Manage Your Partners, Don’t Let Them Manage You

 

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Is your inventory balanced?

Unfortunately most companies do not have a balanced inv
entory. They either have too much of a SKU or not enough. This imbalance can cause customer complaints, lost sales, and higher operating costs.

Manage Your Partners

If you recall from previous Articles, a buyer made the major mistake of overbuying a large amount of computer cables from the supplier. An initial forecast started at 100,000, quickly moved to 600,000, then dropped to 200,000. What caused the problem? The main problem is that the 10 Principles were not followed:

The 10 Principles are:

  1. Get the Left & Right Hand Working Together
  2. Clearly Define Customer Service
  3. Tighten Your PLM Practices
  4. Know Your Products
  5. Look Forward, Not Backward
  6. Get Your Lead Times Right
  7. Manage Your Partners, Don't Let Them Manage You (This Article)
  8. Manage By Exceptions
  9. Use Integrated Metrics to Drive Improvement
  10. Conduct Periodic Tune Ups

In our case study, the Buyer added the new SKU to his line-up with no discussion about what its impact would be to overall sales, and more specifically, to other SKUs’ productivity. The initial forecast was developed with no check and balance and all related inventory plans were executed without challenge.
In this article, we will explore "Manage Your Partners, Don't Let Them Manage You", and how Five Key Elements can greatly affect your inventory performance.

Clearly Establish Standards of Service

Whether it’s upstream or downstream, a clear understanding of what you expect from your trading partners and vice versa is essential. Many partnerships have failed simply due to misunderstandings and lack of alignment.

If you are downstream in the supply chain such as retailers or importers, creating a vendor performance manual works well. It clearly lays out your expectations and implications if performance is not met.

If you are upstream in the supply chain such as a manufacturer, having all your staff understand what your customers’ expectations are will build on your customer service capabilities.

Develop a Scorecard

Scorecards are a great way to measure performance and keep complete visibility of performance throughout the entire supply chain. Taking it one step further, exception based management is a great tool to hone in on problems and fix them. When you couple the scorecard with exception based management, you have a robust mechanism that allows you to quickly identify challenges.

Don’t try to measure every detail but rather select a few specific metrics that can be used to gauge your inventory management performance (i.e. turns, GMROII, in stock position of A & B items, lost sales, etc.). If you establish acceptable thresholds, you can then focus on exceptions only.

Use Synergies to Your Advantage

Leading edge companies work together with their trading partners to exploit synergies. As an example, forecasting can be done collaboratively. If you or your trading partner is using an advanced planning system that is generating relatively accurate forecasts, you can either rely on that system or conduct forecast comparisons between 2 systems and review variances. Other examples where synergies can be used are time phased replenishment plans and lead time review and analysis.

In our case study, the buyer worked in isolation and didn’t solicit any feedback on his forecasts or plans to replenish the cables. Vendors are a great source of information and industry trends. Having an open dialogue with his vendor may have provided “insights” that would have allowed the buyer to recognize his forecasts were out of line.

Conduct Formal Update Meetings with Key Trading Partners

Once formal standards are documented and a scorecard is being used to measure performance, formal meetings should be scheduled to review performance, analyze results and jointly develop plans to continually improve performance. This allows for fact based conversations and removes opinions from measuring performance. It also builds far stronger partnerships.

Hold Your Vendors Accountable

As a first resort, measure your vendors’ performance and calculate the cost of non-compliance. In most cases, vendors do not fully understand your costs associated with over-shipments, short shipments, late shipments, early shipments, quality issues, and so on. It is a relatively easy exercise to calculate costs such as labor to deal with each non-compliance event, an estimate of lost sales, and additional inventory carrying costs.

As a last resort, set up programs with your vendors to recoup those non-compliance costs. Depending on your size, this may not be practical but at least you can understand your non-compliant costs and can better evaluate the need to institute a vendor switching strategy.

As you can see from this article, there can be many overlaps between the 10 Principles and how they can impact one another. “Getting your lead times right” is impacted by or impacts:

  • Get the Left & Right Hand Working Together
  • Tighten Your PLM Practices
  • Know Your Products
  • Look Forward, Not Backward
  • Manage Your Partners, Don’t Let Them Manage You
  • Conduct Periodic Tune Ups

We will discuss those impacts and identify the overlaps in each article.

If you are interested in achieving a balanced inventory, we offer a No-Charge Starter Stage. During this Stage, we will help you assess your current inventory management practices, develop a preliminary business case, and start working your Balanced Inventory Blueprint.

If you have not read the previous articles, they can be found at www.supplychainsystems.com/biparticles.

In 2 weeks, we will address Principle 8 – Manage by Exceptions

For more information, contact us at info@supplychainsystems.com or call 312.667.4654/905.454.8529.

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