What is the Root Cause of Service Failure?
First of all, what does service failure mean? Is it running out of stock? Is it not shipping all items on an order? Is it a customer that walks in to your store and can’t buy what they want or can’t get their entire basket? Once you decide what constitutes a service failure, we need to determine the cause.
There are many areas that might contribute.
Some possible contributions include:
- Sudden uptick in forecast error
- Spike in demand
- Extraordinary inventory event (i.e.: damage, theft, recall, etc.)
- Inaccurate lead time in the system
- Supplier not shipping on time
- Supplier not shipping complete
- Event that causes an inadvertent delay in a shipment (i.e.: weather, typhoon, train wreck, etc.)
- Planners not ordering enough product by adjusting recommended orders
- Need to constrain orders due to financial issues or constrained by a financial plan
- Service level settings are too low for the characteristics of the item and the goals
While there may be many more, the key is to consider all of the possibilities. You need a plan to eliminate these risks until you narrow it down to a few that can be managed carefully or investigated thoroughly. For example, the first and easiest item to check off the list would be: what are the buyers doing with recommended orders. Are they accepting and approving on the due day presented or are they waiting days and adjusting quantities downward? If they are not accepting when presented as due, this becomes a candidate for root cause. When they are doing the order review and acceptance correctly, the risk of failure diminishes. Generally, it will become easier to determine the root cause as you eliminate the possibilities from the list.
The process gets more complicated when multiple KPI’s are in play. For example, I worked with one customer where the sales were slightly off, inventory was up more than sales were down and service levels had fallen a point below the overall targeted level. In this situation, not all items will have declining sales, rising inventory and lowering service. Some items will be continuing to sell on or even above plan.- Likely, these are not the items experiencing a rise in inventory level or a reduction in service. Likewise, an item that is experiencing a rise in inventory is not necessarily going to be one that is seeing a fall in service.
The detective work in a multidimensional situation as described above starts with isolating the items causing specific issues. Think about the adage of peeling an onion. Start with departments that exhibit certain characteristics of service failure, next go to suppliers, then to items. This helps isolate the problem without a huge amount of overwhelming data. Once isolated, the process of determining and/or eliminating possible causes can begin.
Research into root cause analysis will result in hundreds of articles and processes. There are conferences, seminars and many books written on it. Although it may seem complex, it is not brain surgery. Rather, it involves logically thinking through all of the possible causes. Remember, as this article title suggests, we are trying to determine the root cause of our service failure.
Try starting with these basic steps:
- Isolate the items exhibiting the deficient service performance. Do this in logical groups(i.e.: by planner, department, supplier, etc.)
- Rank the culprit items, keeping in mind that item performance (or lack thereof) will be masked by the averaging or weighting process
Once the target group is isolated, do the following:
- Ask yourself: Are the planners acting appropriately with recommended orders? Are they accepting when presented as due, not delaying the acceptance of orders, and not taking off quantities?
- Keep an eye out for increasing quantities to “A” items and decreasing quantities on lower echelon items like “C” and “D” items
- Examine the lead time performance of the isolated group. Is the actual lead time consistent with what is set in the system? Does the lead time represent the entire period from order acceptance to the goods being available for sale or shipment? For example, if there are yard backups the receiving could be delayed. Many times only the vendor’s ship time is examined, but lead time is more complex. Make sure the lead time is consistent and the actual variation consistently reflected in the system
- Identify the likely cause and make small adjustments where necessary. The key is not to overreact- don’t raise service level targets as high as possible, and do not extent lead time unrealistically. Take small, very targeted steps so you can monitor the action and reaction in the system. The system is very responsive, so small changes will result in different outcomes very quickly.
Troubleshooting a service failure or a rise in inventory is a finely honed skill. It takes a thorough understanding of how the system works and the consequential relationships of the various components. Determining the cause of a specific failure is not easy, but can be very rewarding; especially if you apply a deliberate, well thought out plan of investigation and remediation. Just remember: isolate, examine, validate, adjust, evaluate and repeat, until you have the problem on the run. Most problems within the system outcomes can be traced back to the data that is compromising the forecast, something related to actual orders versus recommended orders, or something in the lead time causing orders to arrive differently than originally predicted.
Stay committed and continue to develop your troubleshooting skills. Whether we are providing guidance or getting into the weeds with you, your Blue Ridge resources are always available to help.