The Essential Gauge

The dashboard of a small airplane has a number of gauges that provide a litany of information to the pilot. There’s one big dial right in the middle that’s extremely important: the artificial horizon. In the center is a round ball, the top half of which is white and the bottom half is black. It rotates and moves to show the pilot what the plane’s attitude is relative to the ground. Watching it, you know if you’re going up or down, or even whether you’re upside down. Obviously, this is an essential gauge.

The big dial on the dashboard for most organizations (regardless of type), is shipped-on-time. This might also be call DIFOT (delivered in full, on time) or perfect order. Perfect order includes specific reference to quality. Most practitioners consider all three of these measures to be equal. Ship good product, complete and on time.

Not only does this apply to products, but also to services. For instance, the accounting department could measure shipped-on-time related to the monthly financial statements. Are they accurate? Did you close the books in 5 days or whatever your commitment is, and deliver them to managers or your bank on time? For sales, did you enter all of the orders accurately and on-time?

Measuring shipped-on-time for your organization is a big gauge. It just might keep you from crashing into the ground.

© 2014 – Rick Pay – All Rights Reserved

Who’s In Charge, Your Auditors or Your Customers?

Today I was out shopping for oil and vinegar cruets, those little bottles used for vinegar and oil at restaurants. I wanted to put a set on my dinner table, ready to use on my salad. I walked into a well-known kitchen supply store and asked a clerk if they had any of the bottles. She said they normally carry them but are out of stock in preparation for their annual inventory.

What?! The accountants, not anyone concerned with customer service, must drive this company. While my purchase that day wouldn’t have made a big difference for the company, I’ll probably never go there again.

Internal processes should always support customer service and revenue growth, not act as a roadblock to serving the customer. An innovative way to prevent this from recurring would be for the store to use cycle counting to keep their inventory accurate and never do a full physical inventory count again. I’ve helped many companies implement cycle count systems, which the auditors accept as an alternative to a full physical count.

Build your processes to support growth, profitability and above all, customer service. You never know when someone might need a set of cruets.

© 2014 – Rick Pay – All Rights Reserved

All You Have To Do Is Ask

I am currently working with a client that needs to provide spare parts very quickly throughout their region. They have developed the process of airfreighting the parts immediately upon request. Someone takes the part to the airport for shipment, and they make up to eight trips per day.

One day, someone asked the callers, “When do you need it?” Much to my client’s surprise, up to 75% of the requests did not need air shipment. With each order costing about $80 to take to the airport and ship, that is about $400 per day savings. That works out to $2,000 per week and about $100,000 per year!

All you have to do is ask. Find out the customer’s expectation, and then meet or exceed it. You will have very happy customers at a much lower cost.

© 2013 – Rick Pay – All Rights Reserved

Executives Expect Value From Supply Chains

One of the most interesting findings in the recently released results of the Supply Chain Management World 2012 survey is that companies are looking to their supply chains to do much more than provide parts and raw materials. Executives now see the supply chain as an integral part of creating flexibility in production and response to market demands.

The survey involved 1385 supply chain, operations, and other executives from around the globe. They represented a variety of industries, primarily high tech, but also including consumer packaged goods, industrials, food and beverage, healthcare, pharmaceuticals, and others.

“Our research shows that more and more companies are using supply chain excellence as a means to create value and competitive advantage,” said Hau Lee, PhD, chair of SCM World and professor at Stanford University. “Those that still view supply chain management as a supporting function, or see it only as a way to reduce operating costs…are missing great opportunities.”

According to the survey summary, “The most significant ways in which supply chain excellence boosts top-line growth, according to survey respondents, are the ability to launch new products on schedule, ramp up production quickly, ensure repeat purchases through greater customer loyalty, and receive priority treatment from suppliers when key materials and components are in short supply.”

Do you view supply chain as a supporting function in your company, or as a way to create competitive advantage?

© 2012 Rick Pay – All rights reserved.

Authors: Paige McKinney, Rick Pay

Supply Chain Risk Management – A Unique Approach

Many companies are looking at Supply Chain Risk Management as a result of the Japanese earthquake, hurricanes and tornadoes in the US, and recent financial upheaval in Europe. Most consideration is being given to having multiple suppliers, dispersed geographic location of suppliers, partnerships with suppliers, and even insuring the supply chain, all of which are useful approaches to supply chain risk management.

I ran across a very unique and powerful approach in a recent issue of Harvard Business Review that uses process innovation as a foundation for Supply Chain Risk Management. The article sites Zara, the global women’s fashion retailer, Dell, Caterpillar, Rolls Royce, MyFab, a European internet-based furniture retailer, and LiveOps, a company that provides customer service call support from the US, among others.

To help reduce supply risk, these companies do three things:

  1. Delay production commitments until the last possible moment
  2. Rewrite contracts to redefine revenue as an outcome rather than a deliverable
  3. Improve the quality of information

By moving from problem solving to innovation in supply chains, these companies have not only mitigated their risk, but they have created a significant competitive advantage.  Working together with your suppliers and customers can help you manage the risks in your business is ways you might never have thought of.

Source: Girotra, Karan and Serguei Netessine. “How to Build Risk Into Your Business Model,” Harvard Business Review, May 2011, pp 100 – 105

© Rick Pay 2011, All Rights Reserved

No Sales Forecast? – Make One Up!

Many inventory and production planners rely heavily on a sales forecast as the foundation to their inventory planning and MRP process. In fact, an accurate forecast is one of the three keys to MRP success, the other two being accurate Bills of Materials and accurate inventory balances. The only problem is that accurate forecasts are an oxymoron at best, and at worst, sales doesn’t produce one at all.  So what does the planner do? I say, make one up.

Making a Plan in the Absence of an Accurate Forecast

Wait, do I really mean just make one up out of the blue? Of course not. There are three approaches to developing an accurate plan when a forecast is not available.

1. Go talk to sales.

Now I know that seems to be dangerous ground, but sales really does have the best interest of the customer in mind, and if they can help provide the means to ship on time, it is in their best interest. Go talk to them and see what the market is doing. See if it is possible to get forecasts from key customers, and get at least an estimate as to whether sales levels will be growing this year and by how much.

2. Take a look at the past.

History will tell you a lot about sales flow, whether there are spikes or seasonal demand, and how much growth there has been. A simple stacked line graph of the past 36 months revenue will tell you a lot about sales history.

3. Establish flexibility.

It is your job to ship on time, regardless of the quality of the inputs you have. Therefore, if you don’t have a forecast, you need to develop flexibility in the supply chain so you can respond to the surprises that come your way.  Having short supplier lead times, flexible production or warehouse operations, and the ability to flex your labor using temps and overtime all contribute to flexibility.

For more on managing labor for maximum flexibility, check out my podcast here.

Go With Your Instincts

Finally, you can use a dash of professional gut feel to finalize your plan. You see the day-by-day goings on and your key team members will have input that can help you. If you make up a forecast, I would expect it to be pretty close to what actually happens. That, along with communication with sales, a look at history, and flexible supply chains will result in the plan that can provide a high level of customer service.

© 2011 – Rick Pay – All Rights Reserved

Going Smaller to Sell Bigger

Recent trends toward smaller, more intimate retail stores suggest that the era of large-scale one-stop shopping is on the decline. As consumers grow more focused in their spending, stores are adapting by taking a more streamlined approach to their product offerings – hopefully in line with what their consumers want next. Some large retailers, like Cabellas, actually have small stores within their large stores to provide an intimate, focused shopping experience.

Staying Agile

This brings up two issues: flexibility and brand identity. Flexibility allows a company to rapidly change product offerings in response to sales, and even change the layout of a brick and mortar store thanks to clever design innovations like cash registers mounted on movable counters, modular display systems, and one of my favorites: the highly mobile sales staff at the Apple Store.

Change is an essential ingredient in Continuous Improvement, and part of getting better is being prepared for (and being enthusiastic about) change. A flexible environment in a retail store is just one example; others include altering the layout of a manufacturing shop floor to better suit improved processes, or using temporary labor to satisfy a spike in consumer demand.

Who Are We?

Choosing to go smaller requires an intensive examination of brand identity – what products do you keep, which do you discontinue as you downsize, and how does the public perceive you based on these choices? Of course there is more to brand than just product lines, but there are some serious decisions to be made about which products to emphasize and which to discontinue.

The place to begin puzzling out the answers is the company’s vision. Who are you as a company, and where do you want to be next? Using the vision as a guideline, each company can make decisions that support their overarching business goals – and that keep them in tune with their customers’ ever-evolving needs.

© 2011 – Rick Pay – All Rights Reserved

Authors: Rick Pay, Paige McKinney