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Four Hundred Forty-Nine

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“Failure is an option here. If you’re not comfortable with failure, you’re not comfortable with innovation.”
– Jeff Bezos

Unilever is a consumer-packaged goods giant. Several years ago, they had a serious production problem at one of their factories near Liverpool, in the north-west of England. They were making washing powder in the standard way – the way washing powder is still made today, where boiling chemicals are forced through a nozzle at very high speeds and as the pressure drops, they disperse into vapor and powder. Then, the vapor is siphoned off and the powder collected in a vat, where additional chemicals and ingredients are added and then sold as washing powders.

The problem Unilever had was that the nozzles didn’t work very well or smoothly – they kept clogging up. They were inefficient (causing numerous production delays), kept blocking and produced varying grains of powder, of different sizes. This was a major issue for Unilever, not just because of maintenance and lost time, but also in terms of the quality of the product which was rightly disappointing customers. They needed to develop a better nozzle. Much better.

So, they turned to an internal team of crackpot mathematicians. Unilever, like many large industrial giants, could afford the best and the brightest and had on staff a team of math folks who were experts in high-pressure systems and fluid dynamics. They were also experts in the physics of what is called “phase transition” – the process that governs the transformation of matter from one state to another (e.g., from liquid to gas).

The expert math team did what experts often do – they delved deep into the problem and developed sophisticated equations and solutions. After a long period of study and design, they came up with a new and what they believed was brilliant, design.

Problem was, it didn’t work. The powder granularity remained inconsistent, and the process was still inefficient.

In desperation, Unilever also turned to their team of biologists – a team with no knowledge of fluid dynamics and phase transitions. This team had something else that would prove crucial – a design approach that was rooted in experimentation. A test, fail and learn approach. One that seemed to understand that failure was part of learning, and often a necessity for innovation.

Instead of a brilliant design, they would make some minor tweaks, try it, see what worked and didn’t work, adjust and test again. Then, rinse and repeat, until they had a better nozzle that worked in practice, not just on paper.

They would take ten copies of the nozzle and apply a small change to each one, then test each one to see which ones failed, but importantly, which one performed the best. They would then take the “best” nozzle and do the same thing again: create ten slightly different copies and then repeat the process. Then repeat it again. And again. And again.

After 45 generations they had finally developed a nozzle that was excellent.

A world class nozzle had been built because of testing, discarding and improving upon four hundred forty-nine ‘failures’.

Progress/innovation had been achieved not by a grand, brilliant design, but instead by rapid interactions with the real world.

An approach, it turns out, that is fundamental to designing something better, even in supply chain management.

When it comes to inventory planning, people are embracing the concept of Flowcasting. That’s good. In my opinion, the breakthrough that’s made Flowcasting possible, is the capability to forecast, replenish and managing slow and super-slow selling items at store level.

The best solution to this chronic issue that had plagued planning system providers, was developed and architected by our long-time colleague, Darryl Landvater of the Oliver Wight Americas Team. And, largely by using the same approach as the biologists from Unilever – a test and learn approach, refining based on real-world learning’s, then doing it again and again until an elegant, intuitive solution was proven.

I won’t bore you with the details, but repeated tests and learning’s helped him understand and correctly conclude that managing slow sellers at the store level is simultaneously a forecasting and replenishment issue. His solution is the only approach that I know of that manages both the forecast and replenishment plan at store level in unison. It ensures a valid simulation of reality and, critically, that inventory can be maintained close to the store safety stock level for these types of items. That’s critical for a retailer, since most retailers have a significant percentage of slow sellers.

I’ve never asked Darryl how many ‘failures’ he endured on his journey to developing his slow seller solution, because it doesn’t really matter.

I’m just glad he did.

Empty Calories

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There is not any memory with less satisfaction than the memory of some temptation we resisted. – James Branch Cabell (1879-1958)

What are my current stock levels? What’s the status of my inbound orders? How were the weekend sales for my products?

A great deal of effort has been spent over the last 2 decades to provide this information to planners and decision makers in near real time. But how useful is it, really?

We like to call this the “salt, sugar and fat” of supply chain planning. It’s extremely satisfying to get answers to these questions in the moment, but the satiation wears off quickly and you find yourself asking the same questions a few days later.

These types of supply chain visibility metrics are merely a glimpse in the rearview mirror. The myriad activities that give rise to a particular inventory level, a change to an order status or a weekend sales result have already happened and have been happening for days, weeks or even months before the question was even asked.

It’s like sitting at the gate and your airline announces a departure delay. You would rather have that information than not, but if that’s all the information you get, you have no control over the outcome. All you know is that you won’t be getting to your destination on time.

Now, suppose that you’re a savvy traveller. Hours before you even leave for the airport, you check the tail number for the inbound flight. Then you check the origin city of that flight and a massive storm is rolling through right around the time it’s supposed to depart, virtually guaranteeing a significant delay.

What are you going to do? Try to get booked on a different airline whose inbound aircraft is not coming from the city that’s about to get pummelled? Extend your hotel stay for another night because there’s no way you’ll be getting out at a reasonable time? Rent a car and just make it a road trip instead? Or just suck it up and leave on your scheduled flight, even though you know you’re going to be significantly delayed.

Any of those options may be acceptable, depending on your needs and constraints (e.g. cost, how urgently you need to get to your destination, whether or not the distance is reasonably driveable). But you only have one option available if you didn’t see the problem coming and only learned about it when you were sitting at the gate.

The point here is that knowing where things currently sit is certainly useful, but nowhere near as useful as being able to anticipate what things will be like in the future. Constantly checking in on up-to-the-minute information about the very recent past may give you a sense of control, but in reality, you’re just sitting in the back seat bingeing on cheeseburgers and donuts.

In a supply chain context, focusing too much on “real time current” information can lead to false conclusions and bad decisions (or non-decisions).

You look at your current DC and store stock levels and everything looks nice and healthy, so you breathe a sigh of relief and move on to the next item. But a promotion is scheduled in 2 weeks that’s going to virtually wipe you out. And your lead time from the supplier is 4 weeks. This is an example of something that is a big problem, but it doesn’t look like a problem in the current data. The cost is lost sales that could have been avoided.

You move on to another item and you see that 30% of your stores are out of stock. So, you panic. You spend the morning trying to figure out how can this be? What happened? And you have a bunch of higher-ups (who are looking at the same “here and now” data that you are) asking the same questions. Meanwhile, an order was just triggered with the supplier that covers the shortfalls and is due to arrive in a few days. Within a week or so, all of the stores will be back in stock. This is an example of something that looks like a big problem in the current data, but really isn’t much of a problem at all. The cost is stress and lost productivity trying to solve a problem that has already been automatically solved.

Subsisting on a diet consisting mainly of salt, sugar and fat is not good for one’s long term health. So, how do you kick the habit?

Like the savvy air traveller, you need to give yourself a window into the future to know all of your options and make the best decisions in advance.

Properly cooked, an end-to-end planning process that is designed to always maintain a valid simulation of reality is a very tasty and nutritious vegetable.

Keep buggering on

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There are few people that have had such a profound impact on world history as Sir Winston Churchill. A personal hero of mine, Churchill was an inspirational statesman, writer, orator and leader who led Britain and her allies to victory in the Second World War.

Churchill was an enduring optimist, who believed in duty, hard work and a never say never attitude. In my humble opinion, it was his passion and total belief that ultimately freed Britain, and Europe, from the grip of the gestapo.

An accomplished writer and orator, he was renowned for many sayings that summarized his philosophy and outlook on things. One of these, was the phrase “keep buggering on” – a phrase used to encourage people to keep going, even when faced with overwhelming odds. Churchill believed that to achieve one’s goal, you need to “keep buggering on” – never giving in and continuing the journey until you reach your goal.

I’d like to share a true story of my colleague, Andre Martin, who – for roughly 50 years – has “kept buggering on” to realize his dream of a completely connected, seamlessly integrated supply chain from consumption to source; what we call Flowcasting.

To begin, let’s turn the clocks back to 1974. Andre has a huge problem on his hands as the Director of Manufacturing and Distribution at Abbott Labs in Montreal, Canada. He’s getting beat up about and trying to understand why the service levels in Similac (an infant nutritional product), and others, are dismal. They hover around 90% or so, but the target is 98%, or better. To make things worse, his manufacturing and distribution folks are at loggerheads and often in a fight.

Andre recalled a Jay Forrester article entitled “Industrial Dynamics” written in 1958 and decided what was needed was an inventory planning system that connects and manages 4 separate levels of inventory – their 10 regional DC’s supplied by a central DC, which was supplied by 3 factories which were supplied by multiple vendors.

About the same time a colleague recommended that he attend an Oliver Wight MRP seminar in Boston – which he did and where he met Oliver Wight. Soon after he would retain Oliver Wight in a consulting capacity. Andre would share his idea how he was thinking of planning production and synchronizing purchases with suppliers using the principles of MRP. Given that Abott had two more levels of inventory to manage, what Andre concluded was that he needed a four-level planning system that would integrate all levels.

Ollie liked the idea and agreed with the concept but informed Andre that no such software system existed in the market. To realize his design, he would need to develop it himself but could count on Ollie’s support and guidance should he choose to do so.

In fact, Oliver Wight informed Andre that he knew a person that could help develop the new software and introduced him to a young dude named Darryl Landvater. Two days later Darryl visited Montreal to work with Andre and began the journey to develop the very first integrated DRP/MRP solution – connecting distribution and manufacturing into an integrated system.

Once designed and implemented, the results were phenomenal! Service levels increased to 98-99% consistently, inventories were reduced at all levels by 25-60%, obsolescence was down by 60% and the cost of production fell by 15% as well.

Given the success of this initiative, Andre continued to think about seamlessly integrating any industrial supply chain. At the 1975 APICS conference in San Diego, California, he’d confirm his thinking. He had been pondering about an integrated supply chain driven from store-level to supplier using the principles of what they implemented at Abbott Labs. His breakthrough idea was that he flipped the MRP concept of a bill of material and instead created a bill of distribution – so the integrated supply chain could be driven by only one forecast.

At the conference he’d bump into and discuss this idea with the legendary Dr. Joseph Orlicky, the father of Material Requirements Planning (MRP) and a planning guru. Upon hearing Andre’s idea, Joe thought about it for a few minutes, then responded in a profound manner. “Andre”, he said, “your idea is sound, because you should never forecast what you can calculate.”

Not long after his success with Abott Labs and the DRP/MRP integration, Andre would join the Oliver Wight organization to help take DRP mainstream, including writing the seminal DRP book and later a book called “Infopartnering”. During his time at Oliver Wight, he would help lead the successful implementation of DRP with more than 40 companies – helping to cement the principles of DRP in distribution and manufacturing.

He then decided that the thinking should be taken to retail. To that end he would work with early retailers like Sears to help them implement DRP for their distribution operations, including early pilots of supplier scheduling in retail – i.e., sharing time-phased shipment projections with merchandise suppliers.

He would re-join forces with Darryl and create the Retail Pipeline Integration Group, focused on helping retailers embrace these concepts and drive their entire integrated supply chain from a forecast of consumer demand at the store level. They would help several retailers, including my team at Canadian Tire, and dabble in determining what was needed to build a retail focused solution capable of enabling Flowcasting – including how to process the massive volumes in retail and the retail specific planning challenges, like managing slow sellers as an example.

Based on their learning regarding a retail-focused solution during their initial prototypes and pilots, they would visit several large planning solution providers to convince them that a retail solution would be needed. All the major players declined to build one. So, given they were both committed to the cause, they decided to build a solution themselves. It’s a solution that has eventually found a home with the Oliver Wight Group – ironically the organization where the ideas, thinking and concepts of integrated planning largely originated.

In terms of the Flowcasting concept, early pilots and implementations have proved, beyond a shadow of a doubt, that Andre was correct in his initial thinking regarding an integrated supply chain. In retail, the entire supply chain for early adopters is driven by only a forecast of consumer demand and all other demands are calculated – providing all partners a model of the business and the ability to work in harmony using a single set of numbers.

Andre is retired now, but he still interacts with me and the original Flowcasting pioneers to share his wisdom and talk a little smack about hockey (btw, Andre, the Leafs are better than the Canadiens, at least for now).

I suppose that I’m now one of the ones that will continue to drive the thinking and adoption of the principles and concepts of Flowcasting. Which reminds me of another famous Churchill quote to help inspire us; “Never give in. Never, never, never, never—in nothing, great or small, large or petty.”

Don’t worry, we won’t, so when it comes to Flowcasting adoption…

We’ll “keep buggering on”.

Are You Sure You Want High In-Stock?

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All exact science is dominated by the idea of approximation. – Bertrand Russell (1872-1970)

Okay, so that title might seem a bit “clickbait-y” and even a little dumb without some context, so bear with me here.

Before we get started, this piece is not about optimizing inventory investment by paring back inventory (and risking out of stocks) on long tail items “for the greater good” or any other such nonsense.

If you’re in the retail business in 2025, then you’re competing with Amazon at least to some degree. Those long tail items are probably as important to your long term success as a business than the so-called “bread and butter” fast sellers.

If holding stock on those long tail items gives you heartburn, then you’re better off increasing the selling price to offset the carrying cost than trimming your inventory. Customers will pay a premium if they know you’re the only game in town (or at least the most reliable game in town) to get those hard-to-find items.

Now, back to the topic at hand.

If you read the title of this piece and thought to yourself “What a dumb question!”, I’d wager that you were probably conflating the terms “in-stock” and “on shelf availability”.

What’s the difference? Customers don’t care that you have available stock somewhere within the 4 walls of the store. They want it on the shelf.

While it’s true that stock can’t be on the shelf if it’s not in the store in the first place, there are times when putting additional inventory in the store to boost your in-stock metric can actually harm on shelf availability – and sales.

Consider a simple example for a particular item where the shelf capacity for the item is 10 units. The shelf is completely full and the store is currently holding an additional 20 units in inventory in the back room or some other overflow location. 

A couple of weeks go by. The 10 units of shelf stock has sold and the selling location is now empty. For a few days, either nobody notices the hole, the stock has been misplaced or is in a difficult to access overflow location within the store.

What will the replenishment system do? Probably nothing, because there is still plenty of stock in the store to sell. How does the in-stock report look for this item? Fantastic! But you’re losing sales.

In other words, boosting inventory levels in the store will definitely improve your in-stock metric, but if it’s done to excess, inventory can actually harm sales. 

One problem we have is that in-stock is relatively easy to reliably measure, while on shelf availability is not. So we are forced to use in-stock as our proxy measure for customer service, when that’s not always the case.

So getting back to the original question: Are you really sure you want high in-stock?

The answer is yes – so long as you’re actively doing everything you can to effectively make in-stock a reliable proxy for on shelf availability:

  • Keeping your store level inventory accurate
  • Developing and maintaining accurate planograms (and compliance to those planograms in store)
  • Triangulating your planograms with stocking policies and pack sizes to ensure that inbound stock can flow directly from the receiving bay to the shelf

Scaffolding

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It’s an early spring weekend, 1991. A cold and dreary day. Several of America’s sharpest young minds have gathered at a hotel near Detroit. After the students find their way to their seats and the event starts, the room would fall dead quiet. All eyes were fixated on the 8X8 rows of squares. It was the start of the National Junior High School Chess Championships.

The tournament was usually dominated by teams from fancy, elite schools. Most of them had the resources and desire to make chess part of the school curriculum. Dalton – an elite New York school – were the defending champs and had won three straight national championships. For students at Dalton, chess was part of student life.

At school, every kindergarten student took a chess class, and every 1st grade student studied the game for an entire year. As they did in subsequent years. The best players would receive additional lessons from some of the country’s best chess teachers. When it came to chess, Dalton was a powerhouse and the odds-on favorite to win again.

That year, another New York based school had entered the competition as a bit of an unknown wild card. They were the Raging Rooks – students representing a school hailing from Harlem. The Raging Rooks were a group of poor students of color, mostly living in neighborhoods dominated by drugs, violence, and crime.

No one gave the Raging Rooks a chance. As they walked nervously into the hotel, many heads turned. They had very little in common with their wealthy, elite opponents.

To everyone’s shock, the leading teams stumbled slightly, allowing the Raging Rooks to tie for first place. In under two years, the poor kids from Harlem had become national champions. The biggest surprise wasn’t that they had won – it’s why.

They won because they had had great scaffolding.

In construction, scaffolding is a temporary structure that allows workers to scale heights beyond their reach and work/build safely. Once the job is done, the support is removed. After that, the building stands on its own.

In learning, scaffolding serves a similar purpose. A teacher or coach offers initial instruction, knowledge and guidance, and then gradually removes the support. A key goal is to shift the responsibility to you, so you develop your own approach and methods to learning. That’s what Maurice Ashley – the coach of the Raging Rooks – did. He provided structures, coaching and guidance to give them the opportunity and motivation to learn and improve.

He would use unorthodox and creative ways to provide scaffolding to help the students not only learn but become very interested in chess, including self-learning and improvement. They would draw and use cartoons sometimes to highlight key moves and variations. Other times, they’d write stories about chess matches. They also wrote and recorded rap songs about the importance of central control of the chessboard.

As they became better and more of a team, the players started taking the motivation and opportunity to learn into their own hands. They would study and analyze each other’s games, with a goal for better understanding and learning. They didn’t care about being the smartest player in the room – they wanted to make the team smarter.

Another type of scaffolding is teaching others, with research showing teaching, tutoring or having to explain ideas and concepts boosts the tutor’s own learning. The oldest children appear to benefit from explaining to their younger siblings, for example.

As it turns out, scaffolding is crucial in learning and development, which was used extensively by Ashley to coach his chess team to a national title. It’s about aiding at the right time, gradually reducing support as the student learns and increases their competence. This approach not only fosters independence but also instills confidence, paving the way for individuals to harness their potential and improve their overall competence.

In my opinion, scaffolding is crucial for any business transformation – especially, as an example, for retailers who are moving to a holistic, integrated inventory planning approach like Flowcasting. The better the scaffolding, the better the implementation – both in the short-term and, importantly, the long term.

From experience, a coaching and support team that provides learning about the underlying principles and concepts of Flowcasting helps planners learn and understand. Not just the how, but the why. Flowcasting is not about the calculations (though, that’s important to learn as well). It’s about changing the working relationships amongst the entire retail eco-system participants, improving collaboration and working in harmony with a single set of numbers, driven by the heartbeat of the consumer. It’s about changing behaviors, and that kind of change needs to be supported by good scaffolding.

Ongoing coaching, including discussions and example walk-throughs regarding business scenarios and applying the principles/concepts helps to further ingrain new ways of thinking and working. The more a coaching and support team provides ongoing learning to the entire organization (including the merchants, suppliers and key service providers), the better. In short, the more scaffolding the better. In these kinds of transformations, the scaffolding is not temporary, like it is in construction. It needs to be enduring.

In my opinion, it’s so important that I would argue that the long-term success of a transformation to Flowcasting, or any other significant business transformation, can be determined by how well you answer this question…

How good is your scaffolding?

We Don’t Need a Ferrari

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Necessity never made a good bargain. – Benjamin Franklin (1706-1790)

When a retailer seriously embarks on an effort to completely reshape how they plan the flow of goods from supplier to shelf, the discussion inevitably turns to what software they will need to do the job. (And ideally, this isn’t Step 1 of the process).

As the time approaches to evaluate software vendors, someone in company leadership is bound to utter the phrase “We don’t need a Ferrari”. After that, everyone in the room will nod their heads sagely in agreement. You can almost set your watch by it.

The message they’re trying to send is “We don’t need unnecessary sophistication and we don’t want to spend a ridiculous amount of money. We just need to get the basics right.”

I believe the intention is correct. You don’t want the design and implementation team to go off on a wild search for the most sophisticated system they can find – whether or not it’s proven or even necessary. But the advice may not be as useful as you think.

People who are tasked with transforming supply chain planning generally don’t need to be constrained or reined in. They need to be led. By the time you get to this point, you should already have assembled a team with strong convictions and a bias toward pragmatism – they won’t run around chasing shiny objects. Sometimes they will need leadership to be led by them.

Using well-meaning platitudes like “we don’t need a Ferrari” doesn’t really clarify anything and could potentially lead them down the road of picking a simplistic system over a simple one.

The team needs to understand time-tested and proven planning principles, what the true requirements of the organization are (including taking into account future strategic direction) and what results they are expected to deliver.

A system with a simple data structure, easy navigation and limited options that doesn’t adhere to solid planning principles and doesn’t meet the requirements will not deliver results.

Just because some functionality may be more complex or sophisticated than what you have today, that doesn’t make it “too fancy”, unless the mandate is to implement a new system and process that does the same thing you’ve always done (with the same results). Not all sophistication is unnecessary.

Just because people will need to acquire more skills – some of which may be difficult to learn – doesn’t mean that the system or process is “too complicated”.

No, you do not need a Ferrari – because nobody “needs” a Ferrari. 

But there is a wide range of options between a Ferrari and a tricycle. Your requirements need to dictate whether you need a Corolla, a minivan or a pickup truck.

Don’t choose a tricycle just because it’s the farthest option away from a Ferrari. A simplistic system that doesn’t meet requirements makes the implementation just as complicated as an over-engineered system that you don’t need.

Think Inside the Box

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Flowcharts are standard tools for delivering projects. At an overall project level, it depicts, from left to right, what needs to be done and the rough sequence, with the project concluding when the goal is achieved in the final box on the right.

The goal is the box on the right. Every project, or change initiative, should begin by thoughtfully exploring what should go in that box. Some people call this “thinking from right to left”, and other people in various disciplines have used different language to describe what is fundamentally the same idea.

“Backcasting” is a term coined by University of Toronto Professor John B. Robinson to help in urban, environmental and energy planning. Backcasting starts by developing a detailed description of the desirable future state and then you work backwards to determine what needs to happen for that aspirational future state to become reality.

The key is detailed. The more detailed and specific you can articulate the desired future, the better.

Amazon founder Jeff Bezos is a Backcasting superstar and an inventor at heart. One of his brilliant inventions/innovations is the PR/FAQ document. His brainstormed idea was to make the traditional last step in a project, the first. To pitch a new project and have it embraced at Amazon, you need to write a PR/FAQ document – outlining the desired future state of the project, including the goal of the effort in the opening sentences of the press release.

The initial PR/FAQ document is shared with the leadership team, who meet and read the document in silence. Then they begin to provide input and feedback. People ask hard questions and engage in intense debate, discussing key ideas about the project, very focused on the goal and how it will help the customer.

The author of the PR/FAQ document then takes the feedback into account, revises the document and brings it back to the group. And this process unfolds again. And again. And again. Everything about the project is pressure tested and improved through multiple iterations. And the beautiful thing is that the concept that finally emerges is seen with equal clarity amongst the team and, importantly, everyone is on the same page from the start of the project.

Everything that happens after project approval is working backwards from the PR/FAQ – essentially backcasting from what’s in the box on the right.

The critical component of the approach is that the box on the right – the goal of the project/initiative or the desired future state – is a written narrative.

When you need to document your project using proper sentences and complete thoughts, it makes a significant difference to the quality of the idea/proposal. You can’t hide behind PowerPoint bullet points, and the thinking needs to be clear, concise and able to be understood by a critical team reading the document. This forces the project leader/team to think better. Getting people’s involvement and feedback through multiple iterations strengthens the narrative and helps to build commitment.

At Demand Clarity, when it comes to narratives, we’ve become Bezos disciples. We now use a 6-page written narrative for both our initial assessments of how well a retailer is in terms of planning and for outlining our future state recommendations – whereby we usually articulate how Flowcasting could work for the retail customer/client. The narrative approach has improved our thinking and the quality of the work we’ve delivered.

However, what’s inside the box on the right can also be used early during the project as a key change management mechanism for articulating the change and, more importantly, building commitment and ownership – especially amongst the senior leaders and sponsors.

The idea would be to document a future-dated PR/FAQ document to describe the end-state transformation to a Flowcasting-driven, integrated inventory flow planning process, whereby everyone in the extended eco-system was planning to a single set of numbers. The document should outline how the extended organization (including suppliers) would be working in the future and, importantly, contain quotes from all key stakeholders about the impact of the change. These quotes are building commitment for change.

This change-focused PR/FAQ document would be shared and referenced throughout the project teams and leadership/governance teams to help ensure people stay focused on the goal, understand the change and stay committed to the transformation. The written narrative about what’s in the box on the right becomes the rallying call for change.

I’m pretty sure you’ve heard the phrase “you need to think outside the box”. Sure, that’s good advice in many cases but to drive real, meaningful and lasting change you need to start by articulating, in detail, the desired change or future state.

You need to “think inside the box”.

The box on the right.

A Rather Unassuming Approach

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When we make assumptions, we contribute to the complexity rather than the simplicity of a problem, making it more difficult to solve. – Julie A., M.A. Ross and Judy Corcoran

Planning the retail supply chain not only requires, but is entirely predicated upon making assumptions about the future.

Why?

Because when a customer walks into a store, they already expect the products they want to be on the shelf in sufficient quantity to satisfy their demand – and they give no advance notice of their planned visit. So depending on the cumulative lead times from the ultimate source of supply to the store shelves, the decisions you make regarding product movements today must be made based on what you anticipate (i.e. assume) customers will want – how much, where and when – days, weeks or even months into the future.

So for retailers of any size, that could add up to millions of assumptions that need to be made each day just for the expected consumer demand element alone. And each assumption you make is a risk – if an assumption doesn’t hold, then the decisions you made based on that assumption will cost you in some way.

If the supply chain is disconnected, there are more assumptions to be made. So there are greater risks and higher costs in the form of customer service failures and/or inefficient use of labour and capital.

As an example, it’s not uncommon for a retailer to have different planning and replenishment systems for stores and distribution centres. And those systems usually have a “what do I need to request today?” focus – think min/max or reorder point.

The store replenishment problem is relatively straightforward:

  1. What is the current on hand in the store minus the display minimum (or “cycle stock” for want of a better term)?
  2. What do you anticipate (assume) you will sell between now and the next scheduled delivery day?
  3. If what you expect to sell exceeds the cycle stock, request the difference, rounded to the nearest ship pack

In this case, the only assumption you’re making is the expected sales, with a few “sub-assumptions” with regard to trend, seasonality, promotional activity, etc. going into that.

(NOTE: You are also assuming that your store on hand balance is accurate, which is a whole other lengthy discussion in and of itself.)

Okay, so far so good. Now we need to make sure that there will be sufficient stock in the distribution centre to satisfy the store requests. Because the supply chain is disconnected, the requests that the stores drop onto the DC today need to be picked within a day or two, so that means that the DC must anticipate (assume) what the stores will request in advance.

A common way to do this is to use historical store requests to forecast future DC withdrawals. In this case, you are making a number of additional assumptions:

  • That store inventories are largely balanced across all stores served by the DC and have been so historically
  • That any growth/decline in consumer sales will be accurately reflected in the DC withdrawals with a consistent lag
  • That there are no expected changes in store merchandising requirements that will increase or decrease their need for stock irrespective of sales

Going further back to the supplier, they have their own internal planning processes whereby they are trying to guess what each of their retailer customers are going to want from them in order to plan their inventories of finished goods. They are now several steps removed from the ultimate consumer of their products and have to apply their own additional set of assumptions.

It’s like a game of telephone where each successive person in the queue passes what they think they heard on to the next.

And if something doesn’t go according to plan, a whole bunch of people need to revisit their assumptions to figure out where the breakdown happened. At least they should, but that rarely happens. Everyone is too busy dealing with the fallout in “crisis mode” to actually figure out what went wrong.

The result?

  • In stock rates to the consumer in the 92-93% range
  • Excessive amounts of “buffer stock” to try to cover for all of the self-inflicted uncertainty (assumptions) in the process
  • Margin loss from taking markdowns on excess stock that’s in the wrong place at the wrong time

So how does an approach like Flowcasting – a fully integrated end-to-end planning process – sustain in-stocks in the high 90s while simultaneously (and significantly) reducing stock levels throughout the supply chain?

It’s not magic. By connecting the supply chain with long term supply projections and keeping those projections up to date, the number of assumptions you need to make are drastically reduced:

  • You already know the inventory for every item at every location, so you can model the long term need for each individually and roll them up rather than assuming averages.
  • The planning approach automatically models the impact of any changes in consumer demand by netting against available stock in store and applying the necessary constraints and rounding rules using simple calculations – there’s no need to guess how a changing demand picture will affect upstream supply.
  • Inventory level decisions (e.g. changes to display quantities and off locations) can be discretely modeled separately from demand and incorporated directly into the store projections in a time-phased manner. You don’t need to make a “same as last year” assumption if you already know that won’t be the case.

However, it’s not perfect and things can still go wrong. You still need to have long term forecasts about consumer demand, which means assumptions still need to be made. But when bad things happen, the information travels quickly and transparently up and down the supply chain assumption-free after that. Everyone knows exactly how they are affected by any botched assumptions about consumer demand in near real time and can start course correcting much sooner. “Bad news early is better than bad news late.”

It’s like playing telephone, except that the first player doesn’t whisper to the next – he uses a megaphone to ensure that everyone hears the same phrase at the same time.

Secret Formulas of Implementation Success

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As someone who’s been doing project work for decades, I must admit, it’s always cool and rewarding when you implement something. Shipping your work and having it exposed to reality instead of theory is the essence of innovation – taking an idea, or a design, and making it real.

But implementation work is hard, especially for a business process like Flowcasting since it touches, interacts and changes a large part of a retail business and extended eco-system.

I’ve been very lucky over my career to have either led, or co-led, three successful implementations in retail of Flowcasting or major elements of the concept. As an implementer at heart, over the years, what’s emerged are some mechanisms I’ve used that I believe are instrumental in success.

What I’d call my secret formulas.

For a key one, we’ll turn the clocks back to the mid-to-late 1990s. At the time I was the leader of a team for a national, Canadian hardgoods retailer, who’s mandate was to design and implement new processes and supporting technology to improve the planning and flow of inventory from supplier to store shelf.

The team had essentially designed what we now call Flowcasting and had selected technology to support the process. While we all understood that planning from the store level back was technically infeasible, we decided to forecast DC-level demand, and calculate and share forward looking supply projections with our merchandise vendors – in the process instilling the concept of supplier scheduling in retail. I won’t bore you with the details, but the project was quite successful and helped cement some of the principles of Flowcasting in retail, including supplier scheduling and working to a single set of numbers.

For a project of this size, like most larger scale transformations, we had a cross-functional governance team established – essentially like a steering committee – that would help guide the project and provide advice and suggestions to the implementation team. And to be honest, they did a good job.

However, inevitably, when a group of that size and functional diversity is tasked with guiding and asking questions of the leader (in this case me), there are bound to be some dumb asks and even dumber suggestions.

That was the input for me to develop my “Rule of 3”, which I/we used successfully on this implementation, and I’ve used ever since.

It works like this. If the ask/suggestion from the steering committee or large governance group sounded mental to me, I’d note it down and tell everyone I’d think about it. Then, I’d go back to the team and see what they thought. If they agreed it was mental, I’d ignore the ask/suggestion. And I’d continue to ignore it until the group had asked a third time – at which time I/we’d develop a response.

The beautiful thing about this approach is that seldom does the request ever get asked again, let alone a third time. It’s forgotten and therefore requires no cycles of thought or response from me and the team. I’m not exactly sure why but my thinking is that in larger groups people tend to like to hear themselves talk – they want to make suggestions/contributions, so they can’t help themselves and sometimes make a dumb suggestion or ask. Then, by the time the next session comes around, they completely forget about their initial request.

As an example, when I was working with our Winnipeg-based retail client designing and ultimately implementing Flowcasting, me and the team leader had to regularly present to a large cross functional group about Flowcasting – how it would work, the benefits, the implementation approach, etc.

I remember at one large, cross-project session a participant asking something like “How will the new process factor in social media sentiment into the demand planning process, to potentially revise the forecast of that item and others?” My response was, “Not sure yet, but we’ll think about it”.

I remember the team leader asking me after, “what are we going to do?”. My answer was simple: “Nothing. We’re going to ignore that and see if it’s ever asked again”. It wasn’t and the rest is history.

Now, not to brag or anything, but this client was able to improve daily in-stock from about 92% to 98%, while reducing both DC and store inventories, all while completely ignoring social media sentiment (whatever that is). Thanks to the Rule of 3.

Now, don’t get me wrong. I’m not saying that most of the suggestions from steering committees and cross functional groups are/were dumb – they’re not. I’m saying that a certain percentage will be and you, as an implementer, need a mechanism to ignore them and/or say “No” nicely, so you can stay focused on what matters.

For me, it’s The Rule of 3. It has been a loyal friend to me, over many years and implementations, and I hope you can use it – or something like it – as well.

It’s one of my secret formulas of implementation success.

Customer Disservice

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The best offense is a good defense, but a bad defense is offensive. – Gene Wolfe

“We want our people helping customers, not doing back office tasks.”

This seems to be the prevailing wisdom in retail these days, particularly since Amazon became a significant threat to brick and mortar retailers.

This view is backed up by many articles that have made their way to my inbox and LinkedIn feed recently – retailers need to be doting on their customers, going above-and-beyond, providing an experience, etc., etc…

As I read these pieces and hear the arguments, the words all make sense to me, but they tend to make me feel a little out of touch. As a customer, I generally know what I want. If I need product knowledge or advice to choose between options, I turn to Google, not retail sales associates.

In other words, when I shop in person, I just want to be left alone. My idea of a spectacular shopping experience is walking into a store, finding everything on my list and leaving in record time, ideally without any human interaction aside from some pleasantries with the cashier.

After doing a bit of research on this, I began to feel a bit less isolated. Here’s an excerpt from Stop Trying to Delight Your Customers, published in Harvard Business Review in 2010:

“According to conventional wisdom, customers are more loyal to firms that go above and beyond. But our research shows that exceeding their expectations during service interactions (for example, by offering a refund, a free product, or a free service such as expedited shipping) makes customers only marginally more loyal than simply meeting their needs.”

And another from Your In-Store Customers Want More Privacy, also from HBR in 2016:

“Shoppers want a certain level of privacy in a store — and they want to have control over that privacy. In other words, people generally prefer being left alone, but also want to be able to get help if and when they need it.”

These references are a bit old, so I conducted my own (informal and definitely not scientific) survey in the Consumer Goods and Retail Professionals LinkedIn group. Here are the results:

So, the respondents who wanted to be left alone outnumbered those who wanted interaction by a factor of 6. And while LinkedIn’s rudimentary polling feature doesn’t accommodate deep dives on the responses, I would hazard to guess that a majority of the “It depends” respondents probably only want to talk to someone if they can’t find what they’re looking for – that is, the experience has already turned negative and the customer is hoping they can find someone to – hopefully – make it slightly less negative.

Even if I’m wrong about that, answering “It depends” doesn’t indicate that those folks are exactly yearning for staff interaction as an integral part of their shopping experience.

To be sure, there are certainly cases where interaction with knowledgeable staff is a necessary part of the customer experience – e.g. if you’re looking for a luxury watch or need help designing a custom home theatre for your basement – but what percentage of your total retail transactions does that represent?

It’s time for brick and mortar retailers to drop their somewhat defeatist attitude – “We can’t compete with online sellers on convenience, so we’ll compete on service.”

Firstly, for most customers, convenience IS the service they’re looking for.

Secondly, yes you can compete on convenience – by getting better at those mundane “back office tasks” (like stock accuracy and speed to shelf) that puts stock at customers’ fingertips.

There are a lot of low maintenance customers like me out there who just want to interact with your cash register. We are better served by finding the products we want in your aisles, more so than your staff (no matter how friendly or helpful they may be).

Just make it easier for me to do that and I won’t be a bother, I promise.