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Demand Fluctuations: Black Friday shows us the dark side of discounting

Posted by on 3:48 pm in Blog | 3 comments

Demand Fluctuations: Black Friday shows us the dark side of discounting

Last week, UK retailers came under attack as herds of angry bargain hunters mobbed stores across the country. As supply shortages and availability issues fuelled rioting in supermarkets across Britain, questions have to be raised as to how prepared businesses were for the impact of the infamous “Black Friday”.

While this annual event has been adopted from America, Black Friday has become one of the most important dates in the British retail calendar. Last Friday alone, British shoppers spent a staggering £810 million. Given that cyber Monday followed just two days later, the UK retail industry saw a £1.4 billion boost over the weekend.

Unprecedented demand results in mayhem

Although Black Friday brought a much needed influx of sales, the discount day did not come without its problems. As shops opened on Friday morning and huge crowds descended upon stores up and down the country.

As shoppers rushed to pick up the best of the bargains, the sudden surge of people caused mayhem. In some stores, the chaos was so severe, the police had to intervene in order to re-gain control. To further exacerbate the issue, some stores quickly ran out of stock of the best selling items, much to the frustration of the angry mobs.

Proactive approach to demand

While UK retailers struggled to keep customers under control, it seems American retailers took a far more proactive approach to Black Friday demand. For example, an employee from the American Retail group, Target, shows how UK businesses should have prepared for Black Friday. Giving a powerful speech before opening the store to Black Friday shoppers, the store assistant spurred his fellow colleagues to prepare for the challenges that lay ahead.

Although this call to action may seem fairly trivial, perhaps if managers further up the supply chain had also identified how the huge peak in demand would impact operations and prepared accordingly, stores could have been better positioned to handle the sudden demand fluctuation.

Considering the carnage of this year’s Black Friday event, what steps will you take to ensure your operations are prepared to meet major demand fluctuations in the future?

Cash Flow Vs Inventory Levels

Posted by on 11:51 am in Blog | 6 comments

Cash Flow Vs Inventory Levels

For many businesses, balancing inventory levels and cash flow can be a real challenge. With a huge amount of uncertainty in both supply and demand, businesses rely on their inventory to absorb challenges in the market place. However, simply keeping large inventories of every item is simply not an option. Considering the financial restraints on cash flow, Businesses have to take a strategic approach to their inventory management.

Meeting demand

Ultimately businesses hold stock in order to satisfy customer needs. Without sufficient levels of stock, customers would simply turn to the nearest competitor. As a result, keeping items in stock is key for competitiveness.

Take for instance the retail industry; this year, merchandise from the film Frozen and Lego products are expected to be the in huge demand. While many purchases at this time of year are likely to be gifts for others, customers are still not likely to be willing to wait for popular items to come back in stock. In the run up to Christmas, many stores will start investing heavily in stocks of these products in order to capitalize on this year’s festive demand.

Financial constraints on cash flow

Although it could be argued that holding large inventories maximises opportunities to make sales, holding large inventories can also come at a huge cost. Firstly, there is the additional cost associated with holding excessive inventories such as the extra transportation fees and warehouse space required. Furthermore, by holding larger inventories, working capital becomes tied up in stock. Given that all inventory is subject to obsolescence, damage or in some cases perishability, there is no guarantee this investment will ever come to fruition.

While products with high demand like Disney’s Frozen branded toys or the latest Lego figurines are unlikely to suffer from this issue, for slower moving products this can be a real strain on cash flow.

Balancing inventory and cash flow

As a result, businesses must review their stock holding in order to find the balance between inventory levels and working capital.  Through aligning inventory levels with customer demand, businesses can satisfy demand and still maintain a healthier cash flow.

photo credit: kenteegardin via photopin cc

Supply chain management: the sad reality of modern day slavery

Posted by on 1:34 pm in Blog | 0 comments

Supply chain management: the sad reality of modern day slavery

Despite being abolished over 150 years ago, it seems slavery not only still exists but is thriving. In the last year alone, a number of businesses have received fierce criticism over claims of wide spread exploitation including accusations of forced and child labour. Given that recent reports suggest that enslavement is rife across modern supply chains, the true extent of the issue is yet to fully emerge.

Modern slavery in today’s supply chain

With an estimated 21 million people forced in to some type of labour, the scale of this issue is difficult to imagine. While the thought of slavery seems archaic in our world of automated processes, intelligent machines and advanced production processes, new research suggests that around 11% of businesses believe that some form of modern slavery exists within their supply chain. Furthermore, given that the supply chains of everyday items including sugar, coffee and chocolate were all listed as having the highest levels of human exploitation, slavery is something that should matter to all of us.

Steps towards a more ethical supply chain

In response to such injustice, organizations across the world have started to take steps to tackle the issue of exploitation in supply chain. For example, the NSPCC and the British Home office have recently joined forces to deliver a hard hitting campaign against slavery. Focusing on all types of enslavement, their collective aim is to educate the British public about the reality of slavery on British shores while directly supporting those affected. In addition, the Chartered Institute of Purchasing & Supply has teamed up with the anti-slavery charity, Walk Free, with a specific objective of eliminating slavery from supply chains.

Although there is no questioning the importance of such organizations in eradicating slavery, some are questioning on whether governments should also be doing more to tackle the issue at hand. For instance, British Prime Minister, David Cameron, recently came under fire after failing to pass through a draft anti-slavery bill which would have legally required all big businesses to declare their suppliers. By making this a legal requirement, big businesses would be more accountable for any exploitation taking place within their supply chain.

Improving supply chain transparency

While some argued this may be seen as a burden on businesses, several organizations have proved the benefit of making their supplier information public. For example, in 2013 H&M became the first retailer to publish a comprehensive list of the factories which produce the products sold in their high street stores. While only a limited number of retailers have followed suit, by taking this bold move H&M have taken a big step forward in preventing exploitation across the supply chain.

Given the extent of the issue, it is impossible to ignore the role slavery plays in modern supply chains. While a number of organizations are helping to resolve the issue by either making the public more aware of the issue at or taking steps to make businesses more accountable, the sad reality is that slavery is all too common. With this in mind, what do you think should be done to help reduce slavery from supply chains?

Photo credit wildrosetn39 via photopin cc

Supply Chain: is it time automotive businesses fine tune their operations?

Posted by on 1:23 pm in Blog | 2 comments

Supply Chain: is it time automotive businesses fine tune their operations?

Over the last few years, the automotive industry has endured a bumpy ride as the double dip recession hit businesses at every level of the automotive supply chain. Although the rest of Europe continues to struggle with slow demand, car production in the UK is booming. As the sector now enters the 29th month of consecutive growth, are automotive supply chains prepared for the challenges that lie ahead?

Demand drives british automotive industry

When the economy in the UK first crashed back in 2008, automotive manufacturers faced unprecedented market conditions as consumer lost confidence and demand slumped. However after surviving a second crash in 2010, it looks as though British manufactures and suppliers are once again back on the right track. With strong demand and increased investment from government and customers alike, British manufactures are right to feel optimistic about the future.

After all, in July alone, a staggering 172,907 new cars were registered onto British roads. Underpinned by cheap finance deals, increased employment levels and increased customer confidence, industry bodies are now forecasting that by the end of the year consumers will have bought around 2.5 million new cars; 8.1% more than in 2013. In addition to growing demand from British consumers, it seems UK manufacturers are also benefiting as a result of demand from overseas: according to Society of Motor Manufactures and Traders (SMMT), exports of new cars increased 3.4% as nearly a million cars were exported between January and August this year.

Supply chain complexities threaten growth

While this growth comes as a welcome relief from the recessionary environment in which manufactures have become accustomed to, increased demand for new cars has also presented UK businesses with a number of new challenges. For example, as highlighted by the emergence of new cars such as Vauxhall’s Adam, MG’s 3 and the latest MINI which allow customers to effectively build a completely personalised car, consumers are demanding greater choice. As a consequence, this surge in product variety places a huge amount of pressure on businesses at every level of the supply chain. Even businesses offering aftermarket spares will be hit by the growing product ranges as owners have to replace parts further down the line.

The complexities do not end there however; as demand extends beyond the current supply chain capacities, businesses now must decide how best to meet the needs of their customers. On one hand, some businesses have been forced to extend delivery times for their cars and as a consequence some customers now have to wait up to 6 months for their new car to arrive. However, given that impatient customers may be unwilling to wait, other companies, such as MINI and their new production plant in Holland, have decided to expand their facilities in order to increase output levels.

While there is no questioning that increasing output capacity will better position MINI to satisfy demand as well as the increased product variety, given the financial cost, this is an extremely risky means of coping with the changing environment. For instance, despite SMMT’s positive forecasts, some economists have questioned how sustainable the current rate of growth is. With nearly three quarters of cars now bought on finance, some are concerned that the recent growth has been the result record low interest rates and that an increase in interest could take the shine of credit deals on new cars and thus could massively reduce demand for new cars.

Given the complexity caused by the growing product diversity and the rapidly growing but somewhat uncertain demand, automotive businesses simply cannot afford to do nothing. While extending delivery times to catch up with demand could leave customers frustrated, developing production facilities instead could leave businesses with underutilized facilities should demand slow. Instead businesses should review their current supply chain practises in order drive up efficiency levels and get more out of their existing infrastructure.

Demand profiling for a more responsive supply chain

In order to capitalize on the recent growth without disappointing customers or making risky investments into production facilities, it is essential that businesses develop a more comprehensive understanding of demand. Once demand has been effectively profiled, businesses can start to plan the supply chain accordingly. By aligning operational requirements with the capabilities of their suppliers, automotive businesses can ensure that all required components needed are available when and as they are required which in turn should prevent bottle necks, supply shortages and ultimately increase overall productivity.

While the UK automotive industry’s recent strong performance has exceeded expectations, given the uncertain environment, businesses across the automotive industry should continue to strive to improve their competitiveness through focusing on getting more from their existing supply chain. Considering some the potential issues which may impact the industry in the near future, what steps has your business taken to meet the current demand?

 

 

E-commerce: Is the battle between bricks and clicks finally over?

Posted by on 2:44 pm in Blog | 5 comments

E-commerce: Is the battle between bricks and clicks finally over?

Retailers suffered a huge drop in sales as we turned away from traditional stores in favour of online outlets. With high streets up and down the country looking increasingly bare, there is no questioning that e-commerce has changed the way we shop. However, will a new trend in consumer purchasing behaviour unite the traditional bricks ‘n’ clicks retail model with a more modern e-commerce alternative?

A new approach to e-commerce

we have witnessed a boom in the number of click and collect operations. This innovative delivery method combines the best aspects of online shopping and retail stores. By allowing customers to make orders online and then pick up their products from retail outlets at their own convenience, retailers have been able to capitalize on consumer’s increased focus on convenience.

According to Retail-week, businesses are completely rethinking their existing business models in order to provide an effective e-commerce service. ASDA, for example, have recently invested heavily in specially designed temperature controlled pods which they hope enable customers to pick up their all their grocery purchases whenever they want. Given that the retailer has already enjoyed a 20% increase in demand for their online grocery division as a result of such developments, there is no denying the potential of this new approach to e-commerce.

This is re-enforced by the fact that even well-established online retailers realize the advantage of having a physical location customers can pick their purchases up from. For instance, while Amazon has traditionally offered customers a range of postal delivery options, the online giant is now trialing a number click and collect pick up points which are expected to be strategically located in tube stations, shopping centres and in Co-operative stores around the country. Given that click and collect points in London’s tube station are already taking over 10,000 orders a month, the rise of these new e-commerce services marks a huge shift in the way retailers do business.

Holistic demand planning

With the rise of such e-commerce services however, retailers have placed huge amount of pressure on their internal supply chain operations. Whereas before click ‘n’ collect, retail stores had to manage just two major distribution channels: physical stores and distribution centres which supported the online operations, the emergence of pick up points has blurred the line between the two.

Instead of developing a separate plan to meet demand from online and store customers, retailers now need to take a more holistic approach to demand planning. After all, when you consider that a customer could potentially have a product delivered directly to their door, sent to a dedicated pick up point or simply straight from the shelf in a retail outlet, supply chain managers undoubtedly have a lot more to think about.

With many of the biggest names in retail investing into click and collect services, it will be interesting to see what impact this has on the industry. Considering the recent interest in this new approach to e-commerce, what potential challenges do you envisage for retailers?

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JIT “Just In Time” Measuring The Impact

Posted by on 11:33 am in Blog | 0 comments

JIT “Just In Time” Measuring The Impact

A smooth flow of stock and semi assembled items just as many as you need, just when you need them. No waste, no hidden inventory costs and reduced issues with obsolescence. JIT (just in time) implemented into a companies supply chain seems to provide a lot of benefits, and in most cases it does.

The internal logistics and accounting departments of many companies have come unstuck with the hidden costs of implementing JIT however, and here is just one example of where the appearance of a low stock level can be mis-leading, and have a high impact on stock cost.

A small company fabricating steel parts through cutting, pressing and CNC machines was looking to expand it’s production base with limited room. It was identified, and probably quite rightly, that stock space could be greatly reduced within the small facility to make way for more plan and machinery. To facilitate this reduction safely, the process of re-arranging delivery terms with raw material suppliers was begun. JIT delivery was required.

The process took a little longer than expected, and it turned out JIT seemed to cost a little more – but that was offset easily, so it seemed, by the potential revenue created by the increased manufacturing space and lower stock levels.
While the new contracts had quite a few new elements, in this case I’ll draw your attention to just one. JIT required that the production for each day be known beforehand, at least 72 hours before. Also, once a delivery slot for raw material was arranged, there would be an increasingly cost of re-arranging. It went up sharply and could be pretty steep if a re-arrangement was required within four hours of the 15 minute delivery slot.

Turning the stock away or re-arranging the delivery could, for instance, accrue costs that amounted to over 20% of the cost of the steel sheet involved.

The assumption was that this would rarely, if ever, happen.

Roll forward 12 months is JIT working?

Theses costs have been re-negotiated more than once since JIT was introduced. The overall cost of JIT is substantially more than the revenue created by the increased production. This small steel fabrication company is, in effect, paying for offsite warehousing by proxy. The proxy often being an 18 wheel lorry parked in a layby a few miles from the delivery point accruing costs for every 30 minutes that pass.

The moral of this (true story? Internal manufacturing control and stock handling systems need to match, and in all likelihood, be better than, the external supply based logistics controls.

A companies internal stock handling needs to be in tip top before highly nuanced supply chain logistics can be bolted on.

Hidden Stock Issues

Posted by on 11:09 am in Blog | 1 comment

Hidden Stock Issues

The question of stock control often, and necessarily begins with the preceding question of, “How much stock do we have at the moment”.

Issues of return on investment, “stock turns” and safety margins for critical items of production or supply should be understood by any company that holds stock.

The one time this is rationalised for many might be the annual and legally required stock take for accounting purposes. The once a year opportunity to get things just right – or is it.

Having arranged many stock takes across several companies ranging from SME’s with less than 10 employees up to international giants, this accepted process of correcting the levels once a year seems well established – and in almost all cases – for stock control purposes, often ineffective.

Stock Issues, what is the problem then?

In short – it is the exception that distorts the rule. These exceptions come in many forms. In some cases sub-assemblies of items are given a blanket value and separate identity code that does not drill down into the component parts. Maybe just about fine if you have a smooth manufacturing process and little work in progress (WIP).

Not so good if you have several thousand square feet of shop floor area permanently covered with what amounts to 30% of your overall inbound stock value tied in to WIP.

While valuing each sub assembly or part finished item does fulfill the legal need for accounting purposes. Not having those items correctly drilled down through the bill of material (BOM) they contain for stock control purposes can lead to some pretty large errors of magnitude.

There are also discrete areas within many businesses where blanket values are put on part finished or finished items for expediency. Returns, obsolete stock (with salvageable high value components), goods in transit, stock in test areas.
A test would be to consider if there are areas within your company where hidden stock mounts up. While I know contingency is often made to value these items for strict legal accounting purposes, is it possible that the stock control itself is an Achilles heel? If so what is the solution?

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