The Opinion Page
News and comments about the issues facing today's SCM and Inventory Management professionals.
I am taking a little break from my theme about "Deming's 14 Points" to direct your attention to a fascinating little article in the Monday, July 19, 2010 edition of The Globe and Mail. Here is the link:
Auren Hoffman's (via Harvey Schachter) brief submission is particularly relevant to the Inventory Manager. He argues that in many facets of a growing business, there is a time when one must kill things off that are no longer helpful.
Accumulation of discontinued, out-of-season, out-of-fashion, and otherwise obsolete inventory is frequently one of the most pressing inventory problems faced by retailers, wholesalers and manufacturers today. And it has been that way for a long time. Sometimes it exists, lurking in the weeds, unidentified by the business for years. Sometimes it stares us in the face on a daily basis - we trip over it when we visit the warehouse, and it is on all of our slow-moving inventory reports. Sometimes the CFO says that it is too expensive to write down, or write off. And sometimes we simply fall in love with our product, and enter a period of denial while sales drop off and the goods are simply not as glamorous, attractive, and sexy as they used to be. Divorce, frequently, is a fact of life.
It is my observation that companies need to be far more brutal about killing off unproductive sku's than they have been over the past 30 or more years.
Products that are at risk of becoming out-of-season require special treatment. The project of managing seasonal product inventories is a little too complex to address in this blog. But it is possible with today's POS technology, some diligence, budgeting for reality, and some planning. The simple fact, and prime motivator is that one day after the seasonal event (for example, Valentine's Day, Christmas, Easter, or Halloween) seasonal products are worth a lot less than they were 24 hours before. Valentine-related products are worth a minimum of 50% less on February 15th than they were on February 13th. The trick is to follow each sku's sales (or depletions) closely relative to your pre-season sales profile, and take pricing or transfer action before it is too late. Re-project, re-project, and re-project, daily if you have to do so. Identify and kill off the non-producers - sell them before the end of the season, and do not relist them next year (or purchase more conservative quantities).
Non-seasonal products have a life cycle as well. The trick here is to avoid making that "one last big purchase" in anticipation of sales that will never transpire. Take the care to know where you are on each product's life cycle profile, and take clearance action when it won't break the bank. A 25% markdown taken now might clear up potential problems, that would cost a 75% markdown six months from now.
Above all, the Inventory Manager needs to be objective and cool-headed. Every Marketing Manager in the world will try to tell you that every product he has ever introduced has been a smash success. Marketeers are lovely people, but if you listen to them too frequently, you will soon be swamped with sku's, awash with inventory, and stumbling over dusty "product enhancement" materials (such as wrapping paper, bows, baskets, and signage) that have grown to take over your warehouse. On new assignments, I have walked into some of the biggest inventory messes known to mankind - and frequently I was there because the warehouse was bursting at the seams with old marketing collateral and obsolete items that Marketeers thought would sell to some idiot some day. That "some day" never came. Cull the herd of skus before they breed themsleves into an uncontrollable mess. Be vigilant. Kill the old geezers now.
Hoffman goes on to highlight problems with meetings, reports, processes, and people. We've all been in meetings where we wonder "why am I here?" and the only answer is "because we've always held this meeting." Kill it. Kill the reports that no one reads. Kill the processes that are no longer value-added. And, sadly, review the people who are not making a contribution. First, discover whether barriers are preventing performance. But Reed Hastings of Netflix is quoted as saying "Adequate performance deserves a nice severance package."
John Skelton is the Principal Consultant and founder of Strategic Inventory Management.