Retail toc get your hands dirty in the implementation - humberto baptista v1.0

1© 2009 TOCICO. All rights reserved.

TOCICO 2011 Conference

RETAIL TOC – Get your Hands Dirty on the

Implementation

Presented By: Humberto R. Baptista – Goldratt Consulting / Schools

Date: June/2011

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© 2011 TOCICO. All rights reserved.


Agenda

Retail

S&Ts

Our Scenario

Cutomized S&T

First Action(s)

Roll-out

Store’s stock

Store operation

Warehouse challenges

Product life cycle

Seasonality

Fast and slow movers

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Retail – The Next Frontier

• B2C is different – how

• The concept of experiment is much more alive

• The passive component of the sale is significant (esp. in self-service retail)

• TOC presents a great framework for this− Not because of the tools (they are great, but of lower importance)

− Because of the thinking

• Many paradigms and phantoms blocking the way

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S&T: a thinking Tool

• Not only for retail, but to any project

• Specifically to build a practical model (theory) of reality

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Our Scenario

• Big retailer with big factory− 130+ stores, 3 DCs, factories w/almosr 30k people, 2.5 US Bil

Turnonver

− Fashion oriented aparell retailer

• (some learnings shared last year on TOCICO)

• Viable Vision implementation, started after a 9 month pilot

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First Challenge: Its own S&T

• A customized version was built by− Combining existing S&Ts (Retailer, MTA Consumer goods, etc.)

− Taking from the experience acquired on the pilot

− And the experience of the GC and company members

• A significant mis-fit appeared straight up on the “hull”:− The first entity (Reference Group) was challenged (minor)

− Another entity was needed: “To work by SKUs in all of the chain”

− Why? Grids.

− Here a fundamental learning: don’t compromize on sufficiency assumptions

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Overview of the specific S&T

• Overview:

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For other time

• 2.3 - Assortment− Effective Merchandize

− Range management

− Product development

− Purchasing the Merchandize Plan

− …

• 2.4 - Store/Retail Excellent Operation− Effective follow up on KEY policies

− Detecting and replicating excellent processes

− Ongoing training

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Ensure SKU Availibility (3.1.1)

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First action(s) and their impact

• The SA: “To ensure an outstanding start of a major initiative it is vital that the first substantial actions will result in immediate substantial benefits.”

• The NB of not following it

• The new first entity failed the test and we paid the price

• The cloud that should have been evaporated:

BFully exploit the

demand

DFirst change systems

to work by SKUAThe Viable Vision

is highly successful C

Assure buy-in with fast results

D’Start with grids

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• The assumption “Therefore it is only possible to ensure high availability and high inventory turns with a SKU based distribution.” is invalid

• Why? Fast runners and Slow runners are very different.

• Grids of fast runners sell well, even on the worst SKU, and the grids aren’t cast in stone, especially on the far runners

• The sales speed difference is: FR = 5x average, a real SM = ¼ of the average

• And as the FM grids are usually gone we can buy them differently.

• Solution: Challenge the policies that treat all products/grids like equals (too much democracy...)

How to Build First action(s)

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• Potential impact:

• Necessary conditions:− Purchasing of FMs (ordering and expediting)

− Resupply of FMs

− Proper display of FMs

How to Build First action(s)

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Rolling out (5.111.1/2)

• Control group− How long and it exist?

− Need for a baseline

• Challenges on IT− Producing data, interfacing, not becoming a BN out of “since”

projects

• Limits of the tools/systems

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Entity 5.111.3

NA For a demand driven mode of operation stock targets are set for each SKU. Currently stock targets for each SKU kept on the stores are either too high or were not defined. The stocks on the stores are unbalanced: stocked out SKUs live alongside with over-stocked SKUs.

St The stocks and the stock targets for each SKUs on the stores are appropriate for a demand driven mode of operation.

PA •Too high targets reduce turns (and consequently the ROI), may hinder the introduction of new products/SKUs and eventually even the sales of other SKUs (stealing space, sales force attention, etc.).

•Even with properly set targets it may take a long time until excess stock is drained, during this time the negative effect of excess stock still exist.

•Even with properly set targets if the data is wrong there will be stock-outs and excesses (and they won't be detected by the systems).

Tt •The SKU targets at the stores are appropriately defined. •In each store the excess stock on the shop floor and eventually even in the store deposit are appropriately dealt with.

•Ensure the accuracy in the data is adequate to a demand driven mode of operation.

SA It is not enough to plan well, a quick and effective implementation is fundamental to harvest the benefits.

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Shop’s Inventory (5.111.3)

• Split in the traditional entity

• Targets (standard, display considerations)

• Physical balancing (reverse logistics)

• Accuracy (see my TOCICO presentation last year)

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Entity 6.1113.2

NA To only set a stock target does not change store's reality.

St The physical stocks are as much as possible in line with the targets set.

PA •Excess stock in a store can not only create an unrealistic pressure to get rid of the relevant SKUs, but it can do it at the expense of other stores where this SKUs is more needed (betas).

•A simple criteria to determine if excess stock should be returned to the RDC is:•Consider only those SKUs that are not close to the end of their product life.•Among these consider only those with stocks below target on the RDC (that is, those that should receive a replenishment from the the CDC or from a supplier)

•Among these consider only those with stocks at the store that are over approximately twice the target and have quantities enough to handle (i.e. not to small).

•For SKUs ate the end of their life cycle the appropriate treatment should be given so that they don't diminish the mix and don't steal salespeople attention.

Tt •Stock above the appropriate display quantity is mover to the store's backroom (store warehouse or LPR).

•According to the criteria items are moved back to the RDC.•Items at the end of their life cycle are appropriately dealt with (step 5.112.4 - Adjusting for product discontinuation) as fast as possible.

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Reverse Logistics (6.1113.2)

• Role and aplicability

• Cloud and criteria

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Entity 5.111.4

NA In a stores (strongly) based on self-service SKUs in the store backroom and not in the sales floor are stock-outs to the clients and at the same time non-moving items for the company.

St Necessary SKUs are always available in the sales floor.

PA • The vast majority of the buffers is very small (in general have their size dictated by display considerations rather than demand ones): the long tail.

• Therefore SKUs in a store's backroom should only be large (bulky) or high runners or they are awaiting a launch date. All others should have the totality of their stocks in the sales floor.

• The majority of the resupply items (those with no launch date) in a truck is necessarily directly on the sales floor.• When a truck arrives it is important to take all relevant SKUs as fast as possible to the sales floor.• The resulting variety of SKUs in the store backroom is very limited. Organizing the store backroom by group/department makes it even easier to find given SKUs in it.

• The demand of SKUs is the correct indicator to trigger resupply in the store. If used together with a verification (manual if needed) of which SKUs sold are in the store backroom provides a quick, simple and practical method of resupplying SKUs to the sales floor.

• As the SKUs in the store backroom are in general those with large buffers it is enough to visit 8them a few times each day to attain high availability in the sales area.

• Using artificial batch criteria (minimum quantities, volumes per area/group/dept etc.) to trigger resupply may lead to stock outs in the sales floor while the same SKU is present in the store's backroom.

• To depend on the salespeople to detect stock outs is not a robust nor thorough process. Worse yet it steals away the salespeople attention from their mission: to facilitate more sales.

Tt •The Company reviews and adjusts its store resupply processes to:•Dedicate exclusive personnel to the resupply activity that moves SKUs from the backroom to the sales floor.

•Move relevant SKUs that arrive in the trucks as fast as possible to the sales floor•Some (2-4) times per day check what was sold and verify if these are SKUs present in the store backroom and if so move them immediately to the sales floor.

•Eliminate all policies that offer limits and restrictions to the ressuply of SKUs to the sales floor

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Store Operation (5.111.4)

• Backroom -> Sales area

• Challenges− Reception (new truck): where does it go first?

− Detection of resupply needs during the day

− Who’s in charge

• Gap− In our example:

− In national fast runners: 90-100 stores carry them on average, but 10-12 of them do not have any sales of these items, why?

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Entity 5.111.5

NA Replenishment from the RDCs to the shops is currently based on infrequent ordering of each SKU.

St The Company’s RDCs are replenishing frequently based on actual daily consumption in the shops.

PA • The initial inventory target for each SKU in the RDC is set to be equal to the average daily demand in the past month, summed across all the shops it supplies, multiplied by its replenishment time plus three sigma (the variability of the consumption during the replenishment time).*

• The replenishment time to the RDC is the transportation time from the CDC or the replenishment time from suppliers if there is no CDC.

• Changes in demand will be handled by the buffer management system.• Based on the quantities needed, the RDC frequently sends a (full) truck to the shops.• The time between orders the shops are currently placing for the same SKU is typically much longer than one day. A large portion of the SKUs are not picked daily in the RDC. With daily orders, each SKU will be picked more frequently. Due of the size of the warehouse, it takes time to pick a large variety of SKUs in the RDC. Therefore, in order to prevent picking from becoming a bottleneck, actions should be taken, such as moving several days worth of demand of each SKU near the dock for quick picking, and replenishing it from the main inventory and/or hiring more pickers if needed.

• When there is a lot of excess inventory, it should be shipped back to the CDC.

Tt •The initial inventory targets for the RDC's are set.•The shops report daily sales to the RDC.•The RDC ships goods to the shops based on actual consumption (considering full truckloads per reasonable routes).

•The appropriate actions are taken to ensure that picking in the RDCs does not become a bottleneck.•The criteria are determined for the timing and quantity of returning an SKU to the CDC which meets the global criteria of maximizing company sales and not spending time on choopchicks.

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Warehouse Challenges (5.111.5)

• Space• Cross docking facilities x storage facilities

• Picking capacity• Packs x units x distance traveled

• Layout/process design• Frequent picking of large variety of SKUs

• Micro-picking as a possible solution

• Processing in the WH• Pre processing , post processing (ASAP/ALAP)

• Temporary Bottlenecks

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Temporary Bottlenecks

• On very strong peaks (e.g. Christmas) and

• On the transition between grid->SKU

• The WHs may become bottlenecks (maybe trucks but mainly picking capacity)

• Priority system helps, but there an extra learning: on teh roll our there is a “sea of blacks” (stockouts)

• How to prioritize among two blacks?

• According to Buffer size/needed inventory: roughly proportional to the demand and maximizes efficiency of the picking.

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Entity 4.11.4

NA • New collections are essential to ensure variety and freshness desired by the market.• The lead time to launch a new collection is long.• The forecast (on the store level SKU) is notoriously bad at the time that the new collection quantities have to be decided.• Inaccurate forecasts lead to considerable shortages during the season and considerable surpluses at the end of the season, which gives

pressure to distort the portfolio of the collection (e.g. adjusting the variety of models and quantities per model, to try to reduce the risk).

St New collections are launched properly.

PA • The lead times are not uniform through the system. The lead time of design might be longer than the duration of a season. The lead time for fabric might be comparable to the season duration. But, the replenishment lead time of production and transportation are considerably short versus the season duration.

• Therefore, the quantities needed to launch the new collection (ensuring proper display at the shops) are significantly smaller than the quantities sold during the season.

• Starting a season with only the quantities needed for the launch (optimistic forecast over the replenishment times to the CDC, RDC and stores plus proper display) while replenishing during the season will reduce dramatically both the shortages and the surplus inventories.

• A new collection contains items that are produced by the company's plants, it also contains items that are purchased from external suppliers. The likelihood that a traditional supplier will not meet its due date for the collection is high. Step 4.11.5 brings the company to enjoy greater reliability from its suppliers.

Tt •Enough inventory is produced (and purchased) to fill the CDC, RDC and Shops buffers in time for the launch.

•The regular replenishment system takes over the moment the collection is available for sale in the shops.

•The company moves quickly to step 4.11.5 (Dealing with Suppliers).

SA It's better to be approximately right than precisely wrong.

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Product Life Cycle (4.11.4)

• Introduction of new products (processes and criteria)− Why, and what for

• Managing the life cycle:

Sto

ck L

evel

time

Creation (MTO) Life (MTA) Death

(1) (3) RLT

After Death

(5)

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Seasonality Considerations (5.112.3)

• Ramp Up & Ramp down: independent and optional

• Per SKU, not group− Sales go up due to: more depth per SKU or variety being sold?

• Up: Time, Steps and logistical limitations

• Considering display quantities: which buffers to increase?

Example:

− Speed of sale: 0.1 unit/day; RLT 2 days, target = 0.3 -> 1 unit

− Minimum Display: 2 units.

− Seasonality: +200% (factor=3.0)

− New buffer = 3 or 1?

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Seasonality and Display 1

1 2 3 4 5 6 7 8 9 10111213141516171819202122232425262728293031323334353637383940414243444546474849500.0

2.0

4.0

6.0

8.0

10.0

12.0

Quant(Y)

Y

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Seasonality and Display 2

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Promo(Quant(Y))Quant(Y)Quant(Promo(Y))

Min Display

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Fast & Slow Movers

• Example:

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• Difference on speed: order of magnitude between average and fast and slow movers

Fast & Slow Movers

Type Speed (un/day)Fast Runner 2.87Average 0.27Slow Mover 0.10

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Another view

• Curve and tendency

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 16 17 19 20 21 22 23 25 27 280

500

1000

1500

2000

2500

3000

3500

4000

Days between sales

Sa

les

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Actions

• On fast movers− Fast Replenishment (two challenges)

− Specific policies (special treatment): no blockages

− Purchasing (open to buy/budgets)

− Transportation (fast options/air etc.)

− Logistics (processing, picking, etc.)

− Stores (receptions, presentation, etc.)

• On slow movers− Disposal (where, when, how) – is there anything to replace it?

− Replacing (using information from fast movers -> simple “DNA”)

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Conclusion

• Live S&T

• Organization ownership

• Impact of first actions

• Power of mix

• Logistics

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Thank You

• Comments, questions?

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About Humberto

• Husband and father changing the world one person at a time

• Scientist seeking to apply science to people’s endeavors

• Hunter of hidden assumptions

• Teacher, student and colleague of students

• Believer of values over tools

• Partner in crime at Goldratt Schools (and Group)

[email protected]

mailto:[email protected]

mailto:[email protected]