Bad Habits, Part 1

Posted on October 7, 2015 by Jeff Harrop

Bad habits are like a comfortable bed, easy to get into, but hard to get out of – Anonymous

Friedrich Nietsche said “Most bad habits are tools to help us through life.”

This is especially true in the world of retail supply chain planning. When retailers embark upon implementing time-phased planning, it is tempting – from a change management standpoint – to tell people “this isn’t much different than what we do today” or “we’re essentially doing the same thing in a different way”.

While this is partially true at the 10,000 foot level, the things that are different are fundamentally different.

This month, we’ll explore a bad planning habit that is particularly insidious, because it is often treated as best practice in a non-Flowcasting world: Using the forecast as a “joystick” to control product flow.

There comes a time in every retailer’s life when product must flow further in advance of customer demand than desired, such as for capacity blowing seasonal peaks, planogram resets or promotional display setups.

In a reorder point world, there is little means to plan these types of things in advance. Replenishment rules such as safety stock apply “right now”, making it exceedingly difficult to do a lot of advance preparation in the system. This leaves 2 options:

Plan all of your safety stock updates in advance and use an Outlook reminder to update the values at just the right time to trigger orders when you want them to arrive.
Spend hours creating manual orders/transfer requests with the future ship dates you want – and pray that things don’t change a lot in the meantime that will require you to change those dates/quantities as it gets closer to execution time.

Neither very good options to be sure.

But wait!

There is a third option. By putting an artificial spike in the forecast at around the time you want product to arrive at various locations, you can ‘trick’ the system into flowing product when you want, but also take advantage of changing inventory levels right up until the lead time fence, thereby letting the ordering happen automatically.

To some extent, this makes sense in a reorder point world. Often, it can be the only efficient and automatic way to control flow. And it doesn’t do too much damage, because the forecast really only exists to trigger an order for an item at a location.

So what would happen if this approach was applied in a Flowcasting world? Not much: just unstable plans, incorrect capacity and financial projections and general chaos within operations and the vendor community.

That’s because, with Flowcasting, the sales forecast doesn’t merely drive ordering for an item at a location. It drives replenishment across all locations in the supply chain simultaneously. It drives capacity planning for the DCs and transportation department. It drives labour planning at the stores. It drives revenue, purchasing and inventory projections within the merchandising teams and finance.

Simply put, the forecast must always be representative of how much you expect to sell, where you expect to sell it and when you expect to sell it. And with the visibility afforded by a reasonable sales forecast, many options become available for controlling the flow of goods as necessary.

In other words, once you make the leap to Flowcasting, the bad habit of using your forecast as a ‘joystick’ to control replenishment is no longer a ‘tool that helps you through life’ – rather, it is one of the quickest possible ways to make your life a living hell.

The Biggest Mistake You’ll Ever Make

Posted on August 5, 2015 by Jeff Harrop

You must learn from the mistakes of others. You can’t possibly make them all yourself. – Sam Levenson

‘How does it work today?’

It’s the first question any self respecting project leader or consultant asks on day 1 of a new initiative. It’s critically important to know the ‘state of the nation’ before you embark on any sort of effort to make the changes needed to improve results.

After asking this question, you set about the task of learning the current practices and procedures and documenting everything to a fairly low level of detail (along with the most common variations on those practices that you’ll almost always find in companies of any size).

In most retail organizations, you’ll hear versions of the following:

For non-promoted periods, our purchasing is mostly automated with a short lead time, but we buy promotions manually with a longer lead time from the vendor.
Our stores ‘pull’ product in non-promoted weeks, but for big events like promotions and shelf resets, we ‘push’ the product out to them .
The system will recommend orders, but our analysts review all of the recommendations beforehand and have the ability to cancel or modify them before they go out to the suppliers.

After a few weeks, you’ve become a pseudo expert on the current state landscape and have everything documented. Now it’s time to turn this retailer from a reactionary firefighter into a consumer driven enterprise.

And that’s when you make the biggest mistake of your life.

After summarizing all the current state practices with bullet points, you save the document with the title ‘Future State Requirements’. You don’t know it at the time, but you’ve just signed yourself up for years of hell with no light at the end of the tunnel. If it’s any consolation, you’re definitely not alone.

Common practices, whether within your organization or throughout your industry as a whole, represent ‘the way everybody does it’. This does not equate with ‘that’s the only way it can be done.’

At the time, it seems like the path of least resistance: We’ll try to do this in such a way that we don’t disrupt people’s current way of doing things, so they will more easily adopt the future state. But if you’re moving from a ‘reactive firefighting’ current state to a ‘demand driven’ future state, then disruption cannot be avoided. You might as well embrace that fact early, rather than spending years of time and millions of over-budget dollars trying to fit a square peg in a round hole.

So how could such a catastrophe be avoided? All you really need to do is dig a little deeper on the ‘common practices’. The practices themselves shouldn’t be considered requirements, but their reason for existing should. For example, look at the three ‘common practices’ I mentioned above:

‘For non-promoted periods, our purchasing is mostly automated with a short lead time, but we buy promotions manually with a longer lead time from the vendor.’

Why does this practice exist? Because, generally speaking, the sales volume (and corresponding order volume from the vendor) for a promoted week can be several times higher than a non-promoted week.

So what’s the actual requirement? The vendor needs visibility to these requirements further in advance to make sure they’re prepared for it. Cutting promotional orders in advance is the currently accepted way of skinning that cat – but it’s by no means the only way.

‘Our stores ‘pull’ product in non-promoted weeks, but for big events like promotions and shelf resets, we ‘push’ the product out to them.’

Why does this practice exist? More often than not, it’s because the current processes and systems currently in place treat ‘regular planning’ and ‘promotion planning’ as distinct and unrelated processes.

What’s the actual requirement? To plan all consumer demand in an integrated fashion, such that the forecast for any item at any location represents what we truly think will sell, inclusive of all known future events such as promotions.

‘The system will recommend orders, but our analysts review all of the recommendations beforehand and have the ability to cancel or modify them before they go out to the suppliers.’

Why does this practice exist? Usually, it’s because the final order out to the supplier is the only ‘control lever’ available to the analyst.

What’s the actual requirement? To be able to exert control over the plan (items, locations, dates and quantities) that leads to order creation, allowing the actual ordering step to be an administrative ‘non event’.

So, once you’ve identified the true requirements, what’s next? A lot of hard work. Just from the 3 examples above, you can see that there are several change management challenges ahead. But at least it’s hard work that you can see and plan for ahead of time.

Woe to those who choose what they think is the easy path at the outset only to suffer the death of a thousand surprises after it’s far too late.

Flowcasting – Easy as Riding a Bike

Posted on June 11, 2015 by Jeff Harrop

Flowcasting – it’s simple, intuitive and makes perfect sense. At conferences, talks and seminars, I have yet to meet anyone who doesn’t describe it this way after learning about it.

But how easy is it for a retail planner (who has been living in a reorder point world for years) to internalize it?

Understanding the mechanics of it is very easy. And for newbies who have nothing to “unlearn”, internalizing it is a piece of cake too. But for those who have to break old habits, it’s no picnic. And even once they do “see the light”, it’s still incredibly easy to fall back into the old habits if they’re not vigilant and disciplined.

It’s kinda like this: