eCommerce and

In my pursuit of being more business minded I stumbled upon a very important lesson.  It’s the balance between doing what your suppliers and vendors want, and fighting for the goals of your business.  Being rather new to this position, I assumed that I was here to serve the every need of our supply base in an effort to create more meaningful and impactful relationships. This is not the complete case. A time inevitably comes when this becomes crystal clear, and my moment came just the other day.

When a manufacturer decides to take a particular product, product line, collection, category or brand away from catalog I undoubtedly question the impact that it will have on sales.  One manufacturer recently decided that a particular category of products would no longer be available for sale through internet retailers, but I did some research into the product line in question and petitioned the manufacturer to allow eCommerce as a sales avenue on a handful of SKUs. They graciously kept three of those SKUs in our catalog, and I thought I had won a small battle.

Flash forward to this week when we received a cost correction for one of the SKUs that was going to be pulled from internet retail. The notification informed us that our cost for this particular item was no longer our dealer price, and it was in fact list price. Obviously this had to be a mistake?  I double checked with my contact only to find out that they decided to put their foot down and not allow the sale of those three SKUs.  I did some quick research to make sure their claims of not allowing this product line to be sold on the internet were true, and sure enough not one legitimate search result revealed itself. So I felt forced to comply. 

Later, I was recapping my decision with my boss, and he helped me see this situation across a broader spectrum of possible situations. He pointed out that the decisions our partners make affect our company and just because a manufacturer or any of our other vendors make business decisions that align with their business goals it doesn’t mean that you have to bend over backwards if it is going to discount the success of your own business. Here I was putting others first in all of this, when I should have been focusing on how this would affect our business.

When I originally did my research on the top sellers for the product line we had to take down I realized my approach was wrong. Instead of acting as a partner with this manufacturer I approached the situation as if this manufacturer was doing me a favor. When in all actuality we bring valuable business to our many different distribution channels. In some cases we are the only sales channel that a particular brand has online and without us they wouldn’t even have an eCommerce presence.

Here is what I learned: Every situation is different. Even though my decision in this case was not necessarily wrong, my approach was. I have to focus on building and maturing the partnerships we have with our supply base and not allow others to make impactful decisions to our business without putting up some sort of fight. Just the same way as our marketing team fights for the customers that land on our site, I have to fight for the business we have with our suppliers.

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Identifying the “Knobs & Levers” that drive your company’s profitability is only the first step in a successful business. The second, and perhaps more difficult, is fine tuning those knobs & levers for a desired result. One such knob or maybe it’s a lever, is salaries and wages as a percentage of gross sales.

Focusing on balancing salaries and wages as a percentage of gross sales generally starts with the question, “When the heck are we going to hire someone to support our growth?” A few thoughts…

Explore all Available Avenues

While piles scattered about your desk, burning the candle at both ends for days, weeks, months, maybe even years and skipping one or more meals a day all potentially point to hiring reinforcements, these are not sole indicators hiring will be the silver bullet. Redistributing responsibilities (we like to call these buckets) can provide the efficiencies necessary to effectively manage the do-to list. You may just find a current employee stepping up to not only take on the additional responsibility but thrive on the opportunity to shine. Technologies within your current infrastructure may be able to offer more than you are aware of.  I’m not the expert on this one, I simply keep adding to the “request” list and IT finds a viable solution when available. With that said it’s amazing what the techies around here can accomplish when they put their heads together and look for alternatives that positively affect the bottom line.

Paint the Picture and Back it Up

Do properly identify a focused picture of what you’re experiencing, providing hard data that brings clarity to you or your departments needs. Let’s say you’re experiencing an elevation in outstanding returns (meaning your warehouse is backlogged on the returns it is receiving and needing to inspect and process).

Paint the picture…

New returns come in as one of two things, cancellation requests or RMA (return merchandise authorization) requests. Our Returns Team reviews the request, plans a course of action, and moves the issue to the appropriate bucket. For simplicity, cancellation requests generally move on to the reorder or refund tabs to be closed while all RMA requests require the attention of the Warehouse Team. The Warehouse Team is responsible for creating call tags (Call Tags tab) to get the product back and subsequently all product inspections (Inspections tab). The tabs are named and uniquely identified in our administration system where the processing takes place. Once an inspection has been performed the return is either approved as is or adjusted accordingly; moving the return on to the Pending tab awaiting a supplier RGA, Damage Claims tab initiating a carrier damage claim, or to the Reorder or Refund tabs to be closed.   As you can see quite a few different scenarios can take place, but it’s a system that’s been pretty well refined over the years.

Provide the data…

The simple snap shot shown above, while not indicitive of any real data will work for the purposes of what we are trying to accomplish for this post.  The chart provides the number of “transactions” open at the end of each day over a two week period by bucket. The work flow moving from left to right for each bucket has an identified outstanding target in red and subsequently highlighted anything greater than that target on any given day that it was not met.

In our example, with the exception of a single day the Returns Team is processing new cancellation and RMA requests within the target; driving the numbers down as they work through the week preparing for the weekend increases. A single instance can likely be attributed to a known issue or decision. The first Warehouse Team bucket (Call Tags) although significant is being met. This is an important step in the returns process as it sparks the products physical return. The first hint of bottle neck is at inspection, this is a time consuming, detailed, physically and mentally challenging step that sets the tone for the customer’s return experience. Although once the inspection has been completed the Warehouse Team technically moves the return back to the Returns Team via the Pending, Damage Claims, Reorder, or Refunds tabs, they’re not out of the spot light.  Once a supplier provides the required RGA from the Pending tab the Warehouse Team is responsible for shipping the RGA back to the supplier. Likewise, the Warehouse Team is physically involved in the damage claim if for nothing else than disposing of the damage once completed by the carrier. Finally, even a reorder has the potential to impact our Warehouse Team. That reminds me, they’re also responsible for inventory and order shipment including: domestic, LTL (light truck load), and international shipments. If you’ve ever shipped LTL or internationally you know you don’t just slap a label on it there’s a lot more that goes into it than just boxing up a product.

Analyze the Data

In this example if we’d looked simply at the Returns Team’s elevated outstanding returns we might have identified the need as an additional Returns Team member. With a more focused look at what’s being experienced throughout the returns process it becomes clear the Warehouse Team is struggling to support the volume moving through the numerous buckets they impact in the process. Assess and insure that the Warehouse Team is working as efficiently as possible taking into account their inventory, shipping, and returns responsibilities before moving on. Review available technologies for assisting those responsibilities. Pay attention to your bottom line, does the cost benefit impact to your knobs & levers more significantly impact the cost benefit of considering additional Warehouse Team support?

Connect the Need to the Big Picture

For our example:

• Overwhelming responsibilities may be heading your Warehouse Team to an elevated turnover rate. This only accelerates the issues currently being experienced in the returns process.
• Hiring warehouse support may also free additional time up from your Returns Team. The Returns Team may be working outside their responsibilities to help the Warehouse Team in an effort to meet their own targets. This inadvertently leads to inefficiencies in their own respective fields. Unaddressed, the same elevated turnover rate could result.
• Never forget the desired result of any returns process is a quality customer experience. Consider how you’re impacting the initiatives of the Customer Service department.
• As part of the inspection process (our examples bottle neck), the warehouse team works closely with the Data Team to identify discrepancies in data quality.
• Every effort is given to make inventory accessible to the Marketing Team’s initiatives to capture high quality images.
• Product that’s made its way through the returns process identified as unsellable is managed as salvage for philanthropic opportunities.

If you’re already sleeping at the office it can be difficult to slow down enough to move beyond the emotional desire for more support. Keep your eye on the prize; paint an accurate picture supported by data, coupled with connecting the need to the larger picture. It’s like asking, “When the heck are we going to hire someone to support our growth” but with an interest in affecting the salaries and wages knob or lever for a desired result.  Oh yeah, and in the end… turning a profit.

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Whether you're a business that buys or sells, you've probably heard of EDI. For those of you that haven't, EDI is an acronym that stands for Electronic Data Interchange. EDI is used when two entities want to share a standardized form of data. For example, a buyer sends a seller a Purchase Order EDI file. The seller then sends an acknowledgement EDI file. Then the seller might send a shipment notification EDI file, followed by an invoice EDI file. Makes sense, right? Seems easy…

We've built our own flavors of data interchanges before. However, we had not used the ANSI X.12 industry standardized EDI. We leveraged everything from simple flat files over automated email or ftp to xml via web service, each with agreed upon formats between us and suppliers or vendors. It's easy to do. You say, "Here are the fields and format we're going to send." They say, "Great! Here are the fields and format we're going to send." You both work to parse the data appropriately and agree on a delivery methodology and transaction schedule. So, why use the ANSI X.12 industry standardized EDI? Great question. I'm still trying to figure it out.

We were sort of forced to build it. By "sort of", I mean we were completely forced to build it. As in, one or more strategic partners says, "Oh, if you want to do business (/continue to do business) with us, you'll use this form of EDI." OK. No problem. How hard could it be? One would think that it wouldn't be that hard, as EDI has been around since the 1980's. This was back when data networks and a high level of computer competency was not a mainstream requirement of modern business, especially small businesses. Even the modern version of the standard still looks like it was built in the 80's. It also looks like it was built by a group of guys that desperately wanted job security. Yes, the files are in a standardized format. However, each file includes a copious number of optional elements, and a field representing one piece of data in one file type. For instance a Purchase Order file is formatted completely differently for the same piece of data in the next file type, like shipment. As I was working on the EDI project for our company, it occurred to me that this must have been the inspiration for XML. Someone was staring at this, saying to themselves, "No! Don't make me redefine the field for each stinking file type!" Also, the file has a flat file format, but it's delimited in the weirdest way. You have to build your parser to count out segments and account for optional fields. At least all of our partners utilize each of the standardized documents the same way, right? Nope. Each one takes their interpretation of the standard and we end up having to apply parsing logic by file type and by sender. Doh!

Pay Per Kilocharacter?

But, dealing with the building and parsing of files isn't the really irritating part; and truthfully, we're going to have to do something special for each of our business partners whether we use standard EDI or homebrew XML solution or something else. The REALLY irritating part is the delivery medium that you may be forced to use to communicate with EDI partners. As I understand it (and I could be wrong), back in the day, a very few telecommunications companies controlled data networks. These companies were regulated by government, and in order to charge for specialized services, like assisting in the transfer of critical business EDI files between two business entities, without regulation, they needed to create a new kind of service. So, Value Added Networks (VANs) were born. VANs serve as a go between, like a post office, offering various file transfer mediums, levels of security, tiered and specialized reporting, storage services, et al. You send a file up to your VAN, who holds a mailbox for you, and your VAN checks your file to ensure that it includes the right headers for the appropriate file type, stores your file and alerts your trading partner of a new file ready for exchange. That's it. That's what a VAN does, nothing that you couldn't do yourself. It's not like I can't store the files myself. Storage is cheap. It's not like I can't find a file transfer medium that works securely (simple things like FTPS or SFTP should not be tough for any IT guy to set up really cheaply). The best argument I've heard in favor of using a VAN, so far, is that it eliminates the need to let others have some access to your network. This came from one of our partners. To this I say, "Fine. We won't connect to your network. You can push and pull files on our network." Again, setting up the file transfers is not that hard and also doesn't expose your network to uncommon risk. It's dumb to pay the VAN for services that you can build yourself for very little money and effort. Plus, the VAN charges you by something called the kilocharacter. This is how you know it's from the 80's. A kilocharacter is represented by 1000 characters in your EDI file. Seriously, I feel so ripped off. Twenty years ago, you would have had to have a direct data link with the VAN. I would have really felt ripped off if that was the case today.

Paying Sticker Price

If you do have to do EDI through this type of channel chances are you'll be put in the position of explaining to your boss why your company has to spend money to send an order. It will end up being only pennies, maybe nickels depending on your volume, per order, but you won't feel any better about it. My advice if you're stuck in this position is this: Negotiate, Negotiate, Negotiate. When I started looking around for the right VAN solution, I was surprised at the breadth of offers. After getting quotes I went back to the same places and pitted them against one another. Not a single vendor stuck to their original quote. Everybody folded in one way or another. I finally found the two that would meet my needs that would give me a good price and I focused in on them. Just when I thought I had done a great job of negotiating and had gotten the best price I possibly could have, I went to my boss with my final contract terms for VAN services. He balked. "Why do we have to spend this much, again?" I explained it to him. He told me to go back and get better terms and better pricing. Feeling like I had done the best I could, I told him I would see what I could do. Surprisingly, when I went back and told the two vendors that I was going to have to decline because the price was too high and the terms weren't as good as we wanted, I was able to negotiate even better pricing and even better terms from both vendors.

Key Takeaways

The point here is this, if you can avoid having to use the antiquated and expensive ANSI X.12 industry standardized EDI, avoid it. If you can't (and chances are if you work with any large companies from traditional verticals, you can't), do this: Ask your partner to skip the VAN and exchange files directly with you. If they won't, get your customer or supplier to pay for it. If they won't, negotiate the heck out of the VAN services, then go back and negotiate again; you can get much better than published pricing on VAN services. Finally, if you're transacting via EDI with more than one customer or supplier, don't count on the files being used consistently across all of them. Portions of the standard are open to interpretation.

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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, export in this case being shipments from the United States to Canada. 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 that 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 = $$.