Tighten Your PLM Practices


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.

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. We all know that forecasts ebb and flow. So what’s 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 (This Article)
  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
  9. Use Integrated Metrics to Drive Improvement
  10. Conduct Periodic Tune Ups

In this article, we explore Principle 3, Tighten Your Product Lifecycle Management (PLM) Practices, and how that Principle directly applies to this case study and what it can mean to you.

In our case study, the Buyer set the SKU up as a new SKU and independently developed a sales forecast and replenishment plan. The forecast quickly got out of hand resulting in a massive surplus of inventory that was committed for and wasn’t going to sell.

Some creative, yet practical solutions for this problem that can be addressed in part by an effective PLM process are:

Implement (PLM)…In Some Fashion

PLM is the process of managing the entire lifecycle of a product from its conception, through design, development, sales, discontinuation & liquidation. The following Bell Curve shows the various phases.

 

PLM is not a very well-known practice and where it is known, is usually not well managed.

It is important to know that all products go through all Phases, but at different rates.

It should be the driving principle in everything a company does related to products. All activities and decisions should be planned, documented, tracked, & measured. Some key components of each Phase can include but are not be limited to:

Phase ONE - Ideation

This is the preliminary Phase where new SKUs are being considered for a variety of reasons.

  • Identify a requirement (i.e. identified customer requirements, needed by marketing, sales, strategic decision making, etc.)
  • Replace an existing SKU
  • Evaluate new types of products (market need, pricing, gross margin, etc.)
  • Move forward to Phase TWO or kill/shelve product

 Phase TWO - Development & Initial Sales

This Phase looks at new products which could be based on replacing aging SKUs, strategic decisions based on marketing needs, customer requests, and so on. Steps include:

  • Evaluate prototypes and quality
  • Evaluate sales volumes, gross margin targets, inventory productivity estimates, and so on
  • Validate a requirement (i.e. identified as a customer requirement, or a asked by marketing, sales, strategic decision making etc.)
  • Finalize marketing plan
  • Test a product in a store
  • Move forward to Phase THREE or kill/shelve product

Phase THREE - Sales & Replenishment

This Phase is where items that are in the product line-up really perform. They are selling, complement the product line, and are accepted by customers.

  • Finalize pricing, costs, logistics details, lead time, minimum purchase quantities
  • Complete specification sheets and advertising copy
  • Generate Purchase Orders and flow products through warehouse and stores
  • Evaluate SKU and vendor performance (are products performing as per decision criteria?)
  • Decision to remain in Phase THREE or move to Phase FOUR

Phase FOUR - Maturity Cycle & Death

This Phase is based on generating sales but reaching the mature period and considering liquidation options.

  • Execution of sales plan
  • Periodic evaluation of SKU performance
  • Meets criteria that dictates discontinuation
  • Liquidation planning & execution
  • Switching strategies & replacement
  • Liquidation &  scrapping

If we consider our case study, mistakes were made in Phases 1 through 3. If a PLM process was in place, multiple functions would have been involved in deciding in whether that cable was added to the line-up, what the decision criteria would be, and what the SKU performance would need to be. It would have likely picked up on a bad forecast, rapidly changing trends, a poor replenishment strategy, and would have avoided the debacle.

Instill Rigor, Discipline & Business Rules

PLM capability has established processes, checkpoints, decision criteria, milestones. A good PLM process provides complete visibility of all Phases. This allows you to measure the effectiveness of decisions/people relating to PLM. All tasks, milestones and decision points can are developed to support the business. As processes are mapped, it is a good opportunity to evaluate and challenge current practices so the company isn’t simply mapping flawed processes.

Include Multi-Functional Decisions & Criteria

Who is involved? PLM typically involves every function within an organization. Functions can involve:

  • C-Level Executives/ Corporate
  • Sales & Marketing
  • Product Management
  • Quality Assurance
  • Supply Chain
  • Information Technology

Decision criteria could include unit sales targets, GMROI, inventory productivity, and more.  In our case study, unit sales by month or week would have been good so that the trend could be followed. On an ongoing basis inventory turnover and gross margin dollar contribution could also be valid.

 Determine the Level of PLM Sophistication Required & Implement

Implementation can take several paths and you don’t want to over-engineer a PLM process. There are commercial packages that can fully automate the PLM process so that all trading partners, if given access, can be fully involved with each step of PLM (i.e. on line spec sheets, production plans, pricing structures & costs, ad copy, and so on). These packages track each step and identify where projects are progressing, have been shelved, are on budget, or are late. The other method is to begin by developing some basic processes such as product introduction using Excel or other basic tracking tools. A plan to introduce the key processes could be done initially with a longer term plan to implement all processes or to introduce an automated tool.

As you can see from this article, there can be many overlaps between the 10 Principles and how they can impact one another. Tightening Your PLM Practices is impacted by or impacts:

  • Get the Left & Right Hand Working Together
  • Clearly Define Customer Service
  • Know Your Products
  • Get Your Lead Times Right
  • Manage Your Partners, Don't Let Them Manage You
  • Use Integrated Metrics to Drive Improvement

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 article, it can be found at www.supplychainsystems.com/biparticles.

In 2 weeks, we will address Principle 4 – Know Your Products.

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

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