Working backwards

You’d likely agree that 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 is also based on the concept of Working Backwards.

Loyal disciples understand that the 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.

integrates the 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 and how the process integrates the retail 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).

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 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 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.

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