Replenishment, Forecasting and Planning

Planning, Pricing, Purchasing, OH MY!

A few disconnected situations floated by me this week, and of course That Planning Guy has to make the connections. Nothing is truly random. (Old Dilbert joke about an accounting Troll, generating random #’s… he is yelling 7,7,7,7,7,7,7.. Dilbert asks “Is that random? How can we really know?”)

First, someone commented about how strong the demand was for advanced Planning and Assortment tools in the marketplace today. Very true: I have preached for years, it all starts with great planning. Planning drives assortment. Assortment drives replenishment. Replenishment removes stock outages. Throw in good product, of course – and the right product, at the right time, in the right amounts makes money. The consolidation in software makes everything both very specialized and homogenized. Hard to differentiate one great tool from the next, without a DEEP understanding of what the tool brings. Feature-Advantage-Benefit. “How does THAT help me” is the question I often ask.

Next, someone else commented about a price of water on their vacation being MUCH lower than they could have (a large bottle of premium-brand water for $4.50 in Cayman?? That’s just crazy talk. Piled of money laying on the floor.) Clearly whoever determines that price is not listening to the demand signals, and pricing based on a perceived IMU goal. If the water was $4.95, would the guest even NOTICE, let alone care? No, and we all know that is true. But your P&L would certainly notice the 10% profit flow-through boost.

Last, a guest service ‘situation’ came up, and I don’t often get to be involved. A group of College students are coming to town to attend a large Apparel show, as they are in a merchandising-related major. I spoke to the students last year who came, and I had a really good time. This year, they moved from a competitor’s hotel to one of ours and I helped them arrange it. They made some # kids to room changes to be able to afford the new luxury hotel, and I appreciated that they preferred to stay in ‘our house.’ Long story, there was some mix up in the reservations, and they needed an accommodation added to the rooms that was not normally included, and reached out to me to see if I could help. They were literally at the peak of their budget already by staying in a great resort. So I reached out to a partner at the property, and he reached out to one of his partners, and within a day, we had resolved this issue. It cost the company ZERO to solve this problem. What did we gain? This group will now stay here every year, hopefully forever. The rooms and resort are beautiful, so 30 people per year, 10 years, that’s 300 new loyal customers. AND— since College kids, I would assume they are all Social-Media fiends, as my college-age daughter is, so likely have 1000’s of connections. This simple act may have changed the perception of tens of thousands of customers over time.

So where is the correlation? Listening to the customer, and not just superficially. What are they saying, but what are they SAYING. Spend patterns, buy patterns, hotel reviews, restaurant surveys, Yelp, FB and Insta, survey monkey, and simply asking the question – all these tell a story if you are reading it correctly. BIG picture, connect the dots.

And to react to it properly, you need to not just hear it, but understand it, internalize it, draw insights, and react to it – all in near-real time.

Right product+ Right time+ Right amount+ Right price = Right Profits. Any of these fail, and the chain is broken.

#AnalyticsDrivesBusiness.

Aloha Friday, fellow #datanerds

-That Planning Guy

Stock Outages

Good technology +great talent =NO stock outages
Bad tech + great talent = outages
Good tech + low talent = outages
Bad tech + low talent = disaster.

Simple math.
If you have stock outages, which scenario are you in? 2,3 or heading to 4? Stock outages are a last-generation problem. Should be eradicated like polio by this point.

Analytics drives business. ’nuff said.

-That Planning Guy

Order of operations

4+3×4=16. If you think it equals 28, please stop reading now and review order of operations in about 8th grade math. (if you think it equals 11, see an optometrist)

This week we continued our review of new planning systems, and internally had a conversation about what order of operations should look like in planning.

If you change the forward forecast of sales what should be impacted? If sales go up, inventory should follow inversely. OR… Inventory should be stagnant, and receipts increase equally to offset.
What about MD? Md% move, or does % lock and md$ plan move? And.. If MD $ changes than OH forward has to move.
Endless loop? How should this be done?

The answer is yes to all.. Or no. Depends on the item, the goals, the seasonality (in or pre-)
I want the system to match whats in my head.

In Gen Merch (what we call our food, bev, HBA, etc) the receipts have to move lockstep with sales. Todays receipts =tomorrow’s sales, +/- fixture fill and safety stock/lead times. If sales jump 10% receipts must jump as well.

In Fast Fashion? Cant buy it back normally, so I want to decrement the inventory to show future impact. Ultimately the receipts have to compensate, but there is more timing /availability to factor.
Jewelry, high end, watches?
Some of both.

And in Branded goods? Well, hopefully replenishment already caught it, bought it, and trended orders as needed. (see Replenishment 101)

Just need to software companies to match whats in my head and we’ll get along just fine.

-That Planning Guy

Planners are your Radar Detectors

I drive a fast car. No, this is not a Tracy Chapman discussion. Don’t delete just yet! But seriously, Wilma is very fast. I don’t mean like Mustang GT fast, I mean VERY fast. Some have called her a “pretty blue convertible” and you know who you are… but at the heart, she’s a beast with wheels.

Sometimes I tap the gas and find myself a few MPH over the speed limit. It just happens. So, I had a radar detector installed and hard wired on. It is always on and protecting me. It is one of the highest rated, and was NOT a cheap one, one of the higher priced. Buy I researched and selected what I thought to be the best.

Last week, as luck would have it, a small Scion was next to me at a light, and we both kind of stepped on the gas a little bit more aggressively than we probably should have. My radar chirped before we crested a small hill, and I backed off quickly. Just over the hill, the Metro PD motorcycle policeman with the radar gun pinged him, not me, and stopped him and wrote what I can only imagine was a $6-800 ticket. Whew. Nice save.

Companies invest millions in their systems. They buy top of line Planning, BI, optimization tools, and replenishment systems, and invest millions if not tens of millions of dollars in these. Shouldn’t the talent level also be ‘best in breed’ to match? The disparity astounds me. A company will drop $3M on a piece of software, but will not invest nearly enough in the ‘drivers’ of these.

The P&A team are the radar detectors. We warn you of problems you can’t yet see— we can see over the hills and predict you’re about to get hammered by (choose 1 or more options below)

1-    Too much inventory: MD’s are coming if we don’t react soon
2-    Too little inventory: Chasing sales, or even walking them
3-    Too little receipts on order: Will miss future projections
4-    Too much receipts coming: Need to re-merch floor, move through old, cancel orders even.
5-    The trend has changed: We must as well. Change strategy in mid-stream? Ha, that’s Retail 101! You bet!
6-    The trend has accelerated: DRIVE the receipts
7-    Pricing… oh pricing, so near to my heart. Pricing is wrong, here’s how to fix it.

Is your radar detector the best in the industry?? Mine cost several hundred dollars >>> but the ticket would have been twice that. The difference between the discount radar detector and the ‘best’ is less than 1 ticket costs. What the difference between a best in breed Planning team and a ‘decent one’? Far less than the cost of not having one. If you are blindsided by any 1 or more of the above, you should have invested in your P&A team.

I once commented that Planning does not have a crystal ball, but predictive analytics (and Prescriptive even above that) can make it all look magic. In Winter of 2008, was YOUR inventory ready for what came next?

You got a fast car
I want a ticket to anywhere
Maybe we make a deal
Maybe together we can get somewhere- Tracy Chapman

Aloha,

-That Planning Guy

(PS- I didn’t forget, I plan to re-read Sun Tzu on vacation and sure I will have some fun commentary next week… from The Beach)

What do you do?

Recently I was asked to explain what I do to our new ‘HR Partner’ who was meeting everyone in the division to gain an understanding. Seems easy.

I have written many job descriptions, including my own, and re-written many times, as have we all. But what we submit for HR, for job openings, for Monster or LinkedIn postings, is that what we DO?

Planning is the forward-looking financial arm of Buying. We look at historical info, re-seasonalize, smooth out anomalies, and project (and re-project) We work in season, pre- season, and post season, all at the same time. We determine the best course of action to flow inventory- when (timing), how much, method (DSD, Whse, drop ship)
Planning uses analytics, planning sometimes creates the analytics.
Planning interfaces with DC, Stores, managment, buying, leadership, and each other.
We determine markdown plans, exit strategy, replenishment and allocation algorithms.
And now we drive pricing decisions using elasticity and demand signals.

But what do we do? A course I once took said you should be able to boil your job description down to a few words, fewer the better:

Planning: We give data-driven advice.

-That Planning Guy

What’s YOUR Excuse???

This morning at the gym, while I was doing elliptical as I often do, there was a lady on the rowing machine. She had a prosthetic leg, so she was rowing with 1 leg in the strap/slide thing, and the other on the floor. I would guess she was 30-ish, though my women-age-guessing is truly awful, so likely between 25 and 45. She was very fit, workout gear, looked pretty hardcore. But what stuck me is that she likely could not do other machines, running, elliptical, stair master, etc as they are so leg-centric. So she was rowing.
Now, I didn’t talk to her, don’t know anything about her, don’t know her story or even her name. Just seeing her on a workout machine for about 40 minutes put the thought in my head about what excuses we all use every day for whatever we can not do, achieve, accomplish.
(If you are reading this expecting inspiring things, please don’t confuse me for Ghandi- I am taller. You should go read Nelson Mandela, MLK, The Dali Lama, not That Planning Guy. I am just a guy with an opinion)
The Merch Planning system we use does not suit what we need. Yeah, I said it. We stopped using it, and have gone offline into Excel sheets of varying difficulty and complexity. Some are simple 5-line OTB (BOP-Sales-MD+Rec=EOP) Some are incredibly complex using formulas that combine a ISERROR() with IF() with GetPIvot”” – and external references, and of course build in a forward-forecast engine that re-projects and re-trends.
I would rather we had a system that did this for us, and all levels & sheets rolled up, allocate down, forward forecast, re-project, auto calc, and we could plan at Div/Dept/Class/Vendor/Location/Region interchangeably and all at once. But we don’t have it, so should we do a bad job of giving the actionable data to the users? (in this case, Buyers/DMM)
Not having a tool is not a reason to not do a job. The 19th century Pioneers built houses from trees without a Makita cordless drill/driver, or without a Sawzall. Not even a Poulan chainsaw! Couldn’t even swing by the Home Depot for a box of nails. (you can do it! We can help! Not so much in 1850) Was it hard? I would assume so. But option 2 of living outdoors was pretty bad as well. Rain, cold, and a chance of being eaten by bears would make me build fast.

We (my company) are actively seeking out and doing due diligence for several planning systems. JustEnough, ANT, TXT, Logility-we will research and review them, and one will be implemented this year (I hope)
Can we make excuses why we cant do? Sure. And no one would really question it much. We could say “We’ll do after we get tools” and that would likely fly.
I bet the lady at the gym could not work out and no one would lose respect- After all, it has to be difficult to do. Wouldn’t blame someone for not working out at 6:30 AM, least of all a lady with a prosthetic leg.

“I never saw a wild thing sorry for itself. A small bird will drop frozen dead from a bough without ever having felt sorry for itself.” -D.H.Lawrence

So whats your excuse why you cant get something done? Too busy? Too Tired? Too short of a deadline? Not enough tools? Sorry, I am throwing the BS flag on that one.

Not sure which quote to end with- Nike Just DO IT? I prefer Larry the Cable Guy- GET ER DONE.

After you achieve what cant be done, then you can go back and complain about it.

-THAT Planning Guy

PS- The pioneers probably didn’t whine about stress or workloads either. Can you imagine? Sitting around with the other Pioneer guys, all in flannel, cold, windy, eating jerked meat. “Oh I am so stressed about the harvest, I just don’t know how I will ever harvest all the crops in order to feed my family. Its just too much work” Huh?

Demand Forecasting and Weight Loss

Asked: “Can you project jacket orders for this fall/winter”? SURE, says That Planning Guy. Innocuous enough request, right? We all know from Replenishment 101 (click here) that Need = Demand () – OH – OO. We have no on order, as we are well in pre-season. We do have carryover product, so we just need to know demand, right? We have years of history, myriads of like-items, plenty of data points to draw conclusions from. OK, #datanerds: GO!

Slight detour in the story, but I swear it will come back around…I am actively working on losing weight. Trying to be ‘That Skinny Planning Guy’, yeah right. I go to the gym every day, I monitor what I eat fanatically, and I understand the very simple math of calories in – calories out = calories deficit; 3500 calorie deficit= 1 lb lost fat! WOO! Easy! Simply burn more than you consume, and every 3500 deficit, the scale rewards you. What can be easier? So— if I eat 2000 calories and burn 3000 calories every day, I should lose 1 pound every 3.5 days, or 2 lbs a week. Just like clockwork. Right?
First, let’s validate the dataset. Calories in. For lunch I had a sandwich which said 400 calories on the label, and a salad which I estimated about 300. But is 700 EXACT???? Not even close. The 400 calorie sandwich had no mayo . I took the cheese off. I added mustard. I am not weighing a salad. I have no idea exactly to the gram how much dressing. So 700 is an estimate- at best. My apple has 80 calories. Do I have to eat all of it? Core and all? I am not a horse! What if it’s a really big apple??? The right side, calories out, is even more vague. I went to the gym. Regular readers won’t be surprised that I have a heart rate monitor and an app on the phone that tracks calories EXACTLY (#gymnerd) with an EKG accurate HR monitor, age, weight, height, sex = calories burned. Precise? I doubt it. My resting (basal) metabolism burns 100 calories an hour- so says an article on Wikipedia, so that has to be right. At the gym I burned 500 calories in the hour. HARD work. Is that incremental? Or inclusive? And if incremental, is the 100/hour even close or just a big estimate again based on age, weight height, etc.
The point of all this is that none of this is an exact science. But over an extended period of time, the math should be CLOSE. Will I lose EXACTLY 2 pounds this week? Doubt it. Will I lose 20 over 10 weeks if I keep this up diligently? VERY likely. Time makes fluctuations over a curve smoother.

What does that have to do with a jacket projection? Short term precision is nearly impossible, but being right over the time period is what matters most.
We need to have jackets on the floor when it gets colder. It’s March now, so predicting when the weather in Vegas will get cooler is easy. Should occur sometime between late August and ‘it won’t get cold at all this year’. We had a 45 degree swing in daily high this week! If I could predict the weather with precision, you’d be reading ‘That Clairvoyant Guy’ website right now. All I can tell is that it’s going to get hot, soon.

Factor #2- predict the weather for WHERE? We sell a good amount of jackets in February and March because it is cold where people are from, not necessarily here. It is still snowing on some of you right now. In Vegas, our customer base is truly the entire world- so predict the weather globally.

Factor #3- internal weather. When it’s cold out or hot out, inside your glorious resort is perfectly comfortable. People can come for a visit at several wonderful resorts and really never go outside at all. Wake up to room service breakfast. Go work out at gym. Have a Spa treatment, massage. Go have lunch. Take in a little afternoon shopping, an afternoon nap. Have an early supper and see an award-winning show. Then do a little gaming after the show before heading to bed. All that without ever leaving the building. That’s a pretty perfect Vegas day! But, If 74 degrees is a little chilly for your tastes, you may need a sweater or a light coat- even though its July and 117 out.

Factor #4: Sizing. Last year, we sold jackets in a perfect 1-2-2-2-1 bell curve, S-2XL. But is that because that’s what we had on the floor? If we had no mediums, that effects sales of L. So what we bought = what we sold. Should we look at size sales for the first few weeks of selling? But was that indicative of the full season? Maybe we should follow S/O rate by style/color/size and of course by location, as the demographics in each location are so widely different.

Simple request, once you factor in global weather, internal thermostat strategy by resort, consumer demand, and the actual size of the potential customers. And we didn’t even talk about color.

None of this is an exact science, but if we factor in all the ‘knowns’ and make educated, data-driven assumptions on the unknowns, time will smooth out the curve, and we will sell a lot of jackets.

-THAT Planning Guy

Replenishment 101

Do we over-think replenishment? It’s really a simple formula to keep in stock.

Need = (weekly demand X (weeks to cover + lead time) + safety stock) – OH-On Order

Where OH is current position, on order is stock that will arrive in the demand period. (less than the lead time of next order, I assume. If not, the prior order already left us in a bad position)

Is it the ‘demand’ that trips us up? The ‘Art’ or the science? If you sell 10 a week now, will you sell 13 in the future? Or 8? Which is better, too little stock or too much? So many questions to this simple piece of the equation. And there are lots of factors. And lead time is all to often ignored or under calculated. Lead time is not the “vendor says 4 weeks”; it is how long from the point of PO writing to store shelf.

Safety stock? That’s your insurance against miscalculation or ROS changes.

Lets do some math!

I have 1000 units currently in inventory, and I sell 200/week, and have 500 already on order (again, due in time), and a 6 week lead time. I would like to cover sales for next 12 weeks… my math is:

Demand = (200x(12+6)), 3600 Units.

Need = 3600-1500. Order 2100 to cover. OH of 1000 will last 5 weeks. On order of 500 is 2.5 more weeks. So on week 6 when the new order is due, position is still 300, so 1.5 WOS, a little close.

My feel is safety stock should be demand X 1/2 lead time, but only on initial replenishment order. Factoring this in, the above order would go to 2700.

Going forward, assuming no change to ROS, all future orders = # weeks in replenishment cycle X demand, in perpetuity. Run replenishment every 4 weeks? Order = 4 X 200, order 800. That has a carry of below table:

table1

Owning 11-14 Weeks on hand for an item with a 6 week true lead time is about as close as I want to be, with 4 more weeks always on order. That should cover any minor supply-chain issues.

Simple? So why do so many retailers struggle with this? Which variable are we getting wrong, lead time or demand?

Lets make stock outs a thing of the past.

– THAT Planning Guy