Category Archives: Inventory

Why It’s Time to Take that Leap of Faith

Lora Cecere, of the Altimeter Group, just published a great piece on the Supply Chain Shaman blog on why it’s time to take a leap of faith as far as using POS data to drive actionable replenishment is concerned. Yes, it’s time to move from PUSH to PULL using real demand and insight and not just seat-of-the-pants forecasts.

The post, which is over 2,100 words in length, is too in-depth to do justice in a short summarization, so I won’t try, but I will point out a few keen observations that often go overlooked in most discussions and add one or two of my own.

First of all, as Lora keenly points out, you can’t prove ROI for an initiative before the initiative is done, which means if you want a proven ROI, you can’t be an innovator … and the big returns in this space will go to the innovators, not the renovators. You have to take that leap of faith.

There aren’t a lot of predictive analytic solutions on the market, but there really don’t need to be. If you get better data faster, you can re-run and correct your forecasts on a regular basis and minimize the the divergence between macro-level estimates and reality. That alone could save you millions.

You have to get close to the customer and get good at using the data in the sales relationship. If you don’t get close to the customer, learn their pain points, and figure out how you can use their data to help them, they’re not going to be that interested in helping you get access to it on a regular basis.

You have to build a cross-functional team led by business unit leaders focussed on innovation, or the initiative isn’t going to pick up enough momentum to make it. You have to break through mental barriers built up over years, or decades, of doing forecasting and inventory planning a certain way, and that’s not easy to overcome.

However, if you follow Lora’s advice, the rewards could be significant as stockpiles of obsolete inventory will quickly become a thing of the past. More importantly, and this is the one point the article should have really emphasized, so will costly long-term stock-outs. If you have access to daily POS data, you will not only see what is selling fast, and what’s not, but you’ll be able to run cluster analysis to see what products are selling well in what locales, and how the demand is spreading (outward or inward). This will not only allow you to quickly refill inventory on a popular, high-margin, item like a cellular phone or tablet PC, at a location about to run out, but predict which neighbouring locations should also be stocked up, and sense demand surges earlier in the cycle, giving you more time to ramp up production to prevent lost sales that could make or break the quarter.

A Hitchhiker’s Guide to e-Procurement: Goods Receipts, Part II

Mostly Harmless, Part IX

Previous Post

In the last post, the goods receipt was defined and some of the complexity around the requirements thereof were discussed. This post will address some of the challenges associated with the goods receipt, some of the associated best practices, and some of the benefits that could be expected from an appropriate e-Procurement solution that effectively handled goods receipts.

Common Challenges

  • m-Way Matching

    The goods receipt needs to be matched back to the appropriate purchase orders and/or contracts and forward to the appropriate invoices. This can be very difficult without a good system.

  • Issue Tracking & Dispute Initiation

    As soon as a potential problem is detected, it has to be documented and reported as a supplier’s liability is often greatly minimized, if not released entirely, if an issue is not reported in a timely fashion.

  • Inventory Management

    If the goods are not appropriately logged and tracked, they could be lost in the system. Or, even worse, the inventory management system might think there is not enough stock when there is too much and automatically reorder more, causing inventory management nightmares (as well as huge write-offs down the line).

Best Practices

  • Line-Item Matching

    Since a single shipment can relate to multiple purchase orders, contracts, and / or invoices, matching should be done at the line-item level of the goods receipt.

  • Dispute Management Integration

    The goods receipt should be automatically sent to the dispute management system if any issues are noted and the e-Procurement system should be capable of importing any modifications output by the dispute management system, as a result of an agreement.

  • Inventory Management Integration

    The goods receipt should be automatically sent to the inventory management system, and the inventory management system should send back an error message if any of the SKUs are unrecognized (which would be captured by the e-Procurement system).

Potential Benefits

  • Faster Dispute Resolution

    If issues are immediately tracked and reported from the time the goods are received and the goods receipt issued, a formal dispute can be initiated faster — and solved faster since accurate information will be immediately available.

  • Faster Payment

    The issuance of a goods receipt that is free of disputes can trigger payment approval for an invoice (that is issue free), which is then more likely to be paid on time, or early if a(n attractive) discount is offered.

  • Significant Savings

    First of all, because no issue goes untracked, losses from damaged or spoiled merchandise are considerably reduced. Secondly, because shipments are automatically tracked and reconciled and because disputes are resolved faster, the buyer is more likely to be able to take advantage of any early payment discounts that may be offered to save even more.

Once the goods receipt is issued, an invoice can be expected in short order (if it is not issued upon shipment). This is the subject of the next post.

Next Post: Invoices, Part I

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A Hitchhiker’s Guide to e-Procurement: Goods Receipts, Part I

Mostly Harmless, Part VIII

Previous Post

A goods receipt is a written (or electronic) acknowledgement by a buyer that a specified set of products or services was received by the buyer in acceptable conditions. It’s primarily used for the receipt of goods by a buyer’s warehouse or distribution network. A goods receipt tells the supplier that the buyer has accepted the goods and that the supplier can expect to be paid subject to the terms of the associated purchase order(s) or contract(s).

A goods receipt is so simple in principle that one might believe that it hardly warrants its own post. However, a goods receipt is not so cut-and-dry in practice. There are many reasons for this, including:

  • The goods receipt has to be meaningful to the supplier.

    This means that it has to contain the product codes, or SKUs, used by the supplier, indicate the quantities, and reference the purchase order(s) given to the supplier.

  • The goods receipt has to be meaningful to the buyer.

    This means that it has to contain the product codes, or SKUs, used by the buyer for purchasing. It needs to reference the appropriate purchase order(s) and/or contract(s) and it needs to provide an ability to reference a forthcoming invoice.

  • The goods receipt has to be meaningful to inventory management.

    The goods receipt also has to contain the product codes, or SKUs, used in inventory and warehouse management, if they differ from the purchasing codes, and any auxiliary information required by inventory management and warehousing for storage and distribution.

  • The goods receipt has to account for irregularities that could form the basis of disputes.

    The supplier might require a receipt as soon as goods are delivered, but before they can be adequately inspected. Upon an initial inspection of a damaged box, it may or may not be possible to determine whether or not any, some, or all of the contained products are damaged. How can this information be captured so that there is a foundation for a dispute if damage is found upon future inspection?

  • The goods receipt has to be acceptable to multiple systems.

    Chances are the supplier uses one system for receiving goods receipts while Purchasing uses another for cutting purchase orders while inventory management uses yet another for managing inventory.

As a result, the goods receipt must be expressible in at least one universal format that is capable of supporting multiple product codes or SKUs, multiple references to related buyer and supplier documents, and multiple instances of such documents, as a supplier could ship goods relating to multiple purchase orders in a single shipment. (Also, a single purchase order could be related to many goods receipts if different goods on a large BOM are shipped in different shipments.) As a result, the requirements for the goods receipt cannot be overlooked in the selection of an e-Procurement system.

Next Post: Goods Receipts, Part II

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CFO’s Lesson from the Downturn: Too Little, Too Late

A recent article over on CFO, which states the obvious, says that big lesson from the downturn is to “cut inventory, not people”. The timing of this is so poor it’s shocking! Why couldn’t they have run this *before* organizations cut so many people that joblessness came close to reaching an all time high: 10.1 in October of 2009 compared to the all time high of 10.8 in November of 1982! (Source: The Misery Index)

As noted in the article, there is a huge savings potential in inventory reduction, which ties up working capital, eats up storage fees, and risks significant losses from obsolescence if the product is not sold before it nears the end of its useful life. In fact, I’m willing to bet that if the right end-to-end inventory optimization strategy was employed, the average mid-sized company (10M to 500M in revenue) would save significantly more than the 520K saved by the average company in the report. But still, even if your company only saved the average amount from its inventory reduction effort, it would save 30% more than the average savings the average mid-sized company obtained last year by slashing headcount. Headcount which you need if you’re going to recover when the economy picks up — because if you’re regularly turning away business like the contractors in Pittsburgh (see the Purchasing Certification Blog), eventually word is going to get around that you’re not interested in new business and then, because potential customers stop calling, you’re going to stop getting new business. Instead of growing, you put yourself on the fast track to bankruptcy!

So cut your inventory, optimize your working capital, and spend more strategically. Not only will you save more, but you’ll make more too when times are good!

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