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Profitability, Longevity and Growth. Profitability, Longevity and Growth. Grant Howard Grant W. Howard Company. Grant Howard: Expert on Inventory Management, System Utilization and “Getting Results” Works with Multiple Distributors, Associations and Software Houses - PowerPoint PPT Presentation
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Profitability, Longevity and Growth
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Profitability, Longevity and Growth
Grant HowardGrant W. Howard Company
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Grant Howard:• Expert on Inventory Management, System
Utilization and “Getting Results”• Works with Multiple Distributors,
Associations and Software Houses• Conceptual Designer Behind Sx.e’s AIM• Sits on Multiple Board of Directors• Founder of Grant W. Howard Company
4
Our Discussion Today
• The Big Picture • The Replenishment Process • Better Results:
– Customer Service– Profitability
• Final Thoughts
To Final Thoughts Today?
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Profitability
Longevity
Growth
Warehouse
Sell
Procure
Customer ServiceVendor
PerformanceEmployee Happiness
Education and Understanding
Communication, Structure, and
Team
Systems and ToolsProcesses and Procedures
Owner’s Returns and Happiness
The Fundamental Tree Service, GM Improvement,
Asset Management,
Efficiency, Accuracy
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Profitability, Longevity and Growth
Profitability ($&%):• GM Improvement ($&%):
– Sales Increase– COGS Reduction
• Expense Reduction:– Asset Management– Efficiency– Accuracy
• 1, 2, 5 Points Better?
Longevity:• Customer Loyalty:
– Customer Service– Ability to Solve
Customer Issues• Being Dynamic:
– Adaptability to Market Changes
– Adaptability to Technology Changes and Utilization ofGrowth:
• Existing Customers• New Customers
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Profitability, Longevity and Growth
GM Improvement ($&%):– Sales Increase - Loyalty:
• Sell Price x 2• Velocity Pricing• Lost Business and Backorders• More of Customer’s Business• New Business• Increase Sales and Sell Price
with ...– COGS Reduction:
• Supplier Performance and Negotiations
• Decrease COGS with ...
Expense Reduction:– Asset Management:
• Freight Reduction• Cost to Carry Reduction
– Rifle Approach– Surplus, Safety Stock,
RC/OC/OQ• Replace Freight & Costs with ...
– Efficiency and Accuracy:• Cost to Replenish Reduction• Cost for Correction Reduction• Replace Costs with ...
Profitability - Dollars and Percentage
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Profitability, Longevity and Growth
Longevity:• Customer Loyalty:
– Customer Service:• Fill Rates• Backorder Handling• On-Time Delivery• Accuracy - Product, Price, Quantity,
Terms– Ability to Solve Customer Issues– Adaptability to Technology Changes
and Utilization of– Use Technology to ...
• Being Dynamic - its Critical:– Adaptability to Market Changes– Use Technology to ...
Growth:• Existing Customers:
– Lost Sales and Backorders– Depth of Customer’s Business
• New Customers:– Get them with Price– Keep them with Service
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Procure:• IM and Control• Operations• Sales• Marketing• Systems and Tech
Sell:• Sales• Marketing• IM and Control• Operations• Systems and Tech
Seems to be a Pattern?
Where does Management fit into all of this?
Profitability, Longevity and Growth
Warehouse:• Operations• IM and Control• Systems and Tech• Sales• Marketing
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Customers:• Availability• Backorder Handling• On-Time Delivery• Accuracy
– Product– Quantity– Price– Terms
• Win-Win• MEASURE
Employees:• Want to do a Good Job• Balanced Objectives/Team• Tools, Processes, EDUCATE!• Remove Stress, Give Method• Win-Win• MEASURE
Vendors:• Not Just Price• Win-Win• MEASURE
Profitability, Longevity and Growth
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• Communication, Structure and Team: Does your company have a team concept, KNOWN balanced objectives, with a way to get there - Management?
• Systems and Tools: Does your company understand and use more than 20, 30, 50% of your systems and technology?
• Processes and Procedures: Does your company have closed-loop, actual working processes and procedures?
• Education and Understanding: Does your company educate your people and help them become part of the solution?
Profitability, Longevity and Growth
THE FOUNDATION
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Inventory ManagementGetting Results
When, What, How Much, Too Much
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The Replenishment Model
A Good Replenishment Model addresses the two objectives of
Customer Service and Profitability
WhenWhen to Replenish? to Replenish?What What to Replenish and to Replenish and How muchHow much??What is incoming and will be late?What is incoming and will be late?
What is incoming and will be early or is not needed?What is incoming and will be early or is not needed?Too Much?Too Much?
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“When, What and How Much”
• “When” to Replenish– Fixed Interval - Timeframe or Target - Profits only (Not
watching BOP)– Flexible Interval - Trigger Point (Order Point) - Service
and Profits• “What” to Replenish
– Replenishment Cycle (Line Point)– Controls the frequency of P/O’s and Transfers– This is the speed control (Frequency)– Target/Freight and/or C to P driven
• “How Much” to Replenish– Order Quantity– Controls the quantity of items on P/O’s and Transfers– This is the workload/spread (Amplitude)– C to C, C to P and Target/Freight driven
PNA/Level
Surplus Point
Line Point or Max/EOQ
Order Point or Min
EOQ
Order Cycle
Lead Time
Safety
What’s the DifferenceRC = 0; RC = 1 weekOQ = 1 week; OQ=4 weeksRC = 1 week & OQ=1 week; RC = 1 week & OQ = 4 weeks
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DataUsage - OE/WTLead Time - PO/WTLevel/PNA Info - OH & PaperfloatPurch Hist
Set-up“Smart” Set-upCo. and Whse.Product PlineProduct MasterProduct Whse.
The NumbersHits/RankingOrder CycleAve Usage, Safety, OP, LP, Order Quantity
ReplenishmentBuyer’s Ctrl CenterItems BOP/Priority
Timeline AnalysisToo LateToo Early
Surplus InventoryExternal/Lng. TermInternal/St. Term
MeasurementFill Rate, BO’sTurns, Excess, MixT&E, GMROI
MaintenanceOne Stop Inq/MaintProofs/Mass UpdateExc Control Center
The ToolsData to Info
The Process
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Usage LT Saf RCCtoP
EOQCtoP
EOQCtoC
On-hand
Paper-float
SurpPrev/Disp
BOHand-ling
OTD Acc-uracy
IM X X X X X X X X XSales X X X X X X XOpers/Ware X X X X X X X X X X XOffice X X X XIS/IT X X X X X X X X X X X XMgt X X X X X X X X X X X X
Who’s Involved?
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Know the Right Things to DoDo these Things Right
Inventory Management is at the Time of Replenishment, the “When, What, and
How Much”, Everything Else is Inventory Correction.
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Getting Results
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The Path to Success Service and Profits
Keep it Working - Maintenance:– Get out of the “Yellow Sticky World”– The Importance of Proactive Maintenance– Watch for Suppressed with Activity– Watch for Slow/Inactive Stock Items
Measure and Monitor:– Use Measurement and Monitoring to Confirm
Results and to Drill Down and Find Areas of Improvement.
– Drill in, Rifle Approach - Don’t Shotgun Approach it, Just $$$ and Disappointing Results.
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If there is no measurement, then it is all hearsay. Data-free conversations and decisions will cause lots of frustrations, cost lots of money and result in lots of disappointments...
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Service - Fill Rates
• How well a business meets its customer’s needs - pulse of customer’s happiness/loyalty.• What to Measure:
Fill Rates = Shipped/OrderedQuantity: 9 out of 10 = 90%Line Item SC: 9 out of 10 = 0%Order Ship Complete?
• What Should Fill Rates Be?• The Report is Broken - Look at “First Pass” Orders - EDI, Fax, Internet, etc for true fill rates
and backorder retention• Only one way to better Fill Rates - The Right Inventory. Two ways to the Right Inventory...
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Profits - Turns? ROI?
Cost to Carry, Cost to Purchase and FreightC to P Turns
80’s $10.00 2-390’s $5.00 3-600’s $2-3.00 6-10EDI/VMI $0.13?Many companies are increasing the turns, but the infrastructure does not
support it; bottom line, longevity and growth are all suffering! Customer Service, GM Improvement, Efficiency, Accuracy, Asset Management
Pro
fitab
ility
Turns
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TurnsWhat is it Measuring - Profits?
J M/A J/J S/O D C/I Turns1.00 s1.25 1/1 1
c1.00
1.00 s1.25 s1.25 2/1 2c1.00 c1.00
1.00 s1.25 s1.25 s1.25 s1.25 4/1 4c1.00 c1.00 c1.00 c1.00
CGM T&EGM%
GMROI.25 .25
20%20
.25 .5020%
40
.25 1.0020%
80Turns looks at C to C - Don’t Forget Margin,
Freight, C to P and SERVICETurns DOES NOT measure Profits, Turns is
an Indicator of Profits
R O I
Inventory = Dollars! How many Times the Dollars are used to do Something
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Return
140
150
150
140
Turns
4
5
6
7
Margin
35
30
25
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The “Whole” Picture
Inventory Management is not only TurnsCustomer Service Improvement - Availability, OTD, BO Handling
Gross Margin Improvement - Sell Service (Price) and COGS
Expense Reduction - Freight, Cost to Carry, Cost to ReplenishInventory Management is Bottom Line, Longevity and Growth
7 Turns & 4% Bottom Line or 5 Turns & 7% Bottom Line
Velocity P
ricing?
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Return on Investment
GMROI:= Turns CGM%
= COGSGMAve Inv COGS
= Sls Turns GM%
= Sales GMAve Inv Sales
= GMAve Inv
x
x
x
xx
x
Turns:= COGS + $TransferredAve Inv
T&E:= Turns GM%
= COGSGMAve Inv Sales
No Directs, Non-Stocks or Pass-Throughs
How to Use T&E/GMROI
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Inventory Management Objectives
Customer Service Availability (Fill Rates)
Proper Backorder Handling On Time DeliveryAccuracy: Item, Quantity, Price
Profitability (ROI)GM Improvement (Sales and Cost)
Freight Considerations - OC AnalysisEfficiency & Asset Mgt: CtoC and CtoPSurplus Inventory & Safety InventoryTurns/Days supply, ROI/T&E/GMROI
Watch the C to P
(Purchasing/Replenishment, Receiving & Put-away, A/P)
Watch the C to C(Warehousing, Handling, Obsol. & Shrink,
Taxes, Ins, Interest)
Service Profits
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1. Right Inventory/Service not Suffering because of Wrong
2. Controlled Replenishment3. Stocking Policy4. Good Numbers and Proper Use
of Them (OP, Level, LP, and OQ) - Path to Service:– Replenish at Order Point - Prio– Freight, RC, CtoC vs Service– Line Buy vs Emergency Buy– Understand LP and OQ Effect
Customer Service
5. Operations:– Backorder Policy and Handling– On-Time Delivery– Accuracy of Shipments and Billing
6. Fill Rates, BO’s, OTD, Accuracy - Monitor, Drill Down, Find Areas of Improvement
Back to Basics - JDI
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7. Understand and Use:– Usage: Lost Sales, DP– Customer Buying Habits– Timeline Analysis– NOOS Policy and Procedure– Smart Selling/Transferring
8. Follow LP and EOQ Suggestions:– Too many Fires– BOP but not at Target Problems
9. “Never-Arrive” Incoming10. Safety Stock Increase:
– Safety Analysis– Use a Rifle Approach– Small Steps, Results, ...– Watch the Profits
Stellar Customer Service does not have to drive your inventory through the roof, it just has to be done smart.
Customer Service
Keys to Good Fill Rates
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Inventory Management Objectives
Customer Service Availability (Fill Rates)
Proper Backorder Handling On Time DeliveryAccuracy: Item, Quantity, Price
Profitability (ROI)GM Improvement (Sales and Cost)
Freight Considerations - OC AnalysisEfficiency & Asset Mgt: CtoC and CtoPSurplus Inventory & Safety InventoryTurns/Days supply, ROI/T&E/GMROI
Watch the C to P
(Purchasing/Replenishment, Receiving & Put-away, A/P)
Watch the C to C(Warehousing, Handling, Obsol. & Shrink,
Taxes, Ins, Interest)
Service Profits
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Profitability
1. Stellar Customer Service2. Controlled Replenishment3. Stocking Policy4. Good Numbers and Proper Use of
Them (OP, LP, OQ, Level) - Path to Profitability:– Up to LP, OQ, Min, Package– Usage: Exceptional, DP– Targets/Incentives Properly– Line Buy vs Emergency Buy– Availability (Sales, GM, Fires)– At Target/Timeframe, no BOP
5. Vendor Performance and Negotiations
6. T&E and/or GMROI - Monitor, Drill Down, Find Areas of Improvement
Back to Basics - JDI
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Vendor Performance and Negotiations - It’s not just Price
• Lower COGS• Lower Freight Minimums• Multiple Drops for Freight• Combined P/O’s for Minimum• Freight Paid Fill-ins
• Fill Rates• Consistent Lead Times and OTD• Accurate Shipping (Blanket
Receiving) - Product, Quantity, Price
• Good Backorder Handling
• EDI/VMI/2-Way Information Flow - B2B
• Automated Product and Pricing Updates
• RGA’s on New Items• Excess Inventory Returns
• Win/Win - Partnership
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Profitability
7. Excess and Defective Inventory:– Prevention– Disposition
8. Order Quantity Reduction:– OC/RC (LP) Reduction:
• OC/RC Analysis/Paths, Watch Freight
• Lower Targets - Negotiate• C to P Departments Tools/
Efficiency– Suggested OQ Reduction (EOQ):
• Watch C to P Departments• Proper C to C
9. Safety Stock Reduction:– Safety Analysis - Use Rifle Approach– Improve the Process - Better Usage,
Lead Time and Level, Replenish at OP, Timeline
– Small Steps, Results, …, ...– Watch the Service
10. Other Reductions:– “Never-Ship” Committed– Duplicate Products and Lines
Turns the Right Way!
Balanced Objectives - Increase turns/decrease inventory but
DON’T EFFECT SERVICE!
Inventory Reduction/Increasing Turns
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PNA/Level
Surplus Point
Line Point or Max/EOQ
Order Point or Min
EOQ
Order Cycle
Lead Time
Safety
Profitability
Understand the Impact Areas:• Excess and Defective:
– No one wants or needs– Control the Feelings– Let it Roll, Let it Go– Be Careful - C to C/Mix– Cost of Disposition
• Line Point and Order Quantity:– “What” and “How Much”– Be Careful - C to P Departments
• Order Point - Safety Stock:– “When”– Be Careful - Customer Service
Low Risk
High Risk
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Excess Inventory Disposition
BOP/GAP - Put of the fire: Short or Long TermBLP/Sugg Xfers - Use it where you can: Long TermTeach branches to use LT first. Don’t borrow stock and put branch in “need”.
1. Stock Balance: (“X” Months Supply) - With “To” branch approval/Before Buy2. Sell Above Cost: Customer, Other Distributor 3. At Cost: Sell at cost, Return at cost with no charges (freight, restock)4. Below Cost: Sell below cost, Return below cost and/or with charges5. Sell Above “Write-off” Cost: Garage/Fire Sale, Flea Market, Auction House,
Liquidation House6. Dump at “Write-off” Cost: Donate, Scrap, Dump
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Cost to Carry, Freight, and Service
Versus
Cost to Replenish
HIRE SOMEONE
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Some Final Thoughts
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Getting Results
1. Order Point
2. Stock Level
3. “When” to Replenish
4. Stock Out/Lost Business Prevention -Timeline Analysis -”Too Late”
5. Closed-loop Backorder Process
1. Line Point and Order Quantity
2. Stock Level
3. “What & How Much” to Replenish
4. Surplus Prevention - Timeline Analysis -”Too Early”
5. Inventory Reduction Program
Service Profits
Most “Talk About” 1 and 2, Many Do Not Understand 3 and Few Do 4 and 5
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12 Months to Better Service and Profits
Execution Is the Key - One Action Each Month1. Good Usage: Lost/Exceptional Sales, Usage Roll-up, Seasonal Trending, DP2. Implement Customer Buying Habits/Average Ship Quantities3. Stock Level Accuracy: On Hand Integrity and Paperfloat Control4. Buyer’s Control Center: Replenish at OP Priority, Targets, EB vs LB, One-stop5. Order Cycle Analysis and Proper use of EOQ - Understand and Use Properly6. Timeline Analysis: “Too Late” and “Too Early”7. “Smart” Inventory Reduction Program, including Excess Prevention and Disposition8. Inventory Stocking Policy and “Product Add” Procedure9. Controlled Replenishment: Centralized Replenishment and Maintenance10. Backorder Policy and Flawless Backorder Handling System11. Data and Parameters: Smart Parameters (Depth, Cost and Hits/Rank Balance),
Smart Exception Reports and Proactive Maintenance12. Measure and Improve and Don’t Measure Just to Measure
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J D I
It’s too hard to log lost and exceptional salesIt’s too hard to keep the paper work cleanIt’s too hard to keep the on-hand correct
It’s too hard to work excess inventoryIt’s too hard ...
It’s too hard..., The system is broken or doesn’t have it…, We will never get them to do that…,
We don’t know how to do that… J D I !
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Spend $ to Make/Save $$
Execution Is the Key - How to Get it Done
• Get an IM, Operations and Education Person!• Understand the IM models, How the “Dials” Work and How to Meet the
Objectives (Service and Profits; OP, LP, OQ)• Understand and Utilize the System and People Better - Better Tools,
Better Processes, Better Education, Better Objectives - All Departments, Entire Company - SAME OBJECTIVES, SAME TEAM
• You Don’t Have to do the Extraordinary, Just do the Basics Extraordinary • No Magic, Common Sense, Back to Basics• Maximize Profits and Service, Asset Management, Cost Reduction and
Increase Turns the Right Way!
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It’s not just good Software and SystemsIt’s not just good Processes and Procedures
It’s not just good People and EducationIt’s not just good Management
IT’S ALL OF THEM!It’s not just good Usage
It’s not just good Order PointsIt’s not just replenishing at Order Point
It’s not just the TimelineIt’s not just working the Surplus
IT’S THE ENTIRE PROCESS
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Back to Basics
Many distributors DON’T:• Set the system up properly• Feed the system good data• Understand or Use the system properly• Clean up bad processes and procedures• Educate their people on the system or processes• Help departments work together• Help work towards common goalsYet they think it will all just magically work
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Spend your days reacting to the fires... you may be efficient, but will
you be effective?
Fire Prevention ...
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The World is Changing!
Yesterday Today TomorrowBuyers/Inv. ControlInventory/Asset Managers ???Turns Dominated Customer Service Oriented If you can’tInaccurate Data Data/Information Managers handle today,Four Glass Walls Communications & Team how will youLearned from “Bill” Education & Understanding handlePencil and Paper Technology and Efficiency tomorrow?
If your company is stuck in Yesterday or having troubles with Today, how will it survive Tomorrow?
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Replace Inventory and Costs and Improve Service with Technology
Improve Profits, Longevity and Growth with Technology
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GWHCO
www.gwhco.org
Grant Howard:[email protected] Phone734-428-0593 Fax
John Cason:[email protected] Phone256-830-0481 Fax
Our approach involves tailoring the best practices in distribution to the specific needs of our clients. Our working philosophy revolves around building a strong and self-maintaining infrastructure by developing a working plan based on processes and procedures, education and understanding, implementation of tools and technology; and through communication, organizational structure and team environments.
Q & A
Thank You!