- Roy Strauss
Supply Chain Profitability – Key Data for Supply Chain Proficiency part 2
Part 1 concentrated on key data regarding Business Growth. Part 2 will concentrate on key data regarding Inventory and Business Operations.
When we plan future operations, key data is essential to obtain desired results. For supply chain purposes the data will allow us to:
1. Know which product groups/products sales volume are growing faster and those which are slowing down.
1.1. This will prevent over buying and help ensure that we do not run out of the next “hot items”
1.2. It will allow us to continually place product in warehouse areas or zones commensurate with shipping volume, so items shipped most often will always be stored closest to the dock to improve speed and reduce labor costs while slower moving items are stored further away
2. Determine correct product inventory levels and their effect on the operation. Excess inventory (whether items that do not sell or over stock of those that do) occupies more space which results in longer travel distances; more staff to traverse the increased space; and more equipment to accommodate the larger staff and/or traverse longer distances.
2.1. By knowing which inventory is obsolete and/or is in excess and removing it we can improve speed throughout and therefore customer service, while drastically cutting costs for inventory, space, equipment, and labor.
3. By sorting our inventory by how often each item is shipped and other properties such as its cubic dimensions and weight, we can understand which type and size picking module is required for each product for maximum order picking efficiency and, the size of each storage module for optimal use of available space, and ideal picking sequences to build good pallets and loads.
When analyzing and planning business operations a key tool is the Pareto principle (also known as the 80–20 rule) which states that for many events, roughly 80% of the effects come from 20% of the causes. This is also often referred to as “ABC analysis” as applied, to your business, in general terms:
1. Regarding product sold: Typically, A movers are 20% of your items resulting in 80% of your sales volume; B movers are typically the next 30% of your items resulting in 15% of your sales volume and C movers are 50% of your items resulting in 5% of your sales volume
2. The ratios can also be applied to sales dollars to determine A,B, and C customers and many other forms of analysis
By sorting the relevant data in a spread sheet in descending volume sequence and labeling the data breaks A, B and C we can understand what is happening to our business. If we run the data for successive time periods, e.g.: monthly and sort in descending volume we can easily see which products or customers, etc. have switched from A to B, B to A etc. and become aware of trends which will affect our planning and execution.
It is important to understand that the same data will be used and interpreted differently for different business functions so regarding product movement:
1. The sales department will want to monitor product movement by sales currency (Dollar, Yuan, Yen, Euros, etc.)
2. The inventory department will want to monitor product movement by how many units of the product were sold
3. The warehousing department will want to monitor product movement by how frequently the product is shipped
By collecting key data and using simple spread sheet analysis we can understand trends, plan more effectively, and increase Supply Chain proficiency resulting in increased profitability.