in 90 days at the onset of the pandemic.



Responding to such a massive, unforeseen event in such a short period of time caused unavoidable stress in terms of store operations, staffing and variability in demand and supply, but make no mistake – a great deal of the pain was self inflicted.

You see, for years (decades really), customers have been subsidizing retailers for their poor stock management. When a customer in the aisle finds a gap where the product they wanted should be, about one third of the time the retailer loses the sale. But two thirds of the time, a customer will either switch to a similar product that is in stock or come back and buy it later, preserving the sale for the retailer.

This behaviour has been well documented in numerous studies on retail out-of-stocks, but it was all too easy for retailers to tell themselves “Yes, well maybe those retailers who participated in the studies angered their customers and lost sales, but not us. We’re special.”

Without the ability to definitively capture the absence of a sale that would have otherwise occurred in transaction history, many retailers could console themselves in the belief that the findings of those studies were academic and theoretical – the problem was surely not that bad.

Then the pandemic hit and many retailers were forced to conduct virtually all of their business online. And they got caught with their pants fully down.

The standard approach for fulfilling a click & collect order goes something like this:

  • A customer submits an online order for pickup at a store of his/her choosing
  • A check is performed against the store’s inventory balance to make sure that there is sufficient stock at the selected store to fill it
  • If sufficient stock exists, the order is assigned to the store for picking
  • The store picks the order and the customer is notified when they can pick it up

Makes perfect sense, but it only works if the stock records are reasonably accurate and the store knows where the stock is.

Based on discussions with our clients who routinely measured their online order fill rate (with reason codes for failures) during the pandemic, an employee in the store who is given a pick list (that has already been checked against the store stock balance before being issued) runs into an empty shelf up to 20% of the time when they attempt to pick the order.

(Sidebar: There REALLY needs to be a formal study on this)

To be clear, this was happening before the pandemic hit, but when online sales only represent 5-10% of your overall business, it’s easier to just sweep it under the rug and wait for it to become more pressing before doing anything about it. It becomes significantly more problematic when your stores are dealing with nearly 100% online sales volume for weeks or months at a time.

So, given that; a) an online customer isn’t in the store to make an “in the moment” decision to bail you out and; b) it’s not possible to undo years of neglect with regard to store stock management in a few days, what choices are left?

Actually, there are several. From a cost and customer service standpoint, none of them are good:

  • Take a margin hit by automatically substituting a more expensive version of what the customer ordered (if it’s in stock) in the hopes that the customer will appreciate it (which they may not)
  • Waste more of your time (and your customer’s) contacting them to find out if they really really wanted the item or if they would be willing to take a substitute.
  • Delay the order and/or incur significant additional cost having the out-of-stock item(s) rush delivered from the DC or another store who does have the out-of-stock item on hand.
  • Cancel the customer’s order altogether after exhaustively searching for the item(s) and coming up empty.

Hell, maybe the pandemic (or something like it) won’t repeat itself anytime soon and we can all go back to business as usual and deal with store stock management “at some later date”.

But what would be the downside of tackling it now?

Keeping it small

“I am a horse for single harness, not cut out for tandem or teamwork.”

– Albert Einstein

It’s early March 1975 and a loner saunters into a dungy and dark garage with a group of folks who have the audacity to call themselves the Homebrew Computer Club. The mission of this group of misfits: make a personal computer that is accessible to the masses.

Steve, a 24-year-old with long hair and a brown beard is an extremely shy introvert but is insatiably intrigued by the idea. He sits and listens. Doesn’t speak or ask a single question. He would continue to attend the Homebrew sessions, but rarely contribute.

Instead, he gets to work – alone. He arrives very early most days at work to learn and ponder – reading engineering magazines and books, studying the latest chip manuals, and thinking about a possible design. After work he’d hurry home, whip up a quick TV-dinner and then head back to his trusty cubicle, where he’d work late into the night. He’d describe this period of solitude, deep work and early morning California sunrises as “the biggest high ever”.

On June 29, 1975, around 10pm, Steve Wozniak would finish his initial prototype. He punched a few keys on the keyboard and voila – letters would appear on the screen. It was a breakthrough moment and he had built the world’s first personal computer – alone.

Fast forward 30 years or so, to the crisp, beautiful and serene landscape near Burlington, Vermont. Another engineer, Darryl, would be working on a solution for a problem that had perplexed supply chain planning technologists for quite some time – how to forecast and plan slow selling items in retail.

A few years earlier Darryl, and his long-time colleague Andre, would become frustrated in trying to convince supply chain planning software providers that they should build a store-level DRP solution (what we now call Flowcasting). Most ignored them, or worse, believed that could use a solution designed for manufacturing and distribution for retail. Eventually, one fateful day, they’d both say, “fuck it, let’s build something ourselves”.

Darryl, like Woz, would get to work – laser focused on being able to scale a planning system to retail volumes and developing a solution for planning slow selling items. Using actual data from a handful of retail clients, he’d test several ideas, refining and adjusting until eventually he’d bring forth an elegant, simple, and intuitive solution.

His breakthrough was achieved largely by working alone, just like Woz.

The solution for planning slow sellers is used by lots of retailers around the world to properly plan these type of items, including two of our Canadian retail clients.

Have you ever wondered how Apple has been able to bring forth a series of revolutionary products of elegant design and simplicity?

By keeping it small, that’s how.

Jony Ive was the Chief Designer at Apple and both he and Steve Jobs credit the fact that the iPhone, iPad, iPod and iTunes were breakthrough products because they were developed by very small teams.

According to them, a small, laser-focused team drives the innovation and then, as they share the design with others, they get good at “saying no to a thousand things” – to quote Jobs. Apple instinctively knows that every additional person added to the party brings more input and, very often, more noise.

For anyone working on projects and/or trying to design better ways, there’s some deep insight to learn from these stories. That is – small is not only beautiful, but generally produces better designs, implementations, and results.

So, to improve your odds of success, here’s some simple and practical advice that I always try to adhere to in any project I’m working on or leading:

  1. Reduce the number of meetings
  2. Reduce the number of participants in meetings
  3. Keep teams as small as possible

It’s a philosophy that’s worked well for Jobs, Ive, Bezos, Landvater and Doherty and I think it’ll work well for you too.

Orders, Allocations and Cursive Writing

When a subject becomes totally obsolete, we make it a required course. – Peter Drucker (1909-2005)

From third grade through to about the sixth, all of my classrooms had a banner posted above the front chalkboards (for those of you who don’t know what chalkboards are, you can Google it), showing the formation of all the letters of the alphabet – both upper  and lower case – in cursive form.

We all used special notebooks with 3 horizontal lines per row to guide you in making your cursive letters with the correct height and shape.

For 40  minutes or so every day, we’d practice. First an entire line of As (both upper and lower). Then Bs, then Cs and so on. After a couple weeks, we’d move on to writing whole words and sentences by joining different letters together in just the right way.

Being a lefty, I finished every class with the heel of my left hand completely coated in dark grey pencil lead. It was all worth it though, because it was a necessary skill to learn. Once mastered, cursive was a far faster and more efficient way of writing than using individually printed letters.

My mom was recently shocked and disappointed to learn that none of my 3 kids (now 22, 19 and 16) could write cursive.

My response?

Who cares! None of them can shoe a horse or start a fire with sticks either, but I think they’ll be just fine. Hell, for them, email is considered obsolete technology.

Truth be told – in spite of all the instruction and practice – I’m not sure that I could write five cursive sentences if you put a gun to my head. I type 60 words a minute on a keyboard, though.

Why do people cling so nostalgically to demonstrably inferior methods that they just happen to find more familiar?

That’s the thought that crosses my mind whenever I talk to retailers on the topic of allocating and ordering stock. Some think it’s the bee’s knees, the cat’s pyjamas and the elephant’s adenoids rolled into one.

Over time, the methods for determining which store gets which percentage of available stock become more sophisticated. Historical sales, current inventory levels, safety stocks, on order quantities and the price of Bitcoin are all factored in to make sure that stock is pushed out of the DC and each store gets the perfect allocation for each SKU.

But it’s still nothing more than a blunt instrument. Like sticking with cursive writing, but using a calligraphy pen instead of a number 2 pencil.

The most important factor in determining how much of any given item each store needs at any given time is the anticipated demand from customers for that item at that store. If you focused your energy on that one problem (forecasting customer demand), then simple netting logic can figure out the rest, including what needs to be in the DCs to support the demand in the first place. Ordering stock becomes a menial administrative activity unworthy of a human being’s time or attention.

Forecasts are by no means perfect, but the need to have stock positioned in anticipation of your customers’ arrival still exists and is the primary value a brick-and-mortar retailer gives to the world.

If you build a process around the ultimate goal of constantly learning what makes your customers tick, you will only get better at it.

And leave that number 2 pencil behind once and for all.

Compliments from a CEO

It’s always nice and also encouraging to hear positive comments from a retail CEO about Flowcasting and supply chain management in general. Below are some nice compliments from Ken Larson, President & CEO of Princess Auto Ltd, about Flowcasting, supply chain and the team (both internal and external) that helped make it happen. Thanks for the kind words Ken!

Working backwards

You’d likely agree that Amazon is a very innovative company.  AWS, Prime, Kindle, One-click-shopping are examples of innovations they’ve delivered through a process called Working Backwards.  Working Backwards is a systemic way to surface and vet ideas that sometimes lead to new products or services.  The key tenant of the approach is to begin by defining the product’s (or service) arrival, and then work backwards from that point until the teams achieve clarity of thought around what they will deliver.  

The main tool used to accomplish this clarity of thought is the PR/FAQ document – short for Press Release / Frequently Asked Questions.  The document is written from the perspective of the customer and is dated into the future, when they believe the innovation will arrive in the marketplace.  What’s simple, yet brilliant, about this approach is that it keeps teams focused on delivering something significant, valuable and meaningful to customers – rather than many approaches that are essentially based on the idea of incrementing-your-way-to-greatness.

You may not know, but Flowcasting is also based on the concept of Working Backwards.

Loyal disciples understand that the Flowcasting process starts with a forecast of consumer demand, by product and selling location (e.g., store, etc.).  Conceptually, what’s a forecast of consumer demand?  It’s when and where the customer wants to acquire the product – i.e., when and where it needs to arrive in their hands.

Flowcasting integrates the supply chain from this forecast of consumer demand by working backwards using an approach called arrival based planning.  For any product at any location, arrival based planning calculates planned shipments of when and how much inventory needs to arrive – scheduling a shipment so that the arrival date and quantity ensures the projected inventory doesn’t drop below safety stock.  

The basic logic is simple:

For each item/location:
1. Figure out what you expect to sell (or calculate what you’ll ship) 
2. Figure out what you have and what your constraints are
3. Figure out when you will need more product to arrive
4. Use the arrival based plan to figure out when you need to ship

The concept of planned shipments and arrival based planning is foreign to most retail demand and supply planners. After we do an educational session with planners, we often break people into teams and ask them to calculate a shipment based plan, using arrival based logic, with an example something like this:

Without exception, every retail client we’ve worked with struggles with this simple ask. Everyone has been so conditioned to focus on “ordering” that they struggle to understand that ordering (or committing the planned shipment) is the last decision, not the first. They are focused on “do we need to order” in week 1, rather than planning arrivals and the corresponding ship dates (i.e., planned shipments) first. 

Planned shipments are the foundational construct of Flowcasting and how the process integrates the retail supply chain to ensure the fundamental principle is achieved – that is, a valid simulation of reality.  Every planned shipment consists of an arrival date (when the product will arrive at the destination) and a ship date (when the product will ship from the supplying location).

Flowcasting plans shipments over the entire planning horizon and shares these projections with suppliers and other stakeholders in order to help them plan and improve productivity.  For suppliers we often refer to what is shared with them as a supplier schedule – that is, the projection of planned quantities and their associated ship dates by product and origin/destination.  

Ship dates are the key element to anchor the supplier schedule on.  That’s because ship dates are very specific from a supply chain and work perspective.  It’s when the inventory needs to be available and also when transportation needs to be scheduled to initiate the delivery.

The supplier schedule is, in most cases, the culmination of Working Backwards for a retailer who is using Flowcasting.  From the forecast of consumer demand, we work backwards to calculate when product needs to arrive and ship, through the entire distribution network, right back to when the factory needs to ship the product – integrating the entire supply chain via a series of dependent, cascaded planned shipments.

When you first hear the phrase Working Backwards it sounds like a dumb idea and implies you’re heading in the wrong direction.  Turns out, it’s been a proven and brilliant way to drive innovation.  

It also turns out to be the best way to plan inventory flows for the retail supply chain.

The Arrival Based Plan
For those students, here is the arrival based plan for the example outlined above:

What’s important to understand is that the planned arrivals that are calculated above would be the same, regardless of supply source.  They indicate the quantity and timing of a shipments arrival and are not dependent on the supply source.  The planned shipment, of course, is dependent on the supplying source and the transit lead time.

This make arrival based planning a powerful approach since it enables you to easily plan a change of source well into the future and have all the cascaded dependent demand reflect a valid simulation of reality.