Solving the Out-Of-Stock Problem: A GMA/FMI Trading Partner Report
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1 Solving the Out-Of-Stock Problem: A GMA/FMI Trading Partner Report
2 OSA Team Charter Approach Whitepaper 8% out-of-stocks 3-strikes-and-you re out! How can we achieve 98%+ OSA? Charter, survey and recommendations are outlined in the whitepaper We welcome collaboration with industry and cross-functional teams Join our sessions in this conference to review results from joint pilots and discuss OSA approaches in the Jazz session
3 Passion & Industry Collaboration 2015 Team Journey Retailers Delhaize: Brian Wiles HEB: Ron Ozment Meijer: Brian Sikkema Rite Aid: Paul Hanko Wegmans: Dave Texter Manufacturers & Distributors Clorox: Lisa Malvea KeHE:Jeff Branecki McCormick : Waddell Daniels Mondelez: Eric Kim Nestle: Tom Gagnon P&G: Lois Fruhwirth Service Providers Genco : Gene Bodenheimer GS1 US: Ryan Richard Inmar: Steve Dollase JDA: Danny Halim GMA/FMI: Daniel Triot OSA Survey & Industry Actions Insights Whitepaper Consensus & Theory Transparency and alignment GBB Framework Action orientation 77 responses from suppliers & retailers Identified critical gaps Good-Better-Best Definitions and Recommendations Future considerations Collaborative Pilots Ishikawa Root Cause Chart Phase IV Definitions
4 On-Shelf Availability Pillars Our Scope and Recommendations Within the supply chain circle of control and influence Sales & Merchandising Retail and Store Ops Supply Chain We welcome collaboration with industry and crossfunctional teams Process/Practice Gap: event synchronization & timing Remove event lock date Collaborate early and through event execution Joint contingency (highlow) Good Based on zero onhand (item-store) Organization Gap: clear ownership on forecast and inventory Joint business planning leveraging OSA data & metrics Remove silos, work to common language Align rewards and incentives Better Lost Sales Min Presentation Qty Framework Best DC-to-Store Fcst Movements Promoted vs. Non- Promoted Metrics/Data Gap: data & integration automation Use one demand signal throughout the value chain Reduce bullwhip effects Better use of data to quickly determine root cause and respond to OOS Future Proactive Alert Shopper Availability at Moment of Truth Download the whitepaper:
5 Collaborative Planning with One Demand Signal by Tom Gagnon Nestle USA Brian Wiles Delhaize America
6 Pilot Charter BUSINESS ISSUE: Many forecasts are done by both Retailer and Manufacturer in support of a major promotional event, and very few of these forecasts are connected to the same demand signal. There is event Lock Dates, for Manufacturers that require more lead time than most Retailers are willing/ able to give. This lead time gap results in both Retailer and Vendor to rely on their own independent demand plans for the event, and when things don t go as planned there is no clear ownership and accountability to the events success or failure. To address this business issue Delhaize America and Nestle USA are willing to pilot Collaborative Planning using the Same Demand Signal in Support of year end activity, and January 2016 Frozen promotional events: BENEFITS: Process improvements will optimize Sales event with an increase in forecast accuracy, reduction in excess inventory, and improved on shelf availability position, which will result in increased Sales and Customer Satisfaction. DELIVERABLES: Determine the one forecast to use for both Retailer and Supplier Define the lag periods to facilitate effective collaboration Develop joint contingency plans for both high and low side projections Perform post-event analysis between forecast and planned orders
7 Macro Factors Impacting Pilot Headwinds Product Supply Issues New Players on Both Sides Category Push Back Conflicting Yearend Goals Frozen WH Capacity Favorable Ad Dates Positive Growth Trends Leadership Support Collaborative Partnership No Outside Storage Tailwinds
8 Advance Forecast Milestones (Dec 6 th 2015 Jan 9 th 2016) Oct 30 th 2015 Aligned on Item Forecast (One Forecast) Nov/ Dec Week Item Forecast (DA Forecast LAG) Nov 6 th 2015 PO s Written (Nestle VMI) 8
9 Forecast Accuracy Metrics (Dec 2015) 89% Meals Forecast Accuracy Highest Accuracy Rate (Past 24 Months) 79% December Last Year 72% 2015 Average No Promotional Event Changes 68% Handheld Forecast Accuracy 68% December Last Year 64% 2015 Average Promotional Event Changes (< 2 Week Notice)
10 DA Metrics For Promotion 1 st week of January 10 Weeks Out 3 Weeks Out Forecast % 67% 77% Bias -11% +14% DC Out of Stocks 18 Items had OOS 4 Items Contributed to 75% of the Total Retail In-Stock Perpetual Inventory
11 Learnings Learnings and Insights Having all parties involved and aligned on providing all pertinent information timely is required. When changes to the plan occur it is imperative that the parties involved connect to clearly understand the impact to the forecast (had several examples during pilot) Forecasting further in advance is straight forward when all the pertinent is available Determining order quantities for Purchase Orders is more complex due to factor in on hand/ on order variables. Recommendations for Improvement Education of Category Leadership on: The potential increase shelf availability and COG s benefits of longer lead times for vendors for promotional events. On the risks and costs associated with changing promotional plans on short notice. Need to find the sweet spot between being flexible to meet consumer needs and operational execution. Develop a process to provide a directional forecast out 8 weeks as well as refined forecast 3 weeks out.
12 Industry Got to Start Somewhere Pilot Concept Learn and Re-apply to More Customers Use one demand signal to drive One Supply Chain Collaboration to better align timing of event forecast plans, inputs & commitments Joint high-side and low-side contingency plans Better Forecast/ Better Planning/ Better OSA Results (Sales and Customer Satisfaction) Call to Action DA & Nestle Build Upon New Baseline and Participate Again Next Year Learn and Re-apply to More Events Learn and Re-apply to More Customers Leverage the Upstream and Downstream Learnings Continue to Share Learnings/ Wins with Industry to Help Advance OSA
13 OSA Best Practice Sharing by Steve Dollase inmar
14 Root Causes for Out of Stock 14 14
15 Out of Stock due to Ordering and Forecasting 15
16 Best Practices for Ordering and Forecasting ROOT CAUSE AREA ISSUE DESCRIPTION SOLUTIONS/BEST PRACTICES OWNERS Ordering and Distribution Forecasting Ordering Distribution Receiving Demand Forecasting Accuracy Timing Evaluate CAO processes do you have a CAO/CGO process and system in place; how and why will overrides be used; and what is the impact on actual orders and OSA? Consider running a pilot study in a few stores covering a selected category and set of products to work out details and evaluate the impact of changes. Enhance PI accuracy/timing sync and ensure discontinued items are not ordered on CAO/available for CAO ordering Follow CAO recommendation for safety stocks level Don t hide product Use RFID to track cases and pallets Adjust delivery cycle to meet most stressed items Monitor delivery frequency and timing Improve methods of sorting (off the truck). Triage sorting into immediate OOS, direct to shelf, direct to backroom. RFID can enhance sorting triage Store Operations, Buyers, Replenishment, Merchandising, Shelf Management, Consumer Insights, Pricing, Distribution and Transportation, Manufacturers, IT, Service Providers Store Operations, Buyers, Replenishment, Merchandising, Marketing, Pricing, Shelf Management, Consumer Insights, Distribution and Transportation, Manufacturers, IT Store Operations, Buyers, Replenishment, Merchandising, Marketing, Pricing, Shelf Management, Consumer Insights, Distribution and Transportation, Manufacturers, IT, Service Providers Store Operations, Buyers, Replenishment, Merchandising, Marketing, Pricing, Shelf Management, Consumer Insights, Pricing, Distribution and Transportation, Manufacturers, IT, Service Providers Store Operations, Buyers, Replenishment, Merchandising, Shelf Management, Distribution and Transportation, Manufacturers Improve backroom sorting and backroom to shelf processes Sorting Store Operations, Buyers, Replenishment, Merchandising, Marketing, Pricing, Shelf Notification of OOS Management, Distribution and Transportation, Manufacturers, IT Shelf tags Store Operations, Buyers, Replenishment, Merchandising, Shelf Management, Manufacturers, Joint business planning discipline with POS data IT Use POS data as one demand signal to drive all forecasts (never forecast what you can calculate) - eliminate bullwhip effects and errors, integrate technology and leverage consumer insights for Store Operations, Buyers, Replenishment, Shelf Management, Merchandising, Consumer better forecasting. Consider initiating a joint high side contingency Insights, Manufacturers, IT, Service Providers planning process as a first step in breaking down the silos and begin working from a single, shared forecast Add back measure of lost sales Due to OOS in the estimate Store Operations, Buyers, Replenishment, Shelf Management, Merchandising, Consumer Due to poor execution Insights, Manufacturers, IT, Service Providers Due to Data Synch errors Real time notification of OOS so cycle is not missed (should be Store Operations few instances due to constant demand nature) Make demand forecasting a range rather than a number and Store Operations, Buyers, Replenishment, Merchandising, Consumer Insights, Manufacturers develop joint high-side and low-side contingency plans to reduce Align rewards and incentives to the OSA strategies. This should be Store Operations, Buyers, Replenishment, Merchandising, Shelf Management, Manufacturers extended to trading partner incentives as the program matures. Technology must be integrated across departments and functions internally, and must be integrated to trading partners technology - Store Operations, Buyers, Replenishment, Shelf Management, Merchandising, Consumer from raw materials to the shelf is all one integrated process, and Insights, Manufacturers, IT, Service Providers the technology that supports this process must function as one. Continuing on the Good-Better-Best theme, there is no need to attempt this all at once. Start by integrating internal systems so there is visibility to store-level inventory and sales across the enterprise. Use store-level POS data as the driver for forecasting demand. Integrate this demand data, along with seasonality, new Store Operations, Buyers, Replenishment, Shelf Management, Merchandising, Consumer product introductions and promotions, into replenishment planning. Insights, Manufacturers, IT, Service Providers Integrate replenishment plans with Distribution and Transportation and store inventory distribution and execution plans so that you realize the benefits of your efforts. As internal systems are being integrated, work with trading partners to integrate inter-company processes and systems. The goal should be to have a single POS-driven forecast driving all production, materials, distribution and replenishment calculations. The concept is to never forecast what you can calculate so you eliminate forecast error and the bullwhip effect. This will be the basis of the One Supply Chain model, the ultimate solution for OSA going forward. Make demand forecasting a process rather than a date Collaborate early and continue to adjust through execution Store Operations, Buyers, Replenishment, Shelf Management, Merchandising, Consumer Insights, Manufacturers, IT, Service Providers Store Operations, Buyers, Replenishment, Merchandising, Shelf Management, Manufacturers Store Operations, Buyers, Replenishment, Merchandising, Shelf Management, Manufacturers Remove event lock date Store Operations, Buyers, Replenishment, Merchandising, Shelf Management, Manufacturers
17 CALL TO ACTION: TEAM NEXT STEPS: Recommendations to Advance OSA 1. Adopt OSA Zero On Hand baseline Your stores Your brands at shelf 2. Commit to OSA wins with rigor on working and not working in your organization 3. Create two collaboration pilots towards One Supply Chain goal and jointly improve event forecasting and resolve out-ofstocks root causes 1. Step up communication and education: Practical examples & industry feedback Technology landscape Educational tools 2. Develop CEO-level OSA Passion to adopt the OSA charter and commit crossfunctional initiatives 3. Explore industry-specific applications (e.g. fresh, omnichannel)
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