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February 18, 2008

Consumers or Customers?

Forget that you work in supply chain management. Instead, focus on your "shopping self" - the person that you are when you're out to buy groceries, clothes, electronics... whatever.

Before making your decision about where to shop, suppose you found out that Retailer A internally refers to you as a "consumer", while Retailer B calls you a "customer". Knowing nothing else about either of these companies, have you already formed an opinion about where you'd prefer to shop?

As supply chain folks, we all too often throw around the word "consumer" when talking about the final demand pull at the cash register, as if people were merely variables in a supply/demand equation or neatly summarized in a section of a pie graph.

I'm not one to judge others, here. If referring to customers as "consumers" was a crime, I'd be on America's Most Wanted by now. And yet we on the supply chain side of the retail business wonder why we always seem to be taking a back seat to the marketing department.

Maybe we deserve it.

As for me, I'm swearing off the word "consumer" cold turkey.

February 16, 2008

Lost in Translation

The intended meaning of this advertisement is: “Find something new and be pleasantly surprised.”

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It’s interesting how a small mistranslation can drastically change the intended meaning of a word or phrase. While the result can often be humourous, that’s not always the case.

In 2005, a news report came out of China stating that they were going to put an end to pegging the renminbi (China’s domestic currency) against the U.S. dollar and instead allow it to float. This was a long awaited announcement that completely shocked the global currency markets sparking massive trades out of the U.S. dollar into Asian currencies.

Well, it turned out that this report was completely false. Apparently, the finance staff writers for The People’s Daily (China’s Communist party newspaper) had all taken the day off. So they left a novice writer in charge of filling in the white space for that day’s financial column. Not being a full time finance writer, she decided to comb through some recently published reports and analysis and cobble something together from that.

Her sources of information discussed, among other things, what might theoretically happen if the renminbi were allowed to float - and this is what she wrote in her column.

So what went wrong?

When the report was posted in English on the People’s Daily website, a minor mistranslation made it look as though the government had decided to revalue the currency and end pegging against the greenback. This being the information age, the news was picked up and zapped around the world in an instant. Without verifying the information, U.S. currency traders went into a selling frenzy. When the dust cleared, millions of dollars were lost – and all because of a mistranslation of an innocuous news article.

When you think about it, the same thing happens on a daily basis throughout the extended retail supply chain. We get so wrapped up in sharing information as quickly as possible that we sometimes forget to ask ourselves whether the information is useful and actionable to those whom we send it.

One example of this is the sharing of POS information between retailers and manufacturers. While it’s nice for the marketing departments to know how well products are being received by consumers, that’s pretty much all you get out of POS information.

Through various fairly recent initiatives, trading partners have tried to use aggregate POS and inventory data to try to plan the rest of the supply chain. The problem is that product flows from particular manufacturing plants through particular DCs and into particular stores. Each of these nodes has its own unique demand and supply characteristics.

By trying to solve such a problem in aggregate, you are left with a very poor translation of demand throughout the extended supply chain, achieved at a very high cost.

Flowcasting serves as a "universal translator", taking forecasts of true consumer demand at the point of consumption and automatically generating projections of inventory, shipping and resource needs all the way back to the manufacturing plant - in the language understood by each upstream supply chain partner.

February 01, 2008

Low Hanging Fruit

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Quick wins... Bang for the buck... Low hanging fruit... Whatever you call it, many business people have been conditioned to use a somewhat short-sighted approach for making change in their organizations.

It’s a natural human characteristic - we want the bottom-line benefits, but we also want to get them with minimal effort and risk. The problem with this approach is that you can often be sacrificing larger long term gains by taking a small immediate payout.

If you’re hungry right now and a single apple will suffice, then it’s okay to pick one from the bottom of the tree. But what if you’re counting on that tree to feed you for the entire season? Is continually picking the low hanging fruit a sensible and sustainable strategy?

According to Albert Pell of Pell's Citrus & Nursery in Osteen, Florida, "An inexperienced picker would pick the low hanging fruit first," Pell says. "But an experienced picker would know to start at the top."

The reason: starting low makes the picker's job harder, not easier. "If you're experienced, you rest the bag - which is around your neck and shoulders - on the ladder. You fill it as you go down, so it's full when you get to the bottom."

Even worse, picking the low hanging fruit first would mean taking underripe fruit and leaving ready-to-eat fruit on the tree. "The lower fruit would need to be picked last to give it more time to develop," says Eric Curry, a plant physiologist at the U.S. Department of Agriculture's Tree Fruit Research Laboratory in Wenatchee, Washington.

Joe Grant, a farm adviser at the University of California Cooperative Extension in Stockton, which offers research results and hands-on advice to California fruit growers, agrees. "When growers send pickers to the field, they don't advise them to pick the low-hanging fruit first," Grant says. "They tell them to pick what's ready to pick. And the first fruit to ripen is what's high up and well exposed to the sun."

In the realm of supply chain planning, most people find the instant gratification of low hanging fruit irresistible. But are you sure you’re not creating problems for yourself down the road?

To ensure that you’re maximizing your harvest from the long haul, you should take a lesson from the orchard operators – start at the top of the tree.

This means having the entire business process well thought out and documented - every step from the point of consumption, right back to the point of manufacture. Remember: the ultimate consumer bears all of the costs of the supply chain. The fact that most retail supply chains cut across several organizations can often make it easy to miss the forest through the trees.

For example, less frequent deliveries to stores may result in transportation savings, but how much more inventory will be carried at store level? How many sales will be lost as a result of stock outs? How much extra spoilage will result?

Should you abandon the "quick win" in all it's forms? No. But these short term opportunities need to be evaluated against the entire process for getting product into the customers’ hands. Otherwise, what may look like a great shortcut could turn out to be a serious long-term drain on your bottom line.

A well documented process map is a “living document” that can help you evaluate and communicate process change. Having helped numerous clients through this exercise, I can tell you that documenting your processes is very much like replacing your shag carpet with new Italian tile: It’s a lot of work – some of it fun and some not – but the result makes the whole thing worthwhile.

In the meantime, when someone suggests that picking the low hanging fruit is always the best strategy, you can at least tell them the truth about fruit farming!