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Profitability, Longevity and Growth. Profitability, Longevity and Growth. Grant Howard Grant W. Howard Company. Grant Howard: Expert on Inventory Management, System Utilization and “Getting Results” Works with Multiple Distributors, Associations and Software Houses

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profitability longevity and growth1
Profitability, Longevity and Growth

Grant Howard

Grant W. Howard Company

2

slide3
Grant Howard:
  • Expert on Inventory Management, System Utilization and “Getting Results”
  • Works with Multiple Distributors, Associations and Software Houses
  • Conceptual Designer Behind Sx.e’s AIM
  • Sits on Multiple Board of Directors
  • Founder of Grant W. Howard Company

3

our discussion today
Our Discussion Today
  • The Big Picture
  • The Replenishment Process
  • Better Results:
    • Customer Service
    • Profitability
  • Final Thoughts

To Final Thoughts Today?

4

slide5

Longevity

Profitability

Growth

Warehouse

Owner’s Returns and Happiness

Procure

Sell

Communication, Structure, and Team

Education and Understanding

Systems and Tools

Processes and Procedures

Customer Service

Vendor Performance

Employee Happiness

The Fundamental Tree

Service, GM Improvement, Asset Management, Efficiency, Accuracy

5

profitability longevity and growth2
Profitability ($&%):

GM Improvement ($&%):

Sales Increase

COGS Reduction

Expense Reduction:

Asset Management

Efficiency

Accuracy

1, 2, 5 Points Better?

Longevity:

Customer Loyalty:

Customer Service

Ability to Solve Customer Issues

Being Dynamic:

Adaptability to Market Changes

Adaptability to Technology Changes and Utilization of

Profitability, Longevity and Growth

Growth:

  • Existing Customers
  • New Customers

6

profitability longevity and growth3
GM Improvement ($&%):

Sales Increase - Loyalty:

Sell Price x 2

Velocity Pricing

Lost Business and Backorders

More of Customer’s Business

New Business

Increase Sales and Sell Price with ...

COGS Reduction:

Supplier Performance and Negotiations

Decrease COGS with ...

Expense Reduction:

Asset Management:

Freight Reduction

Cost to Carry Reduction

Rifle Approach

Surplus, Safety Stock, RC/OC/OQ

Replace Freight & Costs with ...

Efficiency and Accuracy:

Cost to Replenish Reduction

Cost for Correction Reduction

Replace Costs with ...

Profitability, Longevity and Growth

Profitability - Dollars and Percentage

7

profitability longevity and growth4
Longevity:

Customer Loyalty:

Customer Service:

Fill Rates

Backorder Handling

On-Time Delivery

Accuracy - Product, Price, Quantity, Terms

Ability to Solve Customer Issues

Adaptability to Technology Changes and Utilization of

Use Technology to ...

Being Dynamic - its Critical:

Adaptability to Market Changes

Use Technology to ...

Growth:

Existing Customers:

Lost Sales and Backorders

Depth of Customer’s Business

New Customers:

Get them with Price

Keep them with Service

Profitability, Longevity and Growth

8

profitability longevity and growth5
Procure:

IM and Control

Operations

Sales

Marketing

Systems and Tech

Sell:

Sales

Marketing

IM and Control

Operations

Systems and Tech

Profitability, Longevity and Growth

Warehouse:

  • Operations
  • IM and Control
  • Systems and Tech
  • Sales
  • Marketing

Seems to be a Pattern?

Where does Management fit into all of this?

9

profitability longevity and growth6
Customers:

Availability

Backorder Handling

On-Time Delivery

Accuracy

Product

Quantity

Price

Terms

Win-Win

MEASURE

Employees:

Want to do a Good Job

Balanced Objectives/Team

Tools, Processes, EDUCATE!

Remove Stress, Give Method

Win-Win

MEASURE

Vendors:

Not Just Price

Win-Win

MEASURE

Profitability, Longevity and Growth

10

profitability longevity and growth7
Communication, Structure and Team:Does your company have a team concept, KNOWN balanced objectives, with a way to get there - Management?

Systems and Tools:Does your company understand and use more than 20, 30, 50% of your systems and technology?

Processes and Procedures: Does your company have closed-loop, actual working processes and procedures?

Education and Understanding:Does your company educate your people and help them become part of the solution?

Profitability, Longevity and Growth

THE FOUNDATION

11

slide12
Inventory Management

Getting Results

When, What, How Much, Too Much

12

the replenishment model
The Replenishment Model

A Good Replenishment Model addresses the two objectives of

Customer Service and Profitability

When to Replenish?

What to Replenish and How much?

What is incoming and will be late?

What is incoming and will be early or is not needed?

Too Much?

13

when what and how much
“When” to Replenish

Fixed Interval - Timeframe or Target - Profits only (Not watching BOP)

Flexible Interval - Trigger Point (Order Point) - Service and Profits

“What” to Replenish

Replenishment Cycle (Line Point)

Controls the frequency of P/O’s and Transfers

This is the speed control (Frequency)

Target/Freight and/or C to P driven

“How Much” to Replenish

Order Quantity

Controls the quantity of items on P/O’s and Transfers

This is the workload/spread (Amplitude)

C to C, C to P and Target/Freight driven

EOQ

Order Cycle

Surplus Point

PNA/Level

Line Point or Max/EOQ

Lead Time

Order Point or Min

Safety

“When, What and How Much”

What’s the Difference

RC = 0; RC = 1 week

OQ = 1 week; OQ=4 weeks

RC = 1 week & OQ=1 week; RC = 1 week & OQ = 4 weeks

14

slide15

Measurement

Fill Rate, BO’s

Turns, Excess, Mix

T&E, GMROI

Data to Info

The Tools

Data

Usage - OE/WT

Lead Time - PO/WT

Level/PNA Info - OH & Paperfloat

Purch Hist

Replenishment

Buyer’s Ctrl Center

Items BOP/Priority

The Numbers

Hits/Ranking

Order Cycle

Ave Usage, Safety, OP, LP, Order Quantity

Timeline Analysis

Too Late

Too Early

Set-up

“Smart” Set-up

Co. and Whse.

Product Pline

Product Master

Product Whse.

Surplus Inventory

External/Lng. Term

Internal/St. Term

Maintenance

One Stop Inq/Maint

Proofs/Mass Update

Exc Control Center

The Process

15

slide17
Know the Right Things to Do

Do these Things Right

Inventory Management is at the Time of Replenishment, the “When, What, and How Much”, Everything Else is Inventory Correction.

17

the path to success service and profits
The Path to Success Service and Profits

Keep it Working - Maintenance:

  • Get out of the “Yellow Sticky World”
  • The Importance of Proactive Maintenance
  • Watch for Suppressed with Activity
  • Watch for Slow/Inactive Stock Items

Measure and Monitor:

  • Use Measurement and Monitoring to Confirm Results and to Drill Down and Find Areas of Improvement.
  • Drill in, Rifle Approach - Don’t Shotgun Approach it, Just $$$ and Disappointing Results.

19

slide20
If there is no measurement, then it is all hearsay. Data-free conversations and decisions will cause lots of frustrations, cost lots of money and result in lots of disappointments...

20

service fill rates
Service - Fill Rates
  • How well a business meets its customer’s needs - pulse of customer’s happiness/loyalty.
  • What to Measure:

Fill Rates = Shipped/Ordered

Quantity: 9 out of 10 = 90%

Line Item SC: 9 out of 10 = 0%

Order Ship Complete?

  • What Should Fill Rates Be?
  • The Report is Broken - Look at “First Pass” Orders - EDI, Fax, Internet, etc for true fill rates and backorder retention
  • Only one way to better Fill Rates - The Right Inventory. Two ways to the Right Inventory...

21

profits turns roi

Profitability

Turns

Profits - Turns? ROI?

Cost to Carry, Cost to Purchase and Freight

C to PTurns

80’s $10.00 2-3

90’s $5.00 3-6

00’s $2-3.00 6-10

EDI/VMI $0.13?

Many companies are increasing the turns, but the infrastructure does not support it; bottom line, longevity and growth are all suffering! Customer Service, GM Improvement, Efficiency, Accuracy, Asset Management

22

turns what is it measuring profits

R O I

TurnsWhat is it Measuring - Profits?

J M/A J/J S/O D C/I Turns

1.00 s1.25 1/1 1 c1.00

1.00 s1.25 s1.25 2/1 2 c1.00 c1.00

1.00 s1.25 s1.25 s1.25 s1.25 4/1 4 c1.00 c1.00 c1.00 c1.00

CGM T&E GM% GMROI

.25 .25 20% 20

.25 .50 20% 40

.25 1.00 20% 80

Turns looks at C to C - Don’t Forget Margin, Freight, C to P and SERVICE

Turns DOES NOT measure Profits, Turns is an Indicator of Profits

Inventory = Dollars! How many Times the Dollars are used to do Something

23

the whole picture

Inventory Management is not only Turns

Customer Service Improvement - Availability, OTD, BO Handling

Gross Margin Improvement - Sell Service (Price) and COGS

Expense Reduction - Freight, Cost to Carry, Cost to Replenish

Inventory Management is Bottom Line, Longevity and Growth

7 Turns & 4% Bottom Line or 5 Turns & 7% Bottom Line

The “Whole” Picture

Turns

4

5

6

7

Margin

35

30

25

20

Return

140

150

150

140

Velocity Pricing?

24

return on investment
GMROI:

= Turns CGM%

= COGS GM

Ave Inv COGS

= Sls Turns GM%

= Sales GM

Ave Inv Sales

= GM

Ave Inv

x

x

x

x

x

x

Return on Investment

Turns:

= COGS + $Transferred

Ave Inv

T&E:

= Turns GM%

= COGS GM

Ave Inv Sales

No Directs, Non-Stocks or Pass-Throughs

How to Use T&E/GMROI

25

inventory management objectives
Customer Service

Availability (Fill Rates)

Proper Backorder Handling

On Time Delivery

Accuracy: Item, Quantity, Price

Profitability (ROI)

GM Improvement (Sales and Cost)

Freight Considerations - OC Analysis

Efficiency & Asset Mgt: CtoC and CtoP

Surplus Inventory & Safety Inventory

Turns/Days supply, ROI/T&E/GMROI

Service

Profits

Inventory Management Objectives

Watch the C to C

(Warehousing, Handling, Obsol. & Shrink, Taxes, Ins, Interest)

Watch the C to P

(Purchasing/Replenishment, Receiving & Put-away, A/P)

26

customer service
1. Right Inventory/Service not Suffering because of Wrong

2. Controlled Replenishment

3. Stocking Policy

4. Good Numbers and Proper Use of Them (OP, Level, LP, and OQ) - Path to Service:

Replenish at Order Point - Prio

Freight, RC, CtoC vs Service

Line Buy vs Emergency Buy

Understand LP and OQ Effect

Customer Service

Back to Basics - JDI

5. Operations:

  • Backorder Policy and Handling
  • On-Time Delivery
  • Accuracy of Shipments and Billing

6. Fill Rates, BO’s, OTD, Accuracy - Monitor, Drill Down, Find Areas of Improvement

27

customer service1
7. Understand and Use:

Usage: Lost Sales, DP

Customer Buying Habits

Timeline Analysis

NOOS Policy and Procedure

Smart Selling/Transferring

8. Follow LP and EOQ Suggestions:

Too many Fires

BOP but not at Target Problems

Customer Service

Keys to Good Fill Rates

9. “Never-Arrive” Incoming

10. Safety Stock Increase:

  • Safety Analysis
  • Use a Rifle Approach
  • Small Steps, Results, ...
  • Watch the Profits

Stellar Customer Service does not have to drive your inventory through the roof, it just has to be done smart.

28

inventory management objectives1
Customer Service

Availability (Fill Rates)

Proper Backorder Handling

On Time Delivery

Accuracy: Item, Quantity, Price

Profitability (ROI)

GM Improvement (Sales and Cost)

Freight Considerations - OC Analysis

Efficiency & Asset Mgt: CtoC and CtoP

Surplus Inventory & Safety Inventory

Turns/Days supply, ROI/T&E/GMROI

Service

Profits

Inventory Management Objectives

Watch the C to C

(Warehousing, Handling, Obsol. & Shrink, Taxes, Ins, Interest)

Watch the C to P

(Purchasing/Replenishment, Receiving & Put-away, A/P)

29

profitability
1. Stellar Customer Service

2. Controlled Replenishment

3. Stocking Policy

4. Good Numbers and Proper Use of Them (OP, LP, OQ, Level) - Path to Profitability:

Up to LP, OQ, Min, Package

Usage: Exceptional, DP

Targets/Incentives Properly

Line Buy vs Emergency Buy

Availability (Sales, GM, Fires)

At Target/Timeframe, no BOP

Profitability

Back to Basics - JDI

5. Vendor Performance and Negotiations

6. T&E and/or GMROI - Monitor, Drill Down, Find Areas of Improvement

30

vendor performance and negotiations it s not just price
Lower COGS

Lower Freight Minimums

Multiple Drops for Freight

Combined P/O’s for Minimum

Freight Paid Fill-ins

Fill Rates

Consistent Lead Times and OTD

Accurate Shipping (Blanket Receiving) - Product, Quantity, Price

Good Backorder Handling

EDI/VMI/2-Way Information Flow - B2B

Automated Product and Pricing Updates

RGA’s on New Items

Excess Inventory Returns

Win/Win - Partnership

Vendor Performance and Negotiations - It’s not just Price

31

profitability1
7. Excess and Defective Inventory:

Prevention

Disposition

8. Order Quantity Reduction:

OC/RC (LP) Reduction:

OC/RC Analysis/Paths, Watch Freight

Lower Targets - Negotiate

C to P Departments Tools/ Efficiency

Suggested OQ Reduction (EOQ):

Watch C to P Departments

Proper C to C

Profitability

Inventory Reduction/Increasing Turns

9. Safety Stock Reduction:

  • Safety Analysis - Use Rifle Approach
  • Improve the Process - Better Usage, Lead Time and Level, Replenish at OP, Timeline
  • Small Steps, Results, …, ...
  • Watch the Service

10. Other Reductions:

  • “Never-Ship” Committed
  • Duplicate Products and Lines

Turns the Right Way!

Balanced Objectives - Increase turns/decrease inventory but DON’T EFFECT SERVICE!

32

profitability2

EOQ

Order Cycle

Surplus Point

PNA/Level

Line Point or Max/EOQ

Lead Time

Order Point or Min

Safety

Profitability

Low Risk

Understand the Impact Areas:

  • Excess and Defective:
    • No one wants or needs
    • Control the Feelings
    • Let it Roll, Let it Go
    • Be Careful - C to C/Mix
    • Cost of Disposition
  • Line Point and Order Quantity:
    • “What” and “How Much”
    • Be Careful - C to P Departments
  • Order Point - Safety Stock:
    • “When”
    • Be Careful - Customer Service

High Risk

33

excess inventory disposition
Excess Inventory Disposition

BOP/GAP - Put of the fire: Short or Long Term

BLP/Sugg Xfers - Use it where you can: Long Term

Teach branches to use LT first. Don’t borrow stock and put branch in “need”.

1. Stock Balance: (“X” Months Supply) - With “To” branch approval/Before Buy

2. Sell Above Cost: Customer, Other Distributor

3. At Cost: Sell at cost, Return at cost with no charges (freight, restock)

4. Below Cost: Sell below cost, Return below cost and/or with charges

5. Sell Above “Write-off” Cost: Garage/Fire Sale, Flea Market, Auction House, Liquidation House

6. Dump at “Write-off” Cost: Donate, Scrap, Dump

34

slide35

Cost to Carry, Freight, and Service

Versus

Cost to Replenish

HIRE SOMEONE

35

getting results
1. Order Point

2. Stock Level

3. “When” to Replenish

4. Stock Out/Lost Business Prevention -Timeline Analysis -”Too Late”

5. Closed-loop Backorder Process

1. Line Point and Order Quantity

2. Stock Level

3. “What & How Much” to Replenish

4. Surplus Prevention - Timeline Analysis -”Too Early”

5. Inventory Reduction Program

Service

Profits

Getting Results

Most “Talk About” 1 and 2, Many Do Not Understand 3 and Few Do 4 and 5

37

12 months to better service and profits
12 Months to Better Service and Profits

Execution Is the Key - One Action Each Month

1. Good Usage: Lost/Exceptional Sales, Usage Roll-up, Seasonal Trending, DP

2. Implement Customer Buying Habits/Average Ship Quantities

3. Stock Level Accuracy: On Hand Integrity and Paperfloat Control

4. Buyer’s Control Center: Replenish at OP Priority, Targets, EB vs LB, One-stop

5. Order Cycle Analysis and Proper use of EOQ - Understand and Use Properly

6. Timeline Analysis: “Too Late” and “Too Early”

7. “Smart” Inventory Reduction Program, including Excess Prevention and Disposition

8. Inventory Stocking Policy and “Product Add” Procedure

9. Controlled Replenishment: Centralized Replenishment and Maintenance

10. Backorder Policy and Flawless Backorder Handling System

11. Data and Parameters: Smart Parameters (Depth, Cost and Hits/Rank Balance), Smart Exception Reports and Proactive Maintenance

12. Measure and Improve and Don’t Measure Just to Measure

38

j d i
J D I

It’s too hard to log lost and exceptional sales

It’s too hard to keep the paper work clean

It’s too hard to keep the on-hand correct

It’s too hard to work excess inventory

It’s too hard ...

It’s too hard..., The system is broken or doesn’t have it…, We will never get them to do that…, We don’t know how to do that… J D I !

39

spend to make save
Spend $ to Make/Save $$

Execution Is the Key - How to Get it Done

  • Get an IM, Operations and Education Person!
  • Understand the IM models, How the “Dials” Work and How to Meet the Objectives (Service and Profits; OP, LP, OQ)
  • Understand and Utilize the System and People Better - Better Tools, Better Processes, Better Education, Better Objectives - All Departments, Entire Company - SAME OBJECTIVES, SAME TEAM
  • You Don’t Have to do the Extraordinary, Just do the Basics Extraordinary
  • No Magic, Common Sense, Back to Basics
  • Maximize Profits and Service, Asset Management, Cost Reduction and Increase Turns the Right Way!

40

slide41
It’s not just good Software and Systems

It’s not just good Processes and Procedures

It’s not just good People and Education

It’s not just good Management

IT’S ALL OF THEM!

It’s not just good Usage

It’s not just good Order Points

It’s not just replenishing at Order Point

It’s not just the Timeline

It’s not just working the Surplus

IT’S THE ENTIRE PROCESS

41

back to basics
Back to Basics

Many distributors DON’T:

  • Set the system up properly
  • Feed the system good data
  • Understand or Use the system properly
  • Clean up bad processes and procedures
  • Educate their people on the system or processes
  • Help departments work together
  • Help work towards common goals

Yet they think it will all just magically work

42

slide43

Spend your days reacting to the fires... you may be efficient, but will you be effective?

Fire Prevention ...

43

the world is changing
The World is Changing!

YesterdayTodayTomorrow

Buyers/Inv. Control Inventory/Asset Managers ???

Turns Dominated Customer Service Oriented If you can’t

Inaccurate Data Data/Information Managers handle today,

Four Glass Walls Communications & Team how will you

Learned from “Bill” Education & Understanding handle

Pencil and Paper Technology and Efficiency tomorrow?

If your company is stuck in Yesterday or having troubles with Today, how will it survive Tomorrow?

44

slide45

Replace Inventory and Costs and Improve Service with Technology

Improve Profits, Longevity and Growth with Technology

45

gwhco
www.gwhco.org

Grant Howard:

ghoward@gwhco.org

734-428-0529 Phone

734-428-0593 Fax

John Cason:

jcason@gwhco.org

256-830-0676 Phone

256-830-0481 Fax

Our approach involves tailoring the best practices in distribution to the specific needs of our clients. Our working philosophy revolves around building a strong and self-maintaining infrastructure by developing a working plan based on processes and procedures, education and understanding, implementation of tools and technology; and through communication, organizational structure and team environments.

GWHCO

46