Manage by Exceptions

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Is your inventory balanced?

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

Fruits

 

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
  8. Manage By Exceptions (This Article)
  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 by Exceptions", and how that can greatly improve your efficiency.

Manage Outliers

All too often, companies generate hundreds of pages of reports on a weekly basis to track progress. This is one of the most inefficient methods to track progress and identify problems. Not only does it waste paper, it wastes time and doesn’t allow the reader to hone in where he or she is needed.

Leading edge companies manage outliers. They select key metrics that will gauge their progress, establish tolerances that are acceptable, and then only deal with issues that don’t land within those pre-established tolerances.

In our case study, the buyer set a preliminary forecast for the new cable, and then forgot about it. If he had established forecast accuracy tolerances, there would have been clear indicators that the forecasts were too high. The buyer could have stuck with the initial forecast but over a period of time it would have been obvious that the forecast was not going to be hit.

Move Away from Reports

We are not suggesting that reports aren’t needed but they are greatly overused. A great alternative is to use on line data that are derived from the exceptions you establish…no more need for hard copy reports. You can take the data, complete your analysis, and determine how to resolve problems.

You can extend your reporting by provided the summary metrics if that is required but all details attached to the report will solely be based on exceptions.

Utilize Technology to Generate Alerts

More often than not, technology capability required is critical to manage operations by exceptions. It's ironic that, on one hand management spends an awful amount of time managing performance and fixing issues, while the same management is responsible for building the governance processes. This is often ineffective. Most companies don’t pay close attention to the tasks that “sponge” management's time.

An effective performance dashboard, along with the right alerts from critical processes are the most effective ways to save management time. The alert technology is a common feature in most supply chain planning software. In the absence of supply chain planning software in your company, the alerts capability can be custom built with  business intelligence and report tools.

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

  • Use Integrated Metrics to Drive Improvement
  • Conduct Periodic Tune Ups

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

 

The Balanced Inventory Program™ will help you to achieve all your inventory objectives. 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 9 – Use Integrated Metrics to Drive Improvement

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

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