“Best Practices” - Branch Ops

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Sx.e AIM

Grant Howard

Grant 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

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Our Discussion Today

• Company Objectives• Inventory Management Objectives• Inventory Management Model• Branch/Ops Involvement• Branch/Ops Tools

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Company Objectives

Bottom Line Profits (P&L)GM and Oper. Efficiency

Asset Management

Customer Service & Retention

Maintain the base

Profitability Longevity

Employee Happiness

Growth

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IM 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)

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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/Ordered

Quantity: 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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Service Level

• High Service Level:– Maintain/gain customers– Less B/O’s paper float - Save $

• Low Service Level:– Lost $– Lost customers

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Inventory Profits

• Low Turns/GMROI/T&E– Kills the bottom line -Cost to carry

– Some inventory $ not working - steals fromproducts really needed- Service Level Suffering

• High Turns/GMROI/T&E– Cost of Purchasing

– Service level may be suffering

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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 not needed?What is not needed?

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PNA/Level

Surplus Point

Line Point or Max/EOQ

Order Point or Min

EOQ

Order Cycle

Lead Time

Safety

When to Replenish?

What is not Needed?

What to Replenish and How Much?

When, What, How Much?

What is not Needed?

When, What, How Much

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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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Demand/Usage

Sales/Transfer History

Lost Sales

Exceptional Sales

Human input

Demand/Usage

Lost Sales:– Ask what they want– Canceled B/O’s– Directs to fill in– Substitutes– Ship from another whse

Three Methods to Enter:1. While in Sales/Order Entry

2. Lost Sales open order

3. Sheet, then to LS open order

What about the fill rate report?

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Lost & Exceptional SalesCritical for Good Demand

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Lost Sales/Exceptional Sale

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How it All Works“Product Stock Level/PNA”

Level/PNA = On Hand less Committed plus Incoming• On-hand accuracy everyday:

– Systems &Tools, Processes & Procedures, Education & Understanding

– Good Suggested/Cycle Count Program

– Make the adjustments when you find them

• Accurate committed and incoming everyday:– Paperfloat and Paperflow - Open Transaction Summary Report

– Dates and Quantities

• Watch the consignment warehouses• Use “Alternate Inventory” Buckets• DWIADT and DIRTFT• WMS

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Paperfloat Control

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Surplus Inventory

Responsibility Coordination

Prevention

Identification

Disposition

Goals/Plan

CONTINUOUS

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Surplus Inventory Disposition

BOP/GAP - Put of the fire: Short or Long Term

BLP/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 Buy

2. 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 charges

5. Sell Above “Write-off” Cost: Garage/Fire Sale, Flea Market, Auction House, Liquidation House

6. Dump at “Write-off” Cost: Donate, Scrap, Dump

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We have to have Branch, Operations and Sales Understanding, Buy-in and Help - TEAM:

• Usage/Demand: Sales, Transfers, Lost Sales, Exceptional Sales, Manual/Automated overrides

• Lead Time: P/Os, Transfers, Manual overrides• Purchasing Net Available: On-hand and open

docs – Orders, Transfers, P/Os, Workorders• Stock List and Excess Prevention/Disposition

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Getting Results

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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?

B2B

Warehouse:• Operations

• IM and Control

• Systems and Tech

• Sales

• Marketing

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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 goals

Yet they think it will all just magically work

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The FoundationPlan of Improvement

Back to BasicsProactive versus Reactive

Replace Inventory With Information

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Branch Priorities

• Sell

• Service the Customer, Proper Backorder Handling, OTD and Accuracy of Shipments/Billing

• Lost/Exceptional Sales and Demand/Usage Changes

• Keep the Level Accurate (On-hands and PaperFloat)

• Eyes and Ears CommunicationDemand/Usage Speaker/Listener

Lead-time Who is Listener?

Stock Level

Status, Frozen Items, Tmins, and Paths

• Prevention and Disposition of Excess Inventory

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The Tools

Branch Management Tools - Toolkit:– Open Transaction Summary and CC Monitor (daily)

- Keeping the stock level accurate– Lost Sales/Exceptional Sales (Daily and Monthly) -

Keeping demand accurate– Customer Service Action (daily) - Providing

outstanding service, getting backorders in and out to the customer - Closed Loop Thinking

– Suppressed with Activity, (Monthly and Daily) -Stocking the right inventory

– Top 25 Surplus (weekly) - Reducing surplus and improving profitability AND SERVICE

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J D I

It’s too hard to log lost and exceptional sales

It’s too hard to keep the paper work clean

It’s too hard to keep the on-hand correct

It’s too hard to work excess inventory

It’s too hard ...

If…, 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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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, DP

2. Implement Customer Buying Habits/Average Ship Quantities

3. Stock Level Accuracy: On Hand Integrity and Paperfloat Control

4. Buyer’s Control Center: Replenish at OP Priority, Targets, EB vs LB, One-stop

5. Order Cycle Analysis and Proper use of EOQ - Understand and Use Properly

6. Timeline Analysis: “Too Late” and “Too Early”

7. “Smart” Inventory Reduction Program, including Excess Prevention and Disposition

8. Inventory Stocking Policy and “Product Add” Procedure

9. Controlled Replenishment: Centralized Replenishment and Maintenance

10. Backorder Policy and Flawless Backorder Handling System

11. Data and Parameters: Smart Parameters (Depth, Cost and Hits/Rank Balance), Smart Exception Reports and Proactive Maintenance

12. Measure and Improve and Don’t Measure Just to Measure

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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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GWHCO

www.gwhco.org

Grant Howard:ghoward@gwhco.org

734-428-0529 Phone

734-428-0593 Fax

John Cason:jcason@gwhco.org

256-830-0676 Phone

256-830-0481 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!