Shop floor insights - freinds and foes

TOC for retail is based on the statistical characteristics of forecasting. Specifically the fact that the more general the forecast - the better fit you will get between results and reality. The other side of this coin is, of course, that the more specific the forecast - the worse fit you'll get. Therefore TOC calls for holding inventory centralized and moving it closer to the end costumer as late as possible.

Pushing the merchendise into the final storage rooms earlier creates local shortages and surpluses. These increase the workload for the sales staff, of course. Since they can never know what is available and what is not, so they are always checking. Another very significant impact this has is the increase of the customer's percieved risk. Since you can't know ahead of time, even when you know for sure the SKU is part of the store's stock, if it will be available in that store at that moment and if they will have the size and color wanted.

As I described in earlier posts, the chain I worked for pushed the inventory forward as soon as possible. I am sure this seems logical to them, after all - if the item is not in the store it can't be sold, so that seems like the best place to store you inventory, no?
The stores also had access, through the central database, to the tracked inventory of all other stores in the chain.  This data is used to reduce lost sales by cross shipping from oher branches. There were always calls from one branch to the next requsting the relevant SKU (though we were always describing, not using the codes) and issueing a cross shipping. I don't think there was a morning we did not have packages of cross shipments coming in AND going out.
A couple of things I noticed. First off - we never checked the warehouse inventory. This makes total sense in retrospect, since the warehouse was automatically replacing any shortages we had if there was stock. So, if the warehouse had it, we knew we'd get it. Even surpluses were rarely sent of to the warehouse. Everything was worked out between the stores. Second - cooperation between shops was choppy at best. Finding the garment you need to get the sale was always a good thing, but sending off a garment wasn't such a hit. We were directed to limit the outgoing shipments to those garments we had enough stock off and the ones that were not selling well. When a branch "overdid it" the manager would stop answering their calls and direct us to do the same. Then, if one of us inadvertedly did answer, the manager of the other store would give that poor bastard such a talk to.....
From my point of view, as a simple sales clerck, this was a no win situation. If I help out the other store - my manager gets mad at me, if I don't help them I have the phone going on all the time and at the end they manage to get a hold of us and they are mad at me.
Taking the owners point of view this whole situation is not in their best interest, either. Don't you think?

Shop floor insights – goals and incentives

Here is one subject on which I can't really recall much TOC specific wisdom. Dr. Goldratt did concur with the common saying "tell me how you'll measure me and I'll tell you how I'll act". This supports his claim that people are predictable. The other related content is this research summary clip that talks about the limited power of financial incentives. But they were looking at the impact of offering a too high incentive. I've found out how I react to a too low incentive. It killed my drive.

Let me give you the background. While shops may mark up their products 100% or more, most of this mark up is needed to cover fixed costs of operating stores in good locations, holding on to stock and paying for people to sell this stock. Shop operation is quite work intensive and since rent on good locations is high and inventory spending is high (when you buy stock for the entire season ahead of time) and both are relatively inflexible, it seems there is no choice but to limit workforce costs. Hence hourly pay at the shop floor is insultingly low. This is not singular to the chain I worked for, the pay I was given was pretty much the standard pay in this kind of job in Israel.

On top of that, to offer some incentive, you get paid 1% commision on all your sales as well as bonuses if you reach certain sale volumes.  Sounds good, doesn't it? Well, only until you do the math. There was no way the bonus would amount to anything substantial; the shop just did not have that kind of potential. So that went out of the window, at least for me.

The other thing that kept killing my motivation is the habit of the managers to set personal sales goals. It was a bad day, I had a couple of hundred NIS in sales and 2 hours to go when the manager comes in and hands me a piece of paper with my goal for the shift. The goal was 2,000 NIS. There were no customers in sight. Shocked I turned to her and she just said "you'll have to try harder and make it happen". OK, it was not her fault, she was stuck in the same messed up system as we were and she was also misled by her managers to act like that, taught that goals create motivation. Well, I guess my TOC understanding miss-served me there because it was clear to me that people buy what they want. Sales clerks have an impact, sure, but it is limited. I also thought no effort in the world can create a sale when there are no customers in the shop. I found out I was wrong when the manager tried to make me buy something to improve the registry.

Is that really what management wanted?

Shop floor insights - daily replenishment

When I first encountered the TOC logistic and supply chain management solution I got the impression that the daily replenishment of stock with what was sold, is the driving force of this solution. The solution is based on the idea that the sales outlet should hold minimal stock on hand - just enough to allow you to sell to any patron who may wish to buy the item + enough to support the display.

For the shop I worked in (some background and a disclaimer - I was a sales clerk, this was not a TOC project) the second part was almost negligible, we sold all garments displayed in the shop which were not on the manikins, of which we had only 3. The first part, however, is quite tricky as we have no idea how many patrons may wish to buy a certain item on a certain day. This is why the forecasts aren't good, remember? we had items of which we sold 1 unit, or maybe even nothing at all for weeks and then one day we'd sell 3 or 4. The TOC replenishment solution answers that with a rule of the thumb. You start high, with enough stock to equal 14-20 days of average sales. Then you adjust as you go by tracking end-of-day inventory using 3 zones. Red zone is the bottom third of your target. If for a few days you continually end up having less than one third of your original target then this is a fast runner and the target has to go up. Green zone is the top third, pointing out that this is a slow runner, the target is too high and has to go down. Yellow zone is in between and where we'd like to be.

Well, the store had daily replenishment. Israel is a tiny place, everything is within a few hours drive, there is no sense in replenishing less frequently. The store was also supposed to be replenished according to the last day's sales, with four o'clock as the cutoff time. There was even a general target level of 2-3 units per SKU (that would be model - color - size) at each shop.

Didn't work. As I reported earlier we had surpluses and we had shortages.

The most annoying sensation for me was, after finding myself telling 3-4 different customers that we have run out of the blue dress in most sizes, but was have the black one in all of them and have the customer explain the blue is what she wants and thank you very much, good bye. After all that, the next day we get 3 more of the black dress in a variety of sizes. So the shortage stays and the surplus grows. Now I'm not trashing on the warehouse, they do the best they can. They don't have what we need so, trying to be helpful, they send "the next best thing", something similar, something close enough. But it isn't. 

Sometimes it just became macabre. The day after the new manager finished cleaning up the back room and sending some of the surpluses to another branch (took her 3 days), we got at least one of those surplus models again in all colors and all sizes. We were really low on it.....

My point of view now is that daily replenishment is a great way for minimizing inventory, but you can implement TOC replenishment without it, it is not the most important thing. As long as your central stock is out of whack with the market, nothing's going to help in the long run, this should be the most important factor of your supply chain analytics and your supply chain risk analysis. This is felt much more profoundly in a small country like Israel, where there is simply not enough clout for the "big numbers" rule (that's the statistics rule that shows that if you have a big enough sample everything ends up looking like a normal distribution) to take effect.

Insights from the shop floor

I spent the month of June working as a sales clerk for a local fashion retailer. Not a very big one, but still respectable enough. During that time no one in the chain was interested in what I know about TOC and the chain was not doing any kind of TOC project. It was an entry level job and I was judged only by my ability to ring up the register, and using that parameter I was no star. I'm OK with that, not everyone has to be great in everything and a smart employer will get the best from each employee, even if it means shifting the person around a bit.
Anyway, I found myself working in one of the bigger stores in the chain, one considered a "flagship" store. Yet we sailed through some very rough waters during that short month, with me joining the ranks after most of the sales force quit and the store manager, who turned out to be the reason for all the turbulence, was removed from her position during my second week. Working the floor was a great opportunity to validate and better understand TOC's supply chain management application, presented in the supply chain management book "Isn't It Obvious".

Before I dive into the TOC point of view, some info about the shop is appropriate. The shop is located in a closed mall, this was one of the first closed malls in the Tel Aviv area, built some 20 years ago. The mall has been updated with a movies mega-plex a few years ago, but I think this was not enough to shake off its outdated image.
As for the shop itself - while this shop is considered large within the chain, it is actually quite small, perhaps even very small if you compare it to shops in the US. The shop has a tiny back room to store any inventory that is not needed for display on the floor. The shop's floor is small in comparison to the variety on hand and not all sizes are put on display, some are only available if you asked a clerk to get them from the back room.
The first things to come up were the fact sales were going hard, even though the shop was either in promotion or sale mode the entire month. The second was that we were constantly telling shoppers that we're sorry but the wished for item, in the wished for color and size, has sold out. We would always offer to check and if it is available at another store - the customer can pay for it and we'll call her after it arrives at the store. Some of them did, which only goes to show the competition isn't any better.
I had befriended the one sales clerk who had managed to survive through the turmoil created by that shop manager, so I checked with him if the theory works. A theory is tested by its ability to predict. I used the TOC theory to "predict" what had happened in the store at the season's start, weeks before I joined. As I "predicted", sales were easy and merchandise was flying of the shelves at full price.
This should come as no surprise. At season's start stocks are full, all the high runners are available at all sizes, so sales are easy - with customers easily finding garments they like at the right size they often convince themselves into buying. The sales force is free to help the customer find more items and "deepen" the sale.
By the time I arrived at the store, though, the negative effects of buying according to forecast, predominant in global logistics and supply chain management, have reared their ugly head. The cream of the crop, the best models, have been totally sold out. The fast runners we did have were running short on their best sizes and we had way to much of some dead weights  So even with lowered prices sales were hard and the sales force concentrated on convincing customers they should indeed buy. Sales were "shallow"  with most customers buying only one item.

If you want more details about the damages of working to forecast and the TOC approach to replenishment, here are a couple of links to the "Big Brand" case study:
First is Dr. Goldratt's report on the process (which can also be found in "The Choice", the best book on supply chain management) can be obtained here (just fill in the details and you'll get the PDF in your mail)
Second is the IDEA report on the project, this one includes graphs showing the progress made.

To be continued ....

 

TOC for Distribution

The Proceedings of ICM 2007 is a 626 pages long document that has 2 TOC related

articles. I'll review "Distribution the TOC Way: Review and a Case Study" which you can find in page 158 (using the reader's page count), the other article is about Critical Chain in semiconductors and I'll review it in another post.

The article covers the basics - common UDE's, the cloud they lead to and the generic solution and then gives a case study of a European apparel retailer with very little details.

I found the introduction of the problem on hand very good, clear and easy to understand. Later on the article became less clear, in my opinion.

 Another thing to consider here is "Is batching always a bad thing?" - probably not, it can be good if it helps you get more out of a CCR (capacity constraint resource) for example, but it should be minimized. If so - are there other places where you are batching? Maybe you are batching in sales - using one sales person to sell all your product lines? Un-batching the sales force will allow sales people to gain more expertise with the products they are selling because they have more focus. There might be other benefits for such a move, but there are perils as well so the use of a full thinking process, especially the Negative Branch Reservation, is important.