Check Your Pockets
|View From The Ridge: 34|
November 13, 2015
Director of Business Consulting
Are you ready to go beyond the ordinary? Beyond data verification, beyond working demand exceptions, beyond simply accepting “Due for Service” orders? In this issue of View From the Ridge I will guide you to 8 common areas where we know there are pockets of unneeded inventory. With a deeper analysis, we can identify and eliminate the inventory that is chipping away from your bottom line.
Over the years we have looked extensively at our customers’ data and found 8 areas where profit is often sub-optimized. Please read carefully, then take a look at your business and see if any of these inventory pockets are eroding your profits.
1. Lead Time Pockets: Focus on long lead time
You might believe that your service issues are random, but we are seeing the opposite. We see Blue Chip Buyers who are performing well, but actually have certain pockets of inventory that are much lower. We commonly see this in longer lead times. We’ve determined that on average, 47 days of safety stock days for lead times above 60 days are required, so these become your #1 safety stock driver when calculated correctly. So what should you do? Remember, suppliers need help forecasting. Unfortunately, to make up for their forecasting struggles, they put the burden on you with long lead times. Many of our customers have successfully lowered lead times by providing them with projections months in advance. This helps suppliers plan and helps you reduce ‘profit stealing’ lead times.
2. Lead Time Variation Pockets: A similar pattern from above
The same holds true for your lead time variation/deviation. We continue to see very short and erratic variations that underperform. Remember, your system needs the truth. If a supplier is erratic in shipping, the lead time variation should reflect that. On the other hand, if the supplier is generally on time, the system and lead time variation field should reflect that as well.
3. Season Profile Pockets: Time to go beyond the profiled vs. non-profiled
90% of our community performs better in service and inventory where they have seasonal profiles in place. But, why not look even deeper? Analyze your service attained on pockets of profiled items. How about the performance of profiled slow items vs. medium vs. fast movers? How about profiled new items? One more step can help you see profiled items that also appear to be trending or have a high deviation. The pockets are there. Are you utilizing the tools to identify these patterns?
4. Order Cycle Pockets: Yes, you will even find patterns here
It's easy to forget about this component. You probably don’t deal with it every day. However, we often find that inventory professionals are getting tripped up on their short order cycle lines and items. We assume that these faster moving lines will perform well, but the frequent orders give us many chances to run out of stock. Are you performing better on order cycles that are 7 days or less, or on cycles that are 21 days or longer? Your results might shock you!
5. Buying Multiples: An extension of order cycle
This is too frequently overlooked, but with your B.I. tools, and your LifeLine connection, take a look at what your buying multiples mean to you. Yes, they create efficiency in the stores and DCs, but you might be surprised at how they assist in service attained (for many of the same reasons as #4). Go ahead, take a look.
6. Forecast Ranges: From slowest to fastest
For those using the Supply Chain Analytics tool, you should already have a field called Forecast Range. It is a great idea for everyone to use your toolkit to look at your forecast in ranges, i.e. slowest movers, medium and fast movers. Break it down anyway you like, but see if you have a pattern of missed service through any of the areas. It will likely lead to additional pockets of analysis.
7. New Item Pockets: It's the info we don't know, because no one really wants to know!
Remember, we have always said: Multiply your % of new items by 3 or 4, and that is the amount of time you should invest in these items each week. If 5% of your items are new in the last 6 months, then at least 15% of your time should be invested in new items.
Rather than only creating a few new item reports, every report should be able to show results with or without new items, or for only new items. Special goals should be in place for new items because the key to their success relies on collaboration.
8. Manual Forecast Pockets: Wow, has this area opened our eyes!
The analysis has consistently shown a pattern. The more manual forecasting you do, the worse the service performance typically is. We have seen many inventory pros who were making changes to manual forecasts on 15% or more of their active items in the last 90 days. Once they were able to measure their results, the number frequently drops to 4% or less, and with much better results.
Go deeper in your pocket research. Eliminate new items so that you only view items where you made a manual forecast change from exceptions or something you believe to be true. Are your results different on faster vs. slower? How about profiled vs. non-profiled? Were many of your items actually screaming for a profile rather than a manual adjustment? This analysis is worth the time!
So, how much is in your pocket? There are pockets of issues just waiting to be uncovered. Remember, after you discover these pockets, take it a step further and find out what is causing these pockets to exist and fix it. Eliminate the problem and continue on your path to excellence.