Monday, May 28, 2012
Automated Store Replenishment – Volume III
Supply Chain Management (SCM) is a move from push-based systems to pull-based systems with the process beginning with the consumer. SCM will never work for retail store operators until they fully understand the following:
Managing inventory from the middle of the supply chain is like taking a position between two competitors in a rope-pulling contest; you will not be able to properly assist either team, but the effect of just being there makes the outcome ambiguous. Or put another way: The best way to deal with a speeding locomotive is to get the hell out of the way.
I have often suggested a retailer is nothing more than a conduit for suppliers’ and manufacturers’ inventory. Imagine a pipeline that runs from the manufacturer, through a supplier, to the retailer’s sales floor and into the hands of their consumers. Imagine that pipe is filled from one end to the other with ping-pong balls (inventory). When a consumer plucks one from the end of the pipe, a worker in the manufacturer’s plant puts another one in the other end. In a perfect world, all the operator needs to do is monitor the process so nothing gets stuck. This was the notion that made Henry Ford the father of the modern automobile assembly plant.
Ford was a man of remarkable vision. Did he think of himself as being an expert? Absolutely not! He would be the first to respond, “Hell no!” In fact, Mr. Ford once said, “As soon as a man reaches the ‘expert state of mind’, a great many things become impossible.” This is where I get my courage as I go about telling you what to do. It’s another way of saying: “Thinking in the box keeps us ricocheting from one side of the box to the other. It is only through thinking outside of the box, can we hope to make any progress at all.”
The primary reason many convenience store operators fail today is not the economy or the price of gasoline; or is it the constraints of crushing regulations and excessive taxes. It’s because they rely on so-call experts to send them on their next journey. Not only will they NOT find the keys to getting out of the box, they expect them to magically appear and transport them to a perfect world. Albert Einstein said, “The definition of insanity is doing the same thing over and over again and expecting different results”.
When operators made the decision to turn their inventory management over to their supplier, they put the first nail in their coffin, and now there are only two things that will keep the lid from shamming shut for good. They must 1) learn how to manage their own inventory, or 2) form ‘Managed Supplier Partnerships’ with their vendors the way Walmart does. The former is likely too expensive for most small to medium-sized businesses, but the latter takes fewer resources and has limitless possibilities.
When I entered into the business of providing computers and software for the convenience store industry back in 1978, I learned one lesson fast. There are no rules for managing inventory replenishment between retailers and suppliers. Some suppliers employ pre-salesmen, some don’t. DSD jobbers are in the position to know what’s in the store, but they get paid by what they cram on the shelves with little concern as to whether it will still be there on their next visit. Many expect the store to know what it needs to order, other’s see orders as unnecessary meddling. Not by design, but from absolute necessity, the general belief is to err on the side of overstock.
While it’s a fact that SOME suppliers will warehouse inventory in stores to sweeten their financials, most suppliers are terrified you’ll run out of Marlboro Lights and switch to another vendor. Suppliers operate the way they do out of fear of losing you as a customer, because you have no idea what’s in your store today, much less what the turn rates are. Turns are no less important than margins, for margins without turns is zero.
More to come………