Frederic Gaurier SelfPerf - media.apics.orgmedia.apics.org/sites/AnnualConference2012/handouts... · • Discover how a simple, single, well chosen KPI can align ... overrides order

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Advancing Supply Chain Integration with the Sell‐Through Monitor

TRACK : Alignment to Demand Cultivating shared business goals and Demand chain alignment

Frederic Gaurier SelfSelfPerfPerf.com.com

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Frederic Gaurier• Two decades of experience gathered as operational manager,

total quality assessment officer, management and continuous improvement consultantimprovement consultant

• More recently, head of supplier performance improvement for a leading international luxury goods manufacturer.

• Founder in 2011 of SelfPerf.com, aimed at giving simple access to operations basic best practices– proofed on the field by organizations from 10 to 10.000proofed on the field by organizations from 10 to 10.000– in industry, service, B2B, B2C, exclusive or consumer goods – in America, Europe and Asia, in more than 15 countries

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This session in 100 words• The new business paradigm is based on shorter life cycles,

greater amount of special deals, enriching standard products distribution.

• As an example, in “fashion” business, operations are driven by seasonal products and "sell thru" monitoring has become a classical practice. This could be used as an inspiration.

• Discover how a simple, single, well chosen KPI can align the whole supply chain and stimulate coordinated continuous improvement, from supplier's suppliers to final customer's storesstores.

• As an example, practices and results from last 5 years experience are shared, applying also to small and medium‐sized businesses.

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What has ACME company and its partners achieved from 2005 to 2010 ?

• Number of products sold increased by 100%

• Manufacturing lead time reduced by 30%

• Distribution lead time reduced by 50%

• Procurement lead time reduced by 60%y

• Inventory value limited to 5% increase only

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Here is the story…

• A main business performance KPI has been chosen: “SellThru”has been chosen: SellThru

• Sharing of related data established

• Weekly monitoring and analysis for actions

• Deployment all across supply chain, f i l’ li i f l

SergioACME Boss

from raw material’s suppliers to points of sales

• SellThru index 100 in 2005 125 in 2010

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Improved performance : how ?

• SellThru explained to everyone and continuous work done on 3 key leverages across the supply chaindone on 3 key leverages across the supply chain

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Involvement all across the supply chain

SergioBoss

Jenny

AlisonMarketingManager

MarcySupply Chain

PlannerHugoProcurementManager

Anita and BenCustomers

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JennyStore

ManagerStanley

Raw material supplier

DanPlant Director

LawrenceLogisticsManager

BrianWholesaler

Manager

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Let’s learn from their success

1. “SellThru”… what is it really ?

2. Global planning and monitoring works !

3. Speed up distribution and lower inventory

4. Involve upstream supply network

5. A starter kit for your own journey…5. A starter kit for your own journey…

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1. “SellThru”… what is it really ?

SergioBoss

JennySt

AlisonMarketingManager

MarcySupply Chain

Planner

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Store ManagerDan

Plant Director


BrianWholesaler

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Common calculation of SellThruin a retailing store

Sales in period Inventory beginning of period

• Measured in %

• Example : – 100 pants #A sold this week100 pants #A sold this week– Inventory item #A on last Monday morning = 800– SellThru item #A is 100/800 = 12,5% this week

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Usual practices with SellThru in point of sales are…• Item classification

– Hot products (high SellThru)– Slow movers (low SellThru)

• Selling and replenishing priority– Promotion on aging inventory– Frequent or higher quantity of reorder on fast sellers

• Manage returns (clothing, books…) or discount (software…)

• On internet stores: item product category– Units number of item ID# actually sold– Inventory number of item ID# listed

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In retail, SellThru is also used to trigger decisions and actions• For inventory monitoring

C (i b f i d) 1 / S llTh ( i d)– Coverage (in number of period) = 1 / SellThru (period)Ex.: with 800 items #A, you cover 8 weeks of sales– Replenishment: overrides order point if > alert levelEx.: 50% SellThru this week with usual 3 weeks replenishment

• With a dynamically and consolidated view– Increasing: means “reorder more” – Decreasing: questions selling efficiency or customer’s interest

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How to get better SellThru ?

• Higher sales as regards stable inventory– Based on former example :Based on former example :

• 200 pants #A sold this other week• SellThru item #A is 200/800 = 25% that week

• Lower inventory as regards regular sales– Based on other example :Based on other example :

• Inventory item #A on other Monday morning is 400• SellThru item #A is 100/400 = 25% that week

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A wide variety of understanding and therefore opportunities• Calculation can be

– Daily for fast‐moversDaily for fast‐movers– Weekly or monthly for slow movers

• Inventory can be – physical only or including orders and transit– in units or in value

S l b• Sales can be – rough or net (ex.: sell‐in vs. sell‐out, with or w/o scrap)– in units or in value

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• Customer sales could be shared with everyone in the• Customer sales could be shared with everyone in the whole supply chain ?

• … and become a baseline for all ?

• Inventories could be added up and considered as one single baseline as well ?single baseline as well ?

• Both could be combined and give birth to a simple, single monitor ?

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Then…

• Whole supply chain is reactive to demand evolutionis reactive to demand evolution

• Everyone in the chain acts in same direction

• Action of one has an impact for all

• This requires coordination– SellThru objectivesSellThru objectives– SellThru alert levels to stop or trigger supply– Priority settings for actions on sales or inventory

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2. Global planning and monitoring works !

AliSergioBoss

AlisonMarketingManagerMarcy

Supply ChainPlanner

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DanPlant Director


StanleyRaw material

supplierHugo

ProcurementManager

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SellThru as global business KPI

SellThru (NEW) =

Σ SALES to Final Customer_______________________________

ΣMANUFACTURED Finished goods+

Global inventory at beginning of

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Global inventory at beginning of period

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Better reactivity to actual sales ?

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ExampleProduct launch

• Period = 25 weeks of sales (1 season)f ( )

• Inventory baseline (100%) = level at Sales start

• Targeted SellThru for season = 95%

• Targeted customer service = 0% o.o.s. (out of stock)

• Max. manufacturing weekly capacity = 10% baseline

• Production ramp‐up = 50% of capacity during 2 weeks

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ExampleProduct parameters

• Replenishment: lead time = 4 weeksReplenishment: lead time = 4 weeks

• Economic Order Quantity = 20% of baseline

• Manufacturing 1st work order = 50% baselineThen, manufacturing work order = 35% until W19

E d f ll ti W25• End of collection = W25

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Product launch – Planned profile

70%

80%

90%

100%

0%

10%

20%

30%

40%

50%

60%

Planned production Planned Inventory

Planned SellThru

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Product launch – Actual (+20%)

70%

80%

90%

100%

0%

10%

20%

30%

40%

50%

60%

Planned production Actual productionPlanned Inventory Planned SellThruActual SellThru Actual Inventory

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Benefits of sharing SellThru

• Manufacturing can react without waiting for the classical successive replenishment orders ofclassical successive replenishment orders of distribution levels

• Inventory of finished goods is monitored from the beginning, in order to have the relevant global level

• The only focus of distribution can be the speed of e o y ocus o d s bu o ca be e speed oflows from manufacturing to point of sales and the balanced response to actual demand

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QuestionsQuestions and

answers

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3. Speed up distribution and lower inventory

MarcySupply Chain

Planner

JennyStore

Manager

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DanPlant Director


StanleyRaw material

supplierHugo

ProcurementManager

BrianWholesaler

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Better distribution inventory management ?

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Classical approach: safety stock

• SS = Z x (LeadTime(in weeks) x σS²) + (Sales(Weekly)² x σLT²)

• Example : – Z = 1,65 for 95,05% *– LT = 2 weeks with σLT = 0,2 weeks– Sales = 100 units per week, with σS = 10 units

– SS = 1,65 x (4 x 100) + (10.000 x 0,04)= 1,65 x 800≈ 47 (≈50% of weekly demand)

* Source = Gaussian distribution tables28

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Classical approach applied:high cost for poor service ?

CentralPlants Regional

warehousesRegional

warehouses

Business Unit Distribution

Centralware‐house

S& OP

Sup‐pliers

Subcon‐tractors

warehousesWholesalers

Stores

warehousesWholesalers

Stores

Production

95% 95% 95% 95% 95% 95% 95%

Supp

lier

Custom

er

≈ 1 every 4 final customer not satisfied in average

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The classical approach drives more local optima than global efficiency• Each step has an inventory calculated

– To cover demand variability with a safety stock (SS)To cover demand variability with a safety stock (SS)– To ensure a service level depending on the choice of Z

• Usual performance is based on – Targeted service level of each step– Standard lead time at expected cost and budget compliance

• Therefore, monitoring is based on, g– Each steps performance and KPIs local optimization– Global performance costs, margin, sales, ads efficiency

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Limits of classical approach: a trade‐off between cost and service quality• Replenishment is long from manufacturing to POS

– Products are mainly « pushed » to meet demand, because y p ,« pulling » is not satisfactory for customers (too long waiting) or for the company (missed sales)

– High service level requires multiple high inventory levels

• Monitoring is focused on results of each step– Considering that the « sum of parts should make a whole »– Forgetting what happens between steps, because g g pp p ,responsibilities are clearly defined, so « who cares… » ?

• Performance becomes mainly point of sales’ problem

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Additional issues created with cross channel distribution• From multi‐channels’ separated supply chains

– Distribution served from central or regional warehouseDistribution served from central or regional warehouse– Owned stores served from warehouses, with priority– Phone‐selling, served from a central warehouse– E‐commerce served from usually dedicated warehouse

• … to integrated SCM responding to customer– Store + Internet + Phone Call with same expected service

l l h d b k– Requires 1 single central point within distribution network in order to manage balance, priorities and monitor service levels according to selling channel with equal importance

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Additional issues created with cross channel distribution• 80% to 90% of product launches miss the expected targetsmiss the expected targets when a multi‐channel distribution exists(source = Gartner group study ‐ 2012)

• Replenishment rules are different between channels

• Data process and management rules areData, process and management rules are usually contradictory

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Work differently with SellThru as unique and shared KPI• Working on processes higher speed

L i t i t– Lower inventory requirements– Quicker replenishments – Reactivity to final customer demand

• Shorter lead times are obtained by– Reliability: reduction of internally created variabilityy y y– Elimination of wastes– Higher frequency of delivery with smaller lot sizes– Bottlenecks identification and elimination

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SellThru approach appliedThe results

Central S &Plants

Sup‐Regional

warehousesRegional

warehouses

Business Unit Distribution

Central ware‐house

S & OP

SuppliersSubcon‐

tractors

warehousesRetailersStores

warehousesRetailersStores

Production

99%

Pushed Pulled100% 100%99% 99%

Pulled100%99%

Supp

lier

Cus

tom

er

100% %99% 99% %

≈ 1 every 25 final customer not satisfied in average

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Working on speed and inventory has created a momentum…• Each logistic step becomes a point where the throughput should be as quick as possibleg p q p– Work on incoming, cross‐dock and outgoing flows

• Safety stock is managed once in central warehouse– Allow 99% safety stock for similar costs– Reduction by √n compared to safety stock in n places– Rebalancing easy between channels and geography– Reactivity is high because minimum lead time to replenish points of sales (0,5 to 1,5 days maxi)

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answers

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4. Involve upstream supply network

SergioBoss

DanPlant Director

Marcy

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StanleyRaw material

supplier

ySupply Chain

PlannerHugo

ProcurementManager

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Improving everyone’s capabilities ?

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A maturity model becomes necessaryto align, educate and sustain action• Waste elimination and variability reduction is performed through quality and lean toolsperformed through quality and lean tools– Focused problem solving and root cause elimination– 20% to 60% lead time crunch done with field people

• Based on the success obtained in speed and inventory, a common maturity roadmap arisesa common maturity roadmap arises– Quicker improvement by selfassessment– Same language and practices, each other’s help stimulated

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Return on experience, innovative change:a continuous improvement roadmap• Sustainable performance framework

• 8 diamond key operations fundamentals for structuring maturity levels

• 4 domains to explore and self assess performance – Customers– Products / servicesProducts / services– Processes– Durability (global management systems)

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f.comInvestigate weak performance areas

revealed by low SellThru

Source and framework forglobal and sustainable performance

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Source for structuring maturity levels

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Structure used to assess

and measure practices

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practices periodically

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5. A starter kit for your own journey…

Anita and BenCustomers

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Customers

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ProductS iCustomer

Continuous improvement with a common maturity model

DurabilityProcesses

Service

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4 areas to be explored, step by step, merging the best of Operations Management standards

(ISO9000, Lean management, TQM and Sustainability…)

4 areas to be explored, step by step, merging the best of Operations Management standards

(ISO9000, Lean management, TQM and Sustainability…)

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f.comContinuous improvement with a common

maturity model

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a common maturity model

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Single and systematic quotation rulesfor each practice

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Each practice, within each topic,

at every maturity level

Each practice, within each topic,

at every maturity levelat every maturity level should be quoted in order to have a complete view.

Lowest levels show improvement priorities.

at every maturity level should be quoted in order to have a complete view.

Lowest levels show improvement priorities.

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Quotation should be reviewed every 6

months.

Quotation should be reviewed every 6

months.Example of quotation

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Adapt deployment approach to your context

Improve continuously

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Case learning after 5 years of deployment and use• Dos

Focus on evolution (improvement) more than an absolute level– Focus on evolution (improvement) more than an absolute level– Select actions according to stakes and customer view– Periodically re‐assess where you are, where you go and adjust

action plan

• Don’ts– Do the assessment alone (better as steering committee activity)( g y)– Try to perform actions on all and every theme – Do it for the customer only, do it for yourself

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New requirementsregarding the supply chain• Consolidated monitoring

Gl b l i t l l ithi th h l SC– Global inventory level within the whole SC– Distribution and location of inventory along the SC

• Ability to react quickly in case of – Inventory shortage or excess as regards global demand

dtrends– Unbalance between demand and delivery capacity in specific points of distribution

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New requirements regarding business and monitoring• Adapt marketing and merchandising according to

product availability issuesp y– Development concerns (quality, colors…)– Manufacturing issues (capacity, social, technical…)– Quick response required by competition offering

• Share information more frequently along the chainA ti i t i k d t d i t d f di i i– Anticipate risks and trends instead of discovering issues

– Unpredicted demand (ex. : Madonna’s “Manhattan bag”)– ADAWAT

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Case: Return on experienceDo’s• Share data

• Know margin of error and have accurate data, instead of investing tremendous efforts in precision that creates inaccuracy

• Have common definition of KPI’s and of the shared KPI “SellThru”Se u

• Share objectives and meet frequently to talk issues and news based on the same data

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Case: Return on experienceDon’ts• Work in silo (responsibility is good, but no cooperation is destructive)cooperation is destructive)

• Optimize locally only (good for local but counterproductive for client)

• Divide information and objective in order to better controlco o

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Case: Return on experienceConsequences on SCM• Recurring source of issues easy to spot

• More time spent on investigating root causes

• Effect of sustainable problem solving easier to measure on the whole chain

• Support needed from central towards up‐ or down‐istream operations

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Case: Return on experienceConsequence of consequence…• Effort necessary to strive for best practices and practice them

• Not enough resources to cover all

• Context created awareness and acceptance for self‐assessment (because 200 suppliers audits not affordable)

Self roadmap for manufacturing and suppliers, in order to sustainably improve performance

Key : automated replenishment systems to reduce lead times in distribution + DRP to rebalance inventory + staffed flow managers

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How to use as global business KPI ?

Performance (SellThru) = Actual % − Planned %

Success beyond forecasts ?Manufacturing issues ?

Low interest of customers ?Sales efficiency ?ER

T

‐5 0 +5 ‐15 ‐10 +10 +15

Too much hard selling ?Inventory release too early ?…

Advance in manufacturing ?Unbalanced inventory ?

…

ALE

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How to use as global business KPI ?

Performance (SellThru) = Actual % − Planned %

‐5 0 +5 ‐15 ‐10 +10 +15

ION

More promotion ?Adjust merchandising ?Reduce subcontracting ?

Increase industrial capacity?Speed logistic flows ?Manage shortage set quotas ?

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ACTI Reduce subcontracting ?Run DRP and rebalance ?

…

Manage shortage, set quotas ?Suppress special offers ? …

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Benefits of SellThru as business KPI

• Sharing objectives and efforts timelyi di i b t ll t f th l h i– easier discussion between all actors of the supply chain

and all functional experts: synchronization of efforts in time and in subject matter

– less fight on figures and more time to analyze and take decisions

– less effort in KPIs calculation, consolidation and sharing as d b d ( f d fadministrative burden or IS requirements (1 set of data for KPI, instead of 1 per inventory location)

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Remember what has ACME company and its partners achieved from 2005 to 2010

• Number of products sold increased by 100%

• Manufacturing lead time reduced by 30%

• Distribution lead time reduced by 50%

• Procurement lead time reduced by 60%y

• Inventory value limited to 5% increase only

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answers

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Contact information:

e‐mail: [email protected]

twitter: fredgaurierg

LinkedIn: http://fr.linkedin.com/in/gaurier

Visit: www.selfperf.com

Frederic Gaurier SelfPerf - media.apics.orgmedia.apics.org/sites/AnnualConference2012/handouts... · • Discover how a simple, single, well chosen KPI can align ... overrides order

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