KNOWLEDGE LIBRARY

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12Jun

Unit Fill Rate (UFR)

The unit fill rate (UFR) for an item is the portion of the total number of units...

27Jun

Warehouse Occupancy Percentage

Optimal storage utilization helps enforce healthy inventory management. In our early work with Honda their...

02Jun

Efficient Procurement Inventory

Efficient procurement inventory (EPI) is often required to realize steep discounts when a special opportunity...

26Jun

Inventory Activity Profiling & Data Mining

Suppose you were sick and went to the doctor for a diagnosis and prescription.  When...

27Jun

Inventory Performance Measures

Inventory performance measures include financial, productivity , quality, and response time indicators for evaluating the efficiency and...

High Cost of One Size Fits All Service

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.

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