The Opinion Page
News and comments about the issues facing today's SCM and Inventory Management professionals.
Imagine being a senior operations executive in a distribution business where sales are – at best – flat, relative to previous years. Meetings with the sales team get ugly. The Blame Game erupts, and fingers point in every conceivable direction. Rhetoric leads to acrimony. Emotions run amok and morale declines. Worse, the underlying problems might never be fixed, constraining future growth.
The influential manager is obliged to remove barriers to growth and profitability for the firm. That means solving problems.
A problem might be described as follows: Objective + Obstacle = Problem. An obstacle becomes a problem when it prevents the realization of an objective.
Let us assume that our senior executive is confronted by a sales force who lays the blame for poor sales squarely on the doorstep of the procurement team. “We never have anything to sell!” complain the salespeople.
The executive may employ a five-step process to resolve this issue:
The complaint needs to be clearly articulated. “We never have anything to sell” is hyperbolic and inflammatory. Eliminate ambiguity. “Poor service levels are preventing us from reaching our sales budget” is more helpful. The latter statement presents an objective (sales maximization) and an obstacle (poor levels of service) and therefore can be framed as a problem worth addressing.
“Service levels” must also be clearly defined. For a wholesaler or manufacturer, service levels are commonly “the percentage of validated customer orders, at the line item level, shipped on time, in full, in perfect condition.” This key performance indicator must be measurable – otherwise, we will never know whether or not we have succeeded in solving the problem.
Our executive needs to procure the necessary resources to first investigate whether the complaint is valid. If we have been measuring service levels for some time, the investigation can be quite straightforward. If not, we need to gather and analyze the relevant data, and this can be “heavy lifting.”
State the hypothesis to prove or disprove: “Our service levels are substandard, preventing us from achieving our sales budget.”
Check all egos at the door. Dispassionate fact-finding is crucial. Engage an objective facilitator or consultant if necessary.
“Benchmarking” helps to delineate best-in-class from laggard performance in a given industry. If competitors deliver 75% service levels, while we achieve 95%, then we are “best-in-class.” Our performance becomes competitive advantage. In this case, observations disprove the hypothesis. The problem was one of perception. We must look elsewhere for a solution to flat sales.
If, however, the facts support the hypothesis, then proceed to Step 3.
Now that the facts point to your firm delivering substandard levels of service, you must determine the cause. Come clean with the sales team. Admit that the analysis has revealed poor results, and commit to a corrective plan.
Several techniques may be used to determine root cause: these may include Pareto Analysis, Ishikawa (Fishbone) Diagrams, and Five Why’s, among others. By sharing progress at sales team meetings, the level of trust will be enhanced. Brainstorming and benchmarking can help identify possible solutions.
Your work may show, for example, that the primary cause of poor service levels are stock-outs that are in turn caused by suppliers failing to deliver on time. The best solution may be to forge supplier alliances, enact a supplier quality certification program, or to enforce vendor contracts.
Create a project plan to implement your best solution. Manage expectations: in our scenario, underline that 100% service levels are statistically impossible to consistently achieve, but that 98% (for example) is best-in-class in your industry. Work with your vendor partners and invite their input. It may come to pass that “collaborative forecasting” is the real solution to your woes. Set goals.
Establish a process that will continually monitor progress. Set goals. Celebrate success. Take corrective action if improved results fail to materialize. Return to Step One if necessary. As you approach best-in-class performance, continually improve by addressing other obstacles that have presented themselves along the way. Export your successful process to other divisions in your company. Lever the results to gain competitive advantage.
An unbiased approach that promotes cross-functional understanding is critical. Poor relationships between working people will affect the efficiency and effectiveness of technical mastery. Encourage freedom from the bondage of misunderstanding to effectively solve problems in the workplace.
John Skelton is the Principal Consultant and founder of Strategic Inventory Management.