Simplicity is NOT that easy in planning!
Some planners just are very proud of the fact that their business is complex – 20K SKUs, 20 DCs and thousands of customer sold-to locations
And when my team start mining the data, we find that invariably a good fraction of the SKUs never sold a single unit (or pound or kg or ounce) in the last two years…………
Perhaps your New Year resolution should be :
Have you done anything to reduce the complexity?
And keeping things simple is not that easy a job to do………
Simplicity can be elusive!
Once you are determined to streamline and organize your portfolio, you may even make recommendations to run the business better. You may find that a good fraction of the active SKUs contributes less than 1% of your gross margin.
And a large fraction is perhaps MTO.
And do you have to forecast always at the SKU-DC-soldTO level which is at the bottom of the pyramid and where you know for sure you will get a straight line as a forecast in most cases? Can you forecast at a somewhat more meaningful level that will make it simpler?
What can we do? What is your approach to planning simplification?
Implications of SKU Assortment Planning
The drive to simplicity can lead to more than just satisfying the need for production planning and inventory management. It can lead to better decisions for business management.
Planners should be influential in the organization – If they are close to the data and if they have the courage of conviction, they should not fear telling management the implications of this analysis.
One direct benefit is Assortment planning and SKU rationalization. Which products and customers are profitable? How do we align the business with those profitable customers and products?
With our Planvida platform on the cloud, we have provided several insights where management was surprised to see such facts
1. Several products that have no sale in the last year but with a good amount of inventory
2. Products with negative gross margin but still carried in the portfolio. One manager quipped, “they are loss leaders and are carried to please their customers who purchase other items!”
3. We also show all products that have average monthly sales of less than $100 – and this will be quite embarrassing for most people as they are still servicing products that do not produce enough revenues leave alone profits.
The Perils of Complexity
If you do not periodically engage in streamlining and simplifying the business, complexity may eat your lunch. Companies go out of business because they overlook some key trends and facts not just in the market place but in their own businesses. This is stuff that they can find with some involved data analytics.
Ingredients for a for potential supply chain failure:
- Making products that do not sell.
- Selling products that do not even cover your direct costs.
- Not making a link between sales and inventory position – lean or mean Operations do not make you profitable. You need to make the connection between your operations and your customer – your product and the customer need – your mission as a company with those of the customer who keeps you in business.
Simplify!
Leave a Reply