Category Archives: Retail

Inventory Accuracy Isn’t Rocket Science! Why Are You Still in the Dark Ages?

A recent article in Supply Chain Digest on Measuring Inventory Accuracy started off by nothing that the experts are saying that there’s no clear answer because there are so many ways to calculate inventory. WTF? Did I read that right?

The article then went on to say that the editorial staff at Supply Chain Digest did some informal networking and found that the answers were all over the map. Really? Who did they ask? Cave Trolls? We’re not in the supply chain dark ages anymore or, at least, we shouldn’t be.

So what did the editorial staff find in their investigation for an inventory accuracy calculation which defines the expected variance between book inventory and actual count? They found:

  • Jim Tompkins of Tompkins Associates offered the following formulas:
    • Financial: (Reported/counted Value inventory-System inventory Value)/Expected inventory value
    • Operational: Total inventory UOM Variation/Total Expected Inventory
    • Locational: Number of locations with variances/Total locations
  • Dave Piasecki of Inventory Operations Consulting noted that:
    every accuracy measurement is flawed in itself in that it can’t by itself show you a true picture of your accuracy and that you have to devise an appropriate “composite score”
  • Ken Miesemer of St. Onge recommends:
    cycle counts by location or geographic counts (an aisle or two at a time)
  • Doug Baker of Istoner states that:
    they rely on absolute and net dollar variance as well as unit variances from the cycle count processes

Ugh! I don’t get it. I know each of these experts has heard of RFID and the Internet and should know that this isn’t a hard problem anymore. At a high level, here’s what you do.

  1. Slap an RFID on each shipping unit — be it a unit, box, or palette — as it’s produced and enter it into the system.
       Now you know how much you’ve produced.
  2. Each time it enters or leaves a location, scan it.
       Now you know how much should be at each location.
  3. Use a supply chain visibility solution to link up with your retailer’s POS systems and have them upload a feed of units sold every day.
       Now you know how much is left at the retailers and you instantly know, at any time, the upper limit of how much inventory you have in the chain. Actual inventory is last count minus sales since last POS feed minus theft since last physical count.

Now, if you also use the system to track thefts and calculate average historical theft rate by SKU category (by day) and average daily sales rate, at any time you can produce an inventory count that is expected accurate within the sum of the (daily) theft variance and sales variance. Pretty easy, eh? And all you have to do is use the modern supply chain technology systems you should have been using for at least the last half decade. Any questions?

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Kalypso’s Best Practices in Collaborative Innovation

According to a recent Kalypso white paper on “Best Practices in Collaborative Innovation: How Manufacturers and Retailers Can Profit from Collaborative Innovation”, there is an urgency for collaborative innovation as 95% of companies surveyed felt that collaborative innovation was very important to achieving their business objectives. One respondent even went so far as to say:

If you’re not collaborating, you won’t be around in 20 years. You’ll be gone.

With the global economic crisis driving a changing consumer focus on value, the need to streamline supply chains, and the need for consumer safety, companies are under increasing pressure to simultaneously deliver cost reductions and innovation at a faster pace. However, this is getting harder and harder to do in a vacuum. Hence the need for collaborative innovation.

This is a good thing. When successfulm collaborative innovation between manufacturers and retailers comes with a number of benefits which include:

  • differentiation, which makes them more indispensable to the retailer,
  • improved focus on consumers across departments and categories, and
  • brilliant retail execution

for manufacturers;

  • provision of a differentiated shopping experience,
  • more “shoppable” stores,
  • total shopper solutions,
  • improved focus on destination categories, and
  • new opportunities for product and brand differentiation

for retailers; and

  • shared sales and profit growth,
  • better ideas and improved decision making from shared shopper and consumer insights,
  • more innovative offerings, and
  • reduced rework, improved speed to market, and improved execution

for both parties.

But how do you get there? As Mike Oswalt of Fluor, a global leader in international sourcing and procurement, has astutely noted in the past, collaboration is hard to define. No one can quite put their finger on what it is, or how you get there. Outside of a recent Industry Week article I covered when we discussed the requirements for collaborative innovation, there aren’t many roadmaps. That’s why it was nice to see this white paper discuss four best practices of collaborative innovation which included a planning framework to help you get there.

The best practices of collaborative innovation addressed were:

  1. Develop a Strategy
    The strategy should be focussed on a win-win approach based on categories or brands that are best suited for collaborative planning and that represent the best opportunities.
  2. Collaborative Business Planning
    The goal of joint business planning is to align the goals and objectives of both parties around the brands and categories identified as the best opportunities. The iterative process consists of the following steps:

    • Define the Landscape
    • Develop a Growth & Innovation Strategy
    • Co-Develop the Joint Business Plan
    • Jointly Execute with Brilliance
    • Measure, Improve, & Renew
  3. Get Your House in Order
    Internal obstacles — such as management challenges, organizational challenges, and business process challenges — are often the largest roadblocks to executing upon collaborative innovation. Company leadership of both parties must provide support, incentives, and resources and the focus has to be communicated throughout both organizations.
  4. Build a Trusted Relationship
    This type of relationship can create a “barrier to entry” for competition as well as provide a competitive advantage as trusted relationships result in greater information sharing, which is a cornerstone of innovation.

Not a bad set of recommendations at all. The report also concludes with some questions to ask in a self-assessment to help you determine if you’re ready for collaborative innovation. You might want to check them out.

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