eCommerce and

With an understanding of Gordian Project’s required results, as a manager, I’ve spent countless hours process mapping the “buckets” of responsibilities related to supply chain. Buckets such as new business, fulfillment, and returns. These buckets can then be further broken down;

•  New Business into new suppliers, new brands, and new products
•  Fulfillment into supplier performance and carriers
•  Returns into RMA Team and Warehouse Team

Follow this to its natural conclusion and you’ve created not only job descriptions but detailed processes in which to successfully fulfill those descriptions.  But it’s not full proof, at least not when it comes to the results.

We recently received a past due notice from UPS Supply Chain Solutions as a result of A Series of Unfortunate Events (I love this movie). The details of which are not important for our purposes here; what is important is where this series of unfortunate events began. PlumberSurplus.com and OutdoorPros.com both ship internationally via UPS Supply Chain Solutions which performs the export. A process was “perfected” for creating shipments using UPS.com and was followed successfully for more than a year.  My first response was then to immediately assume UPS had made an obvious clerical error and by clerical error I mean point the finger. With a bit of digging it became clear that an update to UPS.com resulted in our “perfected” process inadvertently charging import fees to ourselves as the shipper rather than to the receiver.

All eyes turned to the warehouse team. Given the process was followed to the tee and UPS.com had clearly been updated; I still had to ask, “why hadn’t the error been caught?” To the warehouse team’s credit, and you know who you are, I didn’t get the expected, “That's not my job.” A spirit of complete responsibility was evident, but was it solely their responsibility?

In answering this question a statement in Rick Darci’s article, When 'It's not my job' isn't the answer, hit me square between the eyes; “Descriptions (Read processes) are task-focused. They do not describe how the role fits into or contributes to the success of the entire organization. The incumbent can operate in a vacuum without concern for what is happening around him - how she affects customers, co-workers or the organization.” The results originally desired of profitably and successfully shipping internationally aren’t accurately communicated, nor can they be insured, in processes. Let’s just say I’ll be communicating with a new sense of fervor the importance of big picture results, balanced with providing processes; sorry warehouse team.

Do your employees know what they’re ultimately trying to accomplish?

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As a follow up to Arianna’s blog highlighting the costs associated to inventory obsolescence, I’d like to provide a couple considerations for tackling this costly issue.   Arianna addresses the importance of first recognizing this as a problem, especially if all you’re doing is cleaning house, when you can no longer move around in your warehouse; then you’re not managing obsolescence.

Define what you consider obsolete inventory.  Here are some examples of what to look for when developing your definition of inventory obsolescence:

• A Product not directly supporting your company’s current and future branding, resulting in consumer demand turning less than “X” times in “Y” period of time. This can be a result of shifted marketing focus and resources, when the company shifts efforts other departments do as well.
• Customer demand turning less than “X” times in “Y” period of time despite focused marketing efforts.
• Seasonal product.
• Product directly or indirectly tied to changing technologies. Today’s must have camera is tomorrow’s hand-me-down.
• Inventory recording errors.
• Abandoned inventory resulting from policy changes.

Now that you have your definition of obsolete inventory, identify inventory that meets your definition of obsolete inventory:

• Perform a complete inventory.
• Identify each line item meeting your definition.
• Identify each line item by criteria met.
• Summarize each criterion’s total number of occurrences and associated product cost.
• Summarize the total number of occurrences and associated product cost to provide a clear scope of cost.

With inventory defined and identified, action steps can now be taken:

• Prioritize based on “occurrences” from a procedural perspective or “product cost” from a liquidation/cash perspective. If resources permit, both can be tackled simultaneously.
• Establish well defined performance metrics to identify and address “ageing” inventory proactively based on procedural perspectives and/or a liquidation/cash perspective rather than when you can no longer move in the warehouse.
• Liquidate obsolete inventory even with a product cost loss.
• Identify processes that end in inventory recording errors like receipts of goods, bin moves, and manual entry errors. Recommendations can then be made for process improvements.
• Review policies like: vendor performance and terms, customer cancellations and returns, and pricing.
  

Finally, to insure long term success, clearly identify the person/team responsible for your company’s inventory obsolescence management along with establishing an ongoing review process. With time you can expect ongoing process improvements such as improved inventory accuracy, reduced operating expenses, improved cash flow, and improved return on your investment.

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As I looked at our warehouse, I felt overwhelmed at the number of items we have in stock, and began to wonder how long these products have just been sitting here.  This made me contemplate, “Does it really matter that we have so much stock? We’re going to sell it one day, and if an order is placed, then at least we know we have it in stock and ready to ship.”  The question that I should be asking is: “Does it really matter that we have so much inventory obsolescence?” The answer to that issue is yes.  There are large costs that are incurred by carrying inventory that will become or has already become obsolete.

Inventory obsolescence happens when inventory is no longer salable; this tends to happen when we have too much inventory on hand, when products are out of season, or when demand is decreasing.

Warehouse and Supply Chain Managers need to be aware of the costs associated with inventory obsolescence so that they can properly manage their departments and budget accordingly.  I’ve put together a basic list of costs associated with stocking unsalable inventory.

Below are some of the costs that are associated with stocking inventory that is no longer salable:

Labor Costs- Labor spent on obsolete inventory is wasted labor. Employees have to spend time stocking products, picking, relocating, and taking inventory. The more inventory on hand, the more time is spent on performing these activities, thus the higher the costs.

Equipment Expenses- When inventory begins to grow, the need for racks, shelves, pallets, and maybe even a larger warehouse also grows. Not only are these costs fairly high, but these tools can also become damaged and worn.  When this happens these tools will need to be replaced. Equipment expenses are ongoing operating costs. 

Opportunity Costs- This affects us more than the others. When obsolete items are stored, the opportunity to stock more of the products that are in a higher demand is out of the question. Not only are customers not provided with the newest trends or “in” products, but the sales that could be acquired are essentially lost.

There are other types of costs that should be taken into consideration. Charles Atkinson’s article on When to Get Rid of Stock explains that when a company realizes that it is not profitable to keep such inventory, their best choice is to get rid of the stock they do have. Whatever the outcome maybe, the key is to develop some type of inventory obsolescence program that will save the company money in the long run.

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Our Supply Chain Management department has been not only growing in size, but also in responsibilities. Our team has literally tripled in size over the last year, but along with that we have more projects and actual deadlines. As scary as that might sound our team is in the process of not only knowing what team work is all about but truly understanding it. I am, like many of you might be, the kind of person that agrees with the statement “If you want something done right, do it yourself”, but there is a point in which one person can’t do all things and delegation is about handing over authority, projects, tasks, etc. This is a scary concept for many because a person can’t know 100% of what will occur once responsibilities are handed over.

Delegating has been one of the hardest things for me to learn and a recurrent process.  There is continual room for improvement in the effectiveness of how, where and who you delegate to.  If there’s anything that I have learned thus far about delegation is that it’s a two-way process. If the individual assigning responsibilities are competent in delegating to the department but the employees receiving the tasks don’t understand what the process should be or what is being asked of them, then the process will break. The same goes if the situation is reversed.  These four suggestions will help you begin to develop your delegation skills and avoid potential errors in the future:
 
Choose the Right Person
Consider what that person can bring to the task and how the task will impact that person. One of the rewards of delegating is that you allow that person to grow in the experience and perhaps even in the company. In other words, your reason for considering a person should be more than “I like this person a lot – they laugh at my jokes all the time”.

Explain the Task
Always provide the “what” the “when” and if possible the “how”. Assuming that the person will know exactly what to do and what you expect is an unfair expectation. Please note that picking up your dry cleaning, making coffee, and getting you lunch, are not appropriate tasks to be delegating.

Provide Support
It is important to be available for any questions or concerns that the person may have. The fact is that people learn with experience; there will be times when a person might complete a task perfectly with little to no guidance, but the truth of that matter is that everyone needs a little direction and support. Check in with them often and do not discourage questions – the more questions they ask the better they will understand the project.

Give Feedback
Constructive feedback is the most valuable way to improve performance. Note exactly what it was that the person did that blew you away. Once you tell them what they did well, then you can also give them advice on what they can improve upon.

Businessballs.com has an easy to use SMART planner template which can help you dive right in to designating projects to your team. Once you feel like your expertise in delegating has advanced you can remove tasks on your own “To Do List”; giving you the opportunity to focus on larger projects that can more effectively impact the company. I leave you with this quote by Robert Half “Delegating work works, provided the one delegating works, too”.

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• CIT is looking for investors, and the NRF (National Retail Federation) is feeling the pinch.  Without factors like CIT taking on the financial burden between suppliers and retailers, supply chains will struggle to continue to produce at a rate that consumers want to see product on retailer’s shelves.  As the holiday season approaches both suppliers and retailers have begun to panic as they realize that this couldn’t be happening at a worse time.


• Future or hopeful entrepreneurs may want to look to this roadmap to see if they have what it takes to make it.


• Yahoo! rolled out their new homepage and with high-quality reviews, which is good considering it was supposed to debut last year.


• Increase creativity by distancing the group from the problem.


• This is a to be continued blog but I have complete faith that the copywriting tips that are going to come from the follow up are going to be worth linking to the initial post.  It helps that he references one of my favorite childhood movies throughout the post as well so the post in general is thoroughly enjoyable.


• Amazon bought Zappos this week and the price keeps updating.


• This quote was brought to my attention courtesy of Contrast Blog
  “Usability is not everything. If usability engineers designed a nightclub, it would be clean, quiet, brightly lit, with lots of places to sit down, plenty of bartenders, menus written in 18-point sans-serif, and easy-to-find bathrooms. But nobody would be there. They would all be down the street at Coyote Ugly pouring beer on each other.”
  -Joel Spolsky
  -From his book User Interface Design for Programmers
  

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A Business Process is a way of defining what steps to take, what responses are required, and actions that need to be taken for any given task. As I prepared to create a Warehouse Process and corresponding flowchart I realized that finding a starting point was just as difficult as the task itself. What I found that helped me the most was creating and documenting the process in the form of a Business Process. I am not quite done with this project, but these steps are making it a lot easier for me to stay focused and clearly work toward the end result. There are three steps that I found to be the most helpful in creating our processes and flow chart.

Identify

The first step is to identify the processes. For example a Warehouse Process Map will need sections for inbound, outbound, inspections, etc. Figuring out all of the processes to identify in a process map will make the process organized. It is recommended that the processes be outlined in the way the processes are played out. A Warehouse Process Map would have the first process be Outbound, then Inbound, then Inspections and so forth, all in which the order of operations is performed.

Discuss and Document

The second step is to discuss and document. It is essential to get a full understanding of ALL the steps involved in any given process. Often times a process map creator, like me for instance, lays out the steps without fully understanding them. Discussing the steps with employees that carry these functions out will ensure that the process map is as accurate as possible. This is often the most time consuming portion of the project. Obtaining the required information involves sitting with employees and having them describe what they do step-by-step. After this, time is spent in documenting the steps in a word format. Below is a simple example:           

I. Inspection
        1. Don’t Want Returns
            a. In Resalable Condition:  Check Qty Approved → Check Qty to Stock → Click Process
                  →  Refund Tab → Add to Warehouse Inventory → Complete

Chart

The third step is to create a flow chart. A flowchart is a visual presentation of the steps involved in the process that is being mapped.  The process map consists of many different symbols that indicate a decision, or the beginning and end of a task. The flow chart is the tool that can be used to train new employees to clearly explain the tasks that need to be followed in order to complete a task.

Sample Flowchart

Review

The final step is reviewing the process map and flow chart. The easiest way to do this is to again take time with each employee and get their thoughts or suggestions in making the process map and flowchart better, more accurate, inclusive of process responsibilities, and amend it accordingly. Remember that these processes are not set in stone. Methods can change periodically, especially if new technologies or tools are obtained.

The time taken to create a process and flowchart may be substantial, but knowing that each employee has a tool that diagrams exactly what is expected of them is beneficial not only to the employees, but to the company, and ultimately to the customer. 

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Managing any area of business invariably means pouring over a myriad of reports. Reports created from queries with sophisticated refinements like sales by criteria, supplier, manufacturer, and date ranges, or downloaded as raw data into excel to be manipulated with “Vlookups” and array formulas, to numbers pinned on Staples yellow note pads.  If yellow note pads are your preference I suggest the five by sevens.  Whether generated monthly, weekly, or daily for performance or projection; the bottom line when reviewing many reports is identifying areas for improvement.

My confession here is that I’ve looked at all the aforementioned reports in both numerical values and colorful charts and at times have been less than clear on how to use them effectively to improve performance and not head into a finger pointing session, particularly when attempting to advance supplier performance. With the current economic environment Cash is King.  Not that it hasn’t always been, but it’s much more pronounced in this climate.  In focusing on driving net cash I was able to find a reporting motivator by combining several individual reports, “Ready to Ship”, “Open Orders”, and “CRAC” (Cancellations and Returns), into one cohesive performance report.

Understanding the Data:

Ready to Ship - Identifies the suppliers communicated inventory as a percentage of total inventory.  (SKUS In Inventory  / Total SKU Offering = % Ready to Ship)  It should be anticipated that these orders would ship within a predetermined timeframe based on warehouse fulfillment rates, let’s say 48 hours from the time in which the order was received.

Ready to Ship Cancellations - Identifies the total dollars cancelled as a percentage of total volume sold ($ Cancelled / $ Sold = Cancellation %). The total lost dollars are included.

Dollars Lost - This is an important piece of information to know if you want to effectively move the conversation into a positive light. Communicating the opportunity of dollars lost positively, without getting into the finger pointing that can happen if the cancellation numbers become the focus of the conversation, should motivate the supplier to make improvements. I frequently hear from suppliers that our extensive product offering negatively impacts their cancellation rate because our business model turns their inventory that they consider C’s and D’s, or items that they normally do not have to replenish as often. This is in fact true but the actual impact is seldom a part of that conversation.  This is where “Dollars Lost” data helps turn the conversation back to performance as we are already only considering “Ready to Ship” inventory. This percentage identifies Cancellations as a percentage of Ready to Ship items ($ Cancelled / % Ready to Ship = Dollars Lost). This is where the customer expectation is no longer being met by the supplier.

Overall - By assigning a simple ranking to where each supplier stands, related to the average, in each of the areas reported, you provide a point of reference for how an individual supplier is performing related to your overall business. Again this helps move the conversation from finger pointing, to a more productive “search for solutions” focus as suppliers see their competitive comparison.

You’ll note I’ve chosen to not focus on open orders or returns in an effort to focus suppliers on those improvements yielding the greatest impact to net cash. Aging open orders naturally turn into cancellations.  These are accounted for in our data after refining return’s into their respective categories.  Once the returns have been categorized into “Don’t Want”, “Damaged”, “Defective”, or “Wrong Product”, the impact to net cash, with improved supplier performance, is relatively insignificant as compared to “Dollars Lost”. Don’t get me wrong, in a perfect scenario those dollars would be nice, but prioritize, prioritize, prioritize.

Opportunities to be communicated:

Cancellation Changes - I’ve provided here the average cancellation % and total dollars cancelled at the bottom of each respective column. Rather than discouraging struggling suppliers by pressing them to perform relative to your top performers; encourage them to drive towards the average cancellation rate, in this case we are using 4%.  In order to show the impact of such an improvement, calculate what their numbers would look like if they did meet our set cancellation goal of 4%.   Not only does the supplier then have a reasonable goal, but the available dollars is also clearly represented. Your impact to average cancellation rate is significant, by focusing on only two of the poorest performers in our example our average cancellation rate moves from 6% to 4.13%.

Long story short, ship what you’ve communicated is in stock + stock more = $$.

Stepping into the realm of supply chain I knew there would be a learning curve.  The first lesson I learned? Basic Vocabulary.

I was sitting in a meeting when I began to hear words such as: Manufacturer, distributor, wholesaler, supplier, drop-shipper, and end user/consumer. Not only was the conversation over my head, but my experience in customer service did not even lend a helping hand as to the differences between these roles in supply chain.  In addition to recognizing and understanding the roles that each play in the supply chain cycle I also needed to realize that these terms may be different across channels, lucky for me we are a pure play internet retailer, which means for the time being I truly needed to understand supply chain roles in relation to eCommerce.

Working in customer service at PlumberSurplus.com, I knew of manufacturers like Kohler, Delta, Rheem and others that are among our Top Sellers; but I didn’t know what the differences were between a distributor, manufacturer and a wholesaler. What about those that bought American Standard and re-branded it? Are they a manufacturer? Can we buy directly from a manufacturer? What is the difference between a manufacturer and a brand name? I sat through the meeting praying that no one would ask me a question. When I got back to my desk, I quickly went to Google, hoping for a quick synopsis that would allow me to at least understand my notes from the meeting. Surprisingly, I could not find one single post that explained the basic functions, differences or attributes of these supply chain relationships.

So… here you go. My list is not all inclusive, as I am still on that learning curve that I mentioned; hopefully, if you are ever in a similar situation you will be able to at least get the gist of the relationships here.

• Manufacturer: The word manufacture comes from Latin roots meaning “to make by hand”. A manufacturer turns raw materials into finished goods. Classic American examples include: Ford, General Motors and Boeing.
• Brand Name: A manufacturer can have more than one brand name. A great example of this is General Mills cereals. General Mills is the manufacturer, while Cheerios, Kix, and Wheaties are the name brands.
• Manufacturer Representative:  A manufacturer representative is the driving force of sales behind a manufacturer’s product. They can be non-stocking, use consignment or have a buy-sell relationship. If a manufacturer has a manufacturer representative, then the representative is the manufacturers face to the public.
• Distributor/Wholesaler: Distributors and wholesalers are the middle-men between the manufacturer and consumers. The terms are used synonymously even though there can be a difference. Both buy in bulk, and then re-sale the products in different channels. The main difference is Wholesalers frequently physically assemble, sort and grade goods in large lots, break bulk, repack and redistribute in smaller lots.
• Drop-shipper: A drop-shipper is a type of distributor/wholesaler. A drop shipper will purchase from the manufacturer, and then drop-ship orders directly to consumers from a third party order.
• Retailer: A retailer is a storefront where consumers can walk in store and physically buy the manufacturers product. Now, with the internet, we have developed e-tailers. An e-tailer is an online storefront that consumers can browse and purchase the manufacturers products over the internet.
• Supplier: The term supplier can be used for any of the above one-to-one relationships, and some industries refer to suppliers as vendors. If the manufacturer has a representative, then the manufacturer is the representatives’ supplier. Similarly, the manufacturer’s representative that the wholesaler purchases from is the wholesaler’s supplier…and on down the distribution chain.
• End User/Consumer: Consumers are those who purchase the products from retailers. Shoppers. When you buy a product for your use, you are a consumer…the end user.

These definitions can be applied across mediums, into your realm of business. Now there are exceptions, like with computers and software, but for the most part, you can use this basic vocabulary list in your next meeting, and be sure that everyone is on the same page when you are talking about a new wholesaler relationship that you have acquired that will drop-ship products for you.

Better late than never...

• Facebook gave the cold shoulder to a family in mourning when they refused to take a profile down based on their policies.  The Consumerist lists the details of the story per correspondence between the deceased sister and she brings up an interesting point about the rights of the deceased in relation to social networking and internet profiles.
• It takes time to build website authority and rank well for competitive keywords, which is just one of the reasons Aaron Wall wrote “Why it Makes Sense to Target Longtail Keywords First”.
• Entrepreneurs that are looking to source their own product line will be interested in a new product, China Trade Database.  The product is a compilation of more than 500,000 Chinese manufacturers that span a huge variety of product categories from furniture to handbags.  These manufacturers are trusted sources which decreases the risk of being scammed for those that don't do business in China on a regular basis.
• Matt Cutts is sharing past conference presentations for those that were not able to attend.  He recently posted State of the Index.
• AdSense now allows custom font selection.
  

Color coding has been used for many years and by many different organizations. A color code is a method that allows information to be displayed by using different colors. Restaurants use them to note what day of the week a salad was made, or when a food package was opened.  Even our Department of Homeland Security uses it to inform us of our government’s national threat level.  So when I was told that a customer’s return had been sitting in our warehouse for an uncaccpetable amount of time before being inspected … I knew that I needed to find a solution.

The Issue:

Large box returns were being delivered and placed in our “Inbound” section of the warehouse, while smaller packages were being positioned on top. When our warehouse manager went in to inspect the returns they would automatically collect all of the smaller packages first. At the end of the day when they were unable to inspect any further returns, the remaining boxes were taken back to our inbound section. The next day as UPS delivered more returns, the smaller boxes were again placed on top of the larger boxes, and so with this continuing cycle our customers return was continually overlooked.

The Experiment:

I remembered how easy color coding was when I worked at a café, and so I decided to experiment. I went to a local office supply store and purchased color coded stickers that were large enough to write on. There were five colors, one for each day of the week. Our warehouse manager was to place a color sticker on every box that arrived on that day. Mondays was a yellow sicker, Tuesdays was green, Wednesdays was brown…etc. That way we knew exactly what day a package arrived at our warehouse. On Tuesdays our warehouse would inspect Monday’s returns, on Wednesdays they would inspect Tuesday’s returns and so on. This seemed to work perfectly! However the cost of the stickers was pretty high.

The Solution:

As we realized how amazing the stickers worked we went in search of some less costly stickers and were able to find them on Uline.com. We began this adventure about two weeks ago and it has been amazing! Our warehouse is more organized, and our customers are made happy when their return is inspected within one or two days of its arrival.

When we first found out about the issue we had no idea how we would fix it. We started talking about getting more warehouse space and even hiring a new employee. Though the stickers solved our issue for now we know that as our company continues to grow this process will have to be reviewed – but for now we love it!

I was completely proud of the fact that we were able to solve the issue with color coding stickers! I’m sure that there have been many companies that were faced with an issue and found a pretty simple and cost effective solution. Feel free to tell us about your cost effective solutions – we’d love to hear about them!

Till next time, remember that a problem is only an opportunity for an excellent solution!