GIVE ME TWO HOURS AND I’LL SAVE YOU
Retailers and their suppliers still have time to save millions of dollars this Christmas by some easy do-it-yourself improvements to their sales and operations planning.
According to Rob O’Byrne, a specialist in supply chain management, it’s time to begin ironing out the traditional year-end logRose of stock and deliveries.
His target is for retailers and their suppliers to aim for a 20 per cent reduction in their inventory investment to avoid stock-outs at one end of the scale and shelf-dead items at the other.
“Eighty per cent of companies from retailers all the way upstream to their suppliers and their manufacturers would see significant bottom-line benefits from simple improvements to their sales and operations plan,” he says.
“Some of your greatest breakthroughs will not come from rocket science but from more careful attention to basic things.”
“Give me or any other logistics expert two hours with your S&OP and I’d expect to show you opportunities to save 5 per cent on your inventory investment. The next big gain after that may need a lot more work but who would complain about 5 per cent?”
“The first big step is to train your sales people to give accurate forecasts and to be prepared to stand by them. That means measured forecasts rather than mere predictive guesses.”
“If they are too optimistic you get stock overload, too pessimistic and you lose sales from stock-outs.”
“They are what cause the Christmas chaos behind the scenes – huge stock and deliveries peaks, sharp sales peaks, long labor hours and congested deliveries. Santa is out front and smiling but upstream the suppliers are jumping through hoops and owners everywhere are going through the annual agony and complaining how slow business is, then how it may be picking up, and finally they’re too busy with what they hope is their best Xmas ever!”
It is a problem highlighted at Christmas when many retailers hold up to three months’ stock – an estimated national total of $30 billion sitting in warehouses round the country.
The 5 per cent potential inventory saving of that is $1.5 billion. Saving 20 per cent on that would be $6 billion.
Rob O’Byrne – a Sydneysider who heads Logistics Bureau, supply chain managers with more than 100 consultants – says there is a long-term answer to the problem as well as a practical fix for it.
He says the best sales and operations planners are the automotive companies and retailers of FMCGs such as Coles and Woolworths. They have totally embraced their suppliers and try to break down all barriers between purchasing, manufacturing, and sales.
But other areas such as household goods, clothes, and beauty products still had a lot of ground to make up with their suppliers often struggling to cope with Xmas order fluctuations.
“Most companies don’t undertake effective S&O planning at all,” he says.
He says the actual fix, Logistics Bureau’s formula to produce the what-to-do information, is a three-part process:
- Review and categorise your inventory into fast, medium, and slow-moving products – As, Bs, and Cs.
- Begin by focussing on improving management of your A lines
- Create a system for making sales forecasts measurable and not just sales team guesses.
Classic symptoms of poor S&OP are:
- Lost sales through stock-out
- Zero stock of popular products
- Excess stock of slow-moving products
Logistics Bureau’s Asian office recently had one client who had more than 200 weeks of stock for eight products and no less than 25 weeks for all the rest. Yet the problem was dealt with and big dollar-gains made by half-an-hour around a white board followed by a simple change in the client’s forecasting software.
“One benefit of good planning is that it breaks down barriers between purchasing, manufacturing, and sales,” Rob O’Byrne says. “Get rid of the peaks and troughs between production and demand fulfilment – the so-called whiplash effect – by insisting on measured forecasts from the sales team.”
“Many people think you need to spend millions on IT systems to achieve that when all you need is a few well-focussed meetings.”
“But it is critical that the sales team be accountable and that manufacturers and purchasing both take a total cost approach and not just a lowest unit cost approach. It’s not going to be a bargain if you don’t need it and end up over-stocked.”
“Sales and Operations Planning breaks down the barriers and does away with silo management.”
“The result will be that you do away with both stock overloads and stock-outs. Which just happen to be the two main symptoms of supply chain chaos at Christmas.”