I happened to be at Land’s End on Bonus Day. So I remember them asking me: “So today is Bonus Day. We are announcing all the bonuses to the employees. Do you want to come to the meeting?” I said, “I’d love to come to the meeting.” They had a gymnasium. So we went into the gym. There was a band, you know. They had lots of confetti and balloons and all of that stuff. And the CEO got up to speak. And he said, “well, I’ve got some good news.” He said, “for the first quarter ever, we made our fill rate target.” That number was 88%. Band strikes up. Balloons drop. You know, confetti drops. And then he said, “unfortunately, I have some bad news. There is no bonus to report this quarter. Because there is no profit.” Now, why do you think there was no bonus or profit? Those two things are linked together. It cost them too much to get to the fill rate goal. So afterwards I had a meeting with the head of inventory planning. And I said, “I have a suspicion why we just experienced what we just experienced.” I said, “but let me ask you a question.” I said, “that 88% fill rate goal. How do you deal with that?” He said, “we just set that as the target for every item.” I said, “okay, well let’s take a medium, white, turtleneck shirt. If you call Land’s End and they don’t have a medium, white, turtleneck shirt, what are you gonna do?” I mean that is like the staple of staples. That is like, in fact we had this happen to us one day. We were driving to the beach down at Destin, Florida. You know, you’ve got to go through Alabama. We stopped at some small town in Alabama at Kentucky Fried Chicken to have lunch. And they didn’t have chicken. What do you say? That’s amazing. They don’t even have chicken at Kentucky Fried Chicken. They don’t have a medium, white turtleneck shirt at Land’s End. I mean , that’s like, how can that be? Eighty-eight percent ain’t gonna cut it. I mean that’s the next click to L.L. Bean so fast it would make your head spin. But now, they have these things, paisley dog beds. Okay, I don’t know why I remember this, but they had paisley dog beds. And I said, “you mean you have an 88% fill rate target for paisley dog beds?” Oh yeah, it is 88% for everything. The first thing I thought is that you shouldn’t even have paisley dog beds. And people calling to order paisley dog beds probably shouldn’t even be calling to order them. I said, “what is the forecast error on paisley dog beds?” They said, “it is so high we can’t even calculate it.” Well they had like 30,000 SKUs. You set 88% for the target on those with that high a demand variability – you’re not gonna have profit to report. That is why this segmentation is such a big deal. In a little while we will get into the analytics of how you come up with that. But those numbers should be different. The overall service to the customer will actually be higher if you do the segmentation part.
The unit fill rate (UFR) for an item is the portion of the total number of units...
Optimal storage utilization helps enforce healthy inventory management. In our early work with Honda their...
Efficient procurement inventory (EPI) is often required to realize steep discounts when a special opportunity...
Suppose you were sick and went to the doctor for a diagnosis and prescription. When...
Inventory performance measures include financial, productivity , quality, and response time indicators for evaluating the efficiency and...
High Cost of One Size Fits All Service
We frequently find it helpful to identify and rank order root and systemic causes of excess inventory. An example completed for a large HVAC client is depicted below. In this case the root causes in
The RightStock™ model also distinguishes between value added inventory (VAI) and excess, non-value added inventory (NVAI). Value added inventory is the sum of safety stock, lot size, and pipeline inventory. Those three types of inventory
Hedge inventory (HI) mitigates risks of potential sharp price increases, shortages in critical commodities, and extreme price and availability volatility for those same items. Fuel is a classic example of a commodity whose inventory may
Contingency and disaster inventory (CDI) insures against unexpected situations outside the realm of those covered by traditional safety stock inventory. Those situations include natural disasters, labor strikes, and other abnormal supply chain disruptions. For example,
The shortage factor is the % of an item's unit selling price (USP) that is lost in the event of a stockout and subsequent lost sale. It is used to compute the lost sales cost. For example, if the
Setup cost (SUC) is the cost to setup (prepare or changeover) a machine or production line to make a production run for a particular item or change between items. It is sometimes referred to as changeover cost (COC).
The purchase order cost (POC) is the cost of placing a purchase order from a vendor. The majority of those costs are related to sourcing, purchasing, and procurement salaries and benefits (italics) and include: Purchase
As a part of the National Science Foundation’s Japan Technology Evaluation Center I had the unique privilege to lead a major study for the U.S. government comparing U.S. and Japanese logistics systems. During the study
There are two conceptual models for inventory management – push and pull. The push inventory model is so called because the emphasis is on "pushing" speculative inventory, made-to-forecast (MTF) in response to forecasted demand, out
Order status communication should be proactive when there is an exception to the order contents, timing, or terms agreed upon at order entry. Order status information should be updated in real-time and should be available