Focus Your Formula for Success

View From The Ridge: 42

February 5, 2016

Mike Mills

Mike Mills

Director of Business Consulting

A few weeks ago I wrote an article titled, Where’s your Focus. After the article was released, several people responded agreeing with the points made and the strategy suggested. Whew! In addition to the affirmation I received a lot of really strong follow-up questions. “What exactly do I focus on?” “Where do I begin?”  So, right away I knew I had the topic for my next article.  With that being said, we will focus on the formula for success using your system and identify where to expect results.

Your immediate focus should be in 3 main areas:

  1. Accurate set up
  2. Disciplined daily replenishment
  3. Aggressive period end maintenance program

1. Accurate Set Up

It starts with data verification, or vendor and item set up.  We’ve all heard the old cliché “garbage in, garbage out.”  That statement proves to be ever so true in this case! It begins with putting accurate information into the system in order to get accurate information out. In reality, 70% of your success relies on verifying the data and agreeing with the information you are viewing in the system. Spending valuable time here will ensure you spend less time ordering. While some might take short cuts in this step, the fact of the matter is the system requires accurate information in order to produce accurate results.

The diagram below shows the formula for success as it relates to setup. While the figure on the far left shows the true formula for success, the other 2 figures show the result of failing to address the setup of your items and suppliers. In these two examples, there is always going to be gaps in your replenishment.

2. Disciplined Daily Replenishment

You may feel like you’re stuck in reactionary mode, fighting fires and trying to keep noise levels down. This forces you to approach daily replenishment in an undisciplined way. You tend to spend too much time during the replenishment process analyzing every item on every order before you approve it, and generally the results tend to be poor.

A more strategic approach is to focus on supplier and item setup. Spend extra time to make sure the data is correct. This will cut down on replenishment time and you will see a positive impact on your results.

Many believe that the buying is done when the orders are approved.  That statement could not be further from the truth! The buying is actually done when we complete the setup. If the data is correct in your set up, the replenishment should basically be automatic.

In order to complete the replenishment process, we suggest focusing on reviewing ‘A’ Low Stock Alert orders. While it doesn’t make sense to place an order every time an item within an order reaches its low stock point, they should still be reviewed to determine why these items are ahead of the rest and make the necessary changes within that supplier. We also should determine if it makes sense to order the line early or if it can wait.

3. Aggressive Period End Maintenance

Your system is a management by exception system. One of your goals should be to spend less time on the details of every item and more time on period end maintenance and analytical tools.

The key areas to managing an aggressive period end are:

  1. Demand Exceptions
  2. Analytics

A. Demand Exceptions

Demand exceptions appear the first day of the new period based on your forecasting frequency (either weekly or 4-weekly).

These are exceptions to the demand forecast and the system’s way of warning us of potential forecasting problems. If there are potential forecasting issues, then these must be addressed in a timely fashion. If these aren’t addressed right away, and the system is producing orders every day, then you may potentially order inaccurate quantities and experience issues in the following areas:

  • Forecasting accuracy issues
  • Service level issues
  • Overstock issues
  • Lost sales issues

Next, let’s take a look at verifying the data during setup. These demand exceptions are your most important maintenance tool. Working these 2 areas is where ‘buying’ is truly done.  Instead of spending the majority of time on the details of each item within a vendor, your team should prioritize data verification during setup.

As a part of your focus, you should track the demand exceptions by warehouse and by buyer for each 4-week period. This establishes a benchmark so that you can analyze past performance related to exceptions and gain a better global picture of demand exceptions.

The illustration below is an example of Demand Exception Tracking.

B. Analytics

Forecasting Accuracy

Whether you are using a report in our Supply Chain Analytics tool or utilizing one provided by the department, you should have the ability to filter by: seasonal items vs. non-seasonal items, activity code, and don’t forget those ever so important “new” items. This should be analyzed alongside the service accuracy report to determine if service problems are a result of an inaccurate forecast.

Service Accuracy

This report is designed to pinpoint service problems for seasonal and non-seasonal items. It can be filtered to any activity class code and also include “new” items. Filters in this report allow you to neatly recap the total service level at the company, buyer, and warehouse. You will be able to see the different SL goals for each item and then view the service attained for each of your set goals.

Note:  Service Level attained in your system is calculated by taking shipped/shipped +lost *(100%). So if you have demand of 100 and lost sales of 50, your service level attained would be 66.66%.

Right now, the road to success might feel like it’s under construction. This is because we are being demanded to get results quickly, while being pulled in many different directions each day. Because of this we are forced to take shortcuts and these shortcuts dump us on the “buyer’s treadmill.” The only way off is to focus on these areas and do them well. Things become a lot easier, and you'll find ample opportunity to explore the profit-generating activities that are waiting.