Timing (is everything)

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.

Bread and Butter

Man shall not live by bread alone. – Matthew 4:4

“Make sure you focus on the bread and butter items!”

Anybody who’s worked for a retailer – particularly in supply chain – has either heard or said these words at least a dozen times. And everybody knows what those “bread and butter” items are: The fast sellers. The products that customers take out of the stores by the cartload. If you were ever stocked out on one of those items, the damage to your brand would be catastrophic.

Hence the perceived need to make sure your people in charge of replenishment are watching those items like a hawk.

Here’s the thing though: Fast selling items with continuous demand in every store are precisely the ones that require virtually no effort whatsoever. They turn so quickly and the volumes are so well established that they basically manage themselves on autopilot. In most cases, these are the items that your competitors also sell (and potentially consider “bread and butter” items themselves).

The reality for most brick and mortar retailers is that they are in one of the following two categories:

  1. You’re competing with Amazon, or;
  2. You will soon be competing with Amazon

Unless you’re Walmart or Costco, you really do need to be a category killer to overcome the perceived advantages while exploiting the weaknesses that “endless aisle” retailers like Amazon provide to customers. Yes, you need to have an online presence and offer as many channels to the customer as possible, but that won’t be enough.

You can drive to Walmart right now and get a pack of wood screws, but are you sure will they have the size you need?

You can order the exact wood screws you need from Amazon, but will they be easy to find and can you get them right now if you need them?

If you’re like me, you don’t even ask those questions. The moment you identify a need for a particular size and type of screw, you jump in your car and go straight to Home Depot or Lowes and march straight to the aisle that has every type of screw and fastener you can imagine, confident that you’ll find what you need.

Sure, there’s a lot of slow selling dog crap in there when you look at the assortment SKU by SKU, but if you only pay attention to the fast selling items, then you’re competing head to head with Walmart and Costco – probably not a winning strategy.

It’s a broad assortment of those long tail items that really make you stick out in the customer’s mind. They’re the key differentiators that can automatically and subconsciously disqualify your competitors when people are in the market for what you’re selling.

There’s your real bread and butter.

Doctor’s orders

In years past companies have focused on demand side forecasting accuracies. SC managers are realizing the big gain is on supply side management.”

                                                    – Chris Barnes

An article I co-authored with George Stalk, Jr., “A Better Way to Match Supply and Demand in the Retail Supply Chain” was recently published by Harvard Business Review.  A colleague, who happens to go by the handle of “Supply Chain Doctor” made a profound comment on the underlying premise of the article.  He said… 

“The future of SCM is here. In years past companies have focused on demand side forecasting accuracies. SC managers are realizing the big gain is on supply side management. Whatever you can do to help your suppliers will pay dividends to your company. Not as glamourous as omni-channel distribution, but without strong supplier relations, omni-channel won’t really matter much.”

Loyal readers will understand that we’re talking about using the Flowcasting process to only forecast where it counts (i.e., the final point of sale) and to calculate all other inventory flows from consumption to supply.  This, of course, culminates in sharing planned shipments with suppliers – a concept referred to as supplier scheduling.

The concept of supplier scheduling has been standard practice in manufacturing for decades – that is, sharing a projection of future required product needs to help a manufacturer’s suppliers plan and deliver.  Flowcasting allows retailers and their manufacturing partners to leverage the same concept.

The planned shipments are the demand plan for the supplier for this retail customer – indicating how many units of each product will need to be shipped, when and where. This eliminates the need for the supplier to forecast demand for this customer.

From a supplier perspective, their major retail customers can provide them with calculated demand, rather than having to forecast it themselves.  Most CPG manufacturers would only require a handful of supplier schedules from their large retail customers to provide 70+% of their total demand.  They can forecast the balance. 

The projected requirements have all retail, supply chain and inventory flow constraints/rules incorporated, specific to each retail customer.  If a Retailer Customer was experiencing increased sales or had decided to change the shelf inventory requirements at a future date, the supplier schedule would reflect this in the planned shipment quantities. 

The Flowcasting model is based on a fundamental principle – a valid simulation of reality.  If the retailer and trading partners know the future will be different than the past, then these insights are factored into the forecast and resulting inventory flow plans, culminating in the supplier schedule. 

The impact of retailers embracing Flowcasting and supplier scheduling is significant.  It obsoletes a significant amount of non-value-added forecasting and, even more significant, effectively eliminates the bullwhip effect.

Perhaps we should listen to the Doctor’s orders.

Just In Time… For What, Exactly?

I have noticed that the people who are late are often so much jollier than the people who have to wait for them. – E.V. Lucas

The time-phased, arrival based planning logic that underpins Flowcasting has frequently been described (sometimes disparagingly) as “pull-based, just in time”. Depending on your definition of “pull-based” and “just in time” (do any two people actually agree on what these terms mean?), there’s more truth to that than fiction.

The “pull-based” part is easy. The retail supply chain hasn’t finished its job until a customer has made a purchase. While it’s possible to encourage a stronger customer pull with promotional offers, pricing and markdowns, you can’t push unwanted stock into a customer’s shopping cart and force them to pay for it. This is true for every saleable item in every retail store.

The “just in time” part is what can sometimes make people (particularly buyers) a little queasy. The term evokes images of stock running almost to zero just before the perfectly executing supply chain delivers more stock. There seems to be a pervading fear that such approaches will cut inventory to the bone in a blind bid to increase stock turns at a all costs.

While it’s certainly possible to run your supply chain (including the stores) super lean, it’s definitely not necessary – nor recommended. A store with just enough stock to cover anticipated demand and variability for every item will look like it’s perpetually going out of business.

“Just in time” doesn’t mean “just enough to support sales”. It means just in time to prevent the stock level from dipping below a minimum floor that you decide

Do you want to maximize turns with minimal safety stock? No problem!

Do you want to have a nice, full looking display with at least 5 facings, 3 deep on the shelf at all times? Go for it!

(Same item, same store, same sales forecast).

Do you want to augment the normal shelf stock with secondary promotional displays for a few weeks? Nobody’s stopping you!

Would you rather have a minimum of 4 weeks of supply in the store at all times? Sure! Why not?

Just in time isn’t about stock levels, it’s about stock flow. So long as you can articulate what minimum stock holding you require for each item/location and when (and can justify it to Finance), a proper just in time planning approach does what it’s told and flows in stock to ensure you never fall below that level.

Merchants and space planners rejoice and be glad! You’re not slaves to just in time planning. Just in time planning is a slave to your merchandising needs.

Harvard Business Review article about Flowcasting

Our article, “A Better Way to Match Supply and Demand in the Retail Supply Chain” co-authored by Mike Doherty and George Stalk, Jr., published by the Harvard Business Review. The basic thesis of the article is that Flow-casting can address the most insidious problems in the retail supply chain – out of stocks, overstocks, and the bullwhip effect.

To read the article, click HERE.

Managing a Retail Business to a Single Set of Numbers article

by Mike Doherty

I’d like to thank Retail Insider magazine for publishing my article about “Managing a Retail Business to a Single Set of Numbers” – outlining the pioneering work of Andre Martin, Darryl Landvater, and Oliver Wight (Oliver Wight Americas, Inc.) from 40 years ago in manufacturing and how it can and does apply to retail.

To all my colleagues and clients around the world, you should read Retail Insider and subscribe to their Retail-Insider eNewsletter. They are both enlightening and bring valuable insights to the retail community.

To read the article, click this link

1970s Montreal Genius

1970s Montreal Genius

If you happen to be a long-time fan of the Montreal Canadiens hockey team, then undoubtedly the late 1970s was a dream for you. The Habs were on a tear, winning 4 consecutive Stanley Cups and playing some of the fastest and best hockey ever seen.

In the late 1970s there was another Montrealer who was on a tear as well, in this case with respect to inventory flow planning innovation.

In 1975, as Director of Manufacturing Operations and Distribution, Andre Martin lead the creation, development, and successful implementation of the first integrated time-phased planning system in industry. Andre leveraged the Bill of Material (BOM) concept to integrate manufacturing operations from distribution centre to factory floor. Instead of a BOM, he flipped the idea and developed the concept of a Bill of Distribution (BOD). Once we forecast the demand at the DC’s, he reasoned, we could calculate the dependent demand onto the factories.

The Distribution Planning solution was aptly named Distribution Resource Planning (DRP) and adhered to the mantra laid out by Dr. Joseph Orlicky (of Material Requirements Planning fame) to “never forecast what you can calculate”. This in-house development and implementation enabled Abbott to seamlessly manage the flow of products across a three-echelon supply chain – a worldwide supplier network supplying to three factories (Montreal PQ, Brockville ON and Toronto ON), and ten distribution centers across Canada.

Prior to managing manufacturing and distribution operations Andre worked in accounting and finance. Having this accounting background, and coupled with his experience in manufacturing and distribution, Andre realized that they needed to tie their new time-phased inventory flow planning system with Abbott’s financial system.

In 1978 he saw the opportunity of enabling Abbott’s top management team to manage their business to “A Single Set of Numbers” – converting the forecasts and resulting plans into financial, resource and capacity projections.

He also realized that the new DRP solution, along with the DRP/MRP integration could be used as a financial planning and budgeting tool. The projections would form the foundation for the annual plan. As a result, Abbott’s top management was able to use their operating system to put together their 1978 annual budget using the very same system they used to manage their day-to-day business.

Oliver Wight, Abbott’s consultant at the time, created the term Manufacturing Resource Planning, or MRPII, to describe this broader application of the solution and the rest is history.

Loyal readers and disciples (yes, we have a few of those but would love several thousand more!) will realize that Andre’s pioneering work is also relevant and applicable in retail.

For example, consider Canadian national hard lines retailer Princess Auto Ltd (PAL). PAL plans inventory using the Flowcasting process—developing consumer-driven, integrated inventory flow plans that are valid across the entire value chain, including plans that span multiple organizations. Every department—including suppliers—use the projections for planning and to identify opportunities to improve service, cost, and productivity.

The item/store forecasts in units are converted to financial sales projections, and then aggregated to category, department, and sub-department level to provide the starting point for the baseline budget for the upcoming year. The impacts of additional strategies and tactics are then added to the calculated baseline to arrive at the budget, or business plan.

Given the new planning process is always recalibrating based the on the latest information, it has provided the Leadership Team with a continuous, forward-looking critique of how well the business plan is being realized – essentially a Retail Sales and Operations planning process. Instead of looking in the rear-view mirror to evaluate the plan, the Leadership Team has the capability to assess the forward-looking plan and determine where the plan may be at risk – giving them time to make any adjustments necessary to stay on track.

More importantly, they are managing their business to a single set of numbers – having essentially a model of how they wish to do business, spanning their entire eco-system.

It’s a concept that originated in Montreal over 40 years ago – thanks to the pioneering work of, among others, Andre Martin, Oliver Wight, Darryl Landvater and Abbott Labs – and is being realized today by smart, forward-thinking retailers like Princess Auto Ltd.

More Genius from the 1970s

Did you know that during this time, Andre also invented a concept called Game Planning?

He converted the time-phased production plans (developed by calculating production requirements from the DRP-driven plans) to dollars and called it “Game Planning” – since it produced a dollarized view of planned sales, production, shipments, and inventory levels (i.e., essentially the company game plan) for a 2-year planning horizon. The combined views of financial and resource projections allowed Top Management to gain better control of the business.

In the early 1980’s, an Oliver Wight Associate named Dick Ling renamed Game Planning to what it’s referred to today – Sales & Operations Planning (S&OP).

The late 1970s was a special time for the Montreal Canadiens.

The late 1970s was also a special time for Andre Martin.

Customer Satisfaction Theatre

Nothing is less sincere than our mode of asking and giving advice. – Francois de la Rochefoucauld (1613 – 1680)

Actually, that quote above the title block is only partial. Here’s the entire quote:

Nothing is less sincere than our mode of asking and giving advice. He who asks seems to have a deference for the opinion of his friend, while he only aims to get approval of his own and make his friend responsible for his action. And he who gives advice repays the confidence supposed to be placed in him by a seemingly disinterested zeal, while he seldom means anything by his advice but his own interest or reputation. – Francois de la Rochefoucauld (1613 – 1680)

It’s with that context in mind that I’d like to discuss so-called “customer satisfaction” surveys.

If you use Microsoft Teams, you’ve certainly seen this pop up after ending a call:

If you give them 5 stars, you see this:

Aw, that’s nice. However, if you give them 4 stars (or anything below 5 stars), you get this:

If you click on one of the “Audio”, “Video” or “Presenting” links (I selected “Video”), you get this:

And after checking the box that best describes your problem, you get this:

TRANSLATION: “Thanks for the feedback! It’s been saved somewhere for someone to look at someday – maybe.”

The most cynical (or paranoid) interpretation of this is that they are trying to train their customers to either give them the highest possible rating or skip giving feedback altogether. “If you give us 5 stars, you can move on with your day. Anything less than 5 stars, and we’re giving you work to do.”

A kinder interpretation is that they didn’t really think through their data collection method, as it’s clearly flawed and unlikely to give them anything useful.

It should be noted that I’m not picking on Microsoft here (and if I were, they would hardly care). Their feedback collection has actually improved recently by at least trying to make it easier to get something useful from their users. 

More often than not, the only option after giving fewer than 5 stars is something like: “Oh, we’re sorry to hear that. Please type a short essay into the box below explaining your problem and NOBODY will get back to you.”

But it’s not just online. At my favourite grocery store (which I won’t name), every cashier has started asking me “Did you find everything you were looking for today?”

If I reply “Yes”, the cashier will respond with something like “That’s good to hear!”

If I reply “No, I needed black beans for a recipe, but you’re all out”, the response is something like “Oh, I’m sorry to hear that.”

That’s it. End of conversation.

If I were more of a jerk, I would ask them “Aren’t you going to write that down? Don’t you want to know the brand and size I was looking for? Aren’t you going to call a supervisor to talk to me about it?”

Of course, I’m not going to do that – the cashiers are just doing what they’ve been asked to do. I imagine this extra little task at the end of each transaction opens them up to abuse from people who ARE jerks and don’t understand that the cashier has zero control over stock availability in the store.

Now when I get asked this question, I just say “Yes”, regardless of whether it’s true or not.

Okay, so now that I’ve done my complaining, I’ll propose a couple of nominal solutions:

  1. If you don’t care about my feedback, don’t ask. I’m actually being sincere here. I find not being asked preferable to feigning interest in my experience for the sake of having an interaction, while making it quite obvious at the end of the interaction that you really don’t give a shit.
  2. If you actually do value the feedback, then do SOMETHING to show it other than saying “Thanks for that, now leave me alone.”

Just spitballing here, but in the MS Teams example, what if they  linked you to a simple support page that describes the most common causes of the problem you indicated with some quick fixes to try?

Or at a minimum, they could tell you exactly what happens to your feedback after you hit Submit and send a follow-up message whenever they’ve actually done something on their end to address the problem you raised.

As for the retail store example, the most obvious sincere remedies for a customer expressing dissatisfaction at the checkout (offering to switch to a higher priced brand, providing a discount on the order or a gift card for a future trip, etc.) are all admittedly very costly and/or rife with the potential for abuse. But could you at least have a tally sheet next to the cash register where a cashier can record which department is logging the most customer complaints to see if there’s an operational issue?

Or better yet, provide me with an app on my phone that allows me to scan and report the empty shelf for the item I wanted to purchase. Then you could follow up with me electronically later to let me know when it’s available, maybe send me a discount coupon for it, etc.

Look, every customer feedback mechanism has its flaws, but if you’re just fishing for compliments (or punishing customers for lodging complaints), then you’re not really collecting any useful information anyhow, no matter how “cheap and easy” it was to do.

And when a customer gives you negative feedback without any follow-up, then that’s just one additional thing you’ve done to annoy them today.

Maybe We’re All Wrong

Work alone. You’re going to be best able to design revolutionary products and features if you’re working on your own. Not on a committee. Not on a team.”

                                                    – Steve Wozniak

In 1963 Marvin Dunnette, a psychology professor at the University of Minnesota performed an experiment that challenged conventional wisdom, yet few people know about it and even fewer have learned from it.

Dunnette gathered 48 research scientists and 48 advertising executives, all of them from 3M, and asked them to participate in both solitary and group brainstorming exercises. 

He divided the group into twelve teams of four.  Each foursome was given a problem to brainstorm, such as the benefits or difficulties of being born with an extra thumb.  Each man was also given a similar problem to brainstorm on his own.  Then Dunnette and his team counted all the ideas, comparing those produced by the groups with those generated by people working on their own.

The results were startling and counter-intuitive.  The men in 23 of the 24 groups produced more ideas and of better quality when they worked on their own rather than in a group. 

Since then some forty years of research and studies have shown that, almost always, performance gets worse as the group size increases.  The “evidence from science suggests that business people must be insane to use brainstorming groups”, wrote the organizational psychologist Adrian Furnham.

When it comes to forecasting, collaboration is the accepted conventional wisdom.  Consider retail supply chain forecasting.  Most of us believe that collaborating with multiple people, potentially including the supplier, produces a better forecast.  Yet, Dunnette’s research would suggest otherwise.

Perhaps better results could be achieved if forecasting was solely left to the retailer?  And, further, to one person who is focused on a specific category of products.  Then, using the Flowcasting process, this forecast of consumer demand would be translated into all other demand, supply, capacity, and financial plans for all partners in the supply chain.

But wait, you say, having the input of lots of people can materially improve the quality of the forecast.  Sure, we all say that, but how specifically?  It’s just accepted practice that if multiple people work on the forecast, then it will be better.  Just like group brainstorming produces better results.

Do we think the forecast can be improved for promotional forecasts by having more people collaborate?  Again, how exactly?

If you think about forecasting consumer demand isn’t the retailer closer to the consumer?  Haven’t they got all kinds of information regarding past promotions for the item in question and similar items (likely from another supplier)? 

Don’t they have a complete view of other marketing and promotional activities that might impact specific products being forecast at the same time?  And isn’t this information available to the demand planner accountable for the forecast?

If two people were tasked with developing a forecast of consumer demand for a promotion and had the same inputs and history as a starting point, how different would their forecasts really be? 

It’s a question that’s seldom asked.

Maybe, retail supply chain forecasting would be better served with one forecast, created by the retailer, owned, and managed by one person – and with the advances in Artificial Intelligence and Machine Learning, managed by reviewing only a miniscule number of exceptions that the machine couldn’t understand yet.

It’s counter to the collaboration Kool-Aid we’ve all been drinking for years.  And to what most supply chain practitioners say.

Maybe, though, we’re all wrong.