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This podcast offers business solutions to help listeners develop and implement action plans for lean process improvement and implement continuous improvement projects, cost reductions, product quality enhancements, and process effectiveness improvement. Listeners come from many industries in both manufacturing and office applications.
Catherine McDonald 0:04
Inventory Management is so
Catherine McDonald 0:06
important, but I don't think it comes into a lot of our daily management systems.
Evan Powell 0:11
Inventory management is not a one straight, yeah, one size fits all. Approach. I liken it to painting a house. If I've got to paint a wall in my house, I'm going to have a little brush for cutting in. I'm going to have a roller and I'm going to have a brush for touching up the way that you started to categorize your inventory and understand how your inventory is broken down, because that's when you start to then really unlock the optimization and then free up that working capital that comes through as a result. Everybody understands
Catherine McDonald 0:36
something different. So really, what we should be doing is bringing those people who have the important information together to make our inventory management work better.
Catherine McDonald 0:54
Hello and welcome to this episode of the lean solutions podcast. My name is Catherine MacDonald and I am going solo today. My podcast co hosts are offline, so it's just me, but not to worry, because I have a great guest for you today, and a great topic today. We are going to be talking about inventory, specifically the problem with inventory. And I have a great guest today called Evan Powell, and Evan is here with me. Evan, hello. How are you?
Evan Powell 1:24
Hi, Catherine, wonderful to be here with you. Feeling great and keen to get into it.
Catherine McDonald 1:28
Good, good, good. Okay, can't wait. So Evan, I'm just going to let our listeners know a little bit about you before we start. Is that okay? Perfect. Okay, so Evan. Evan is an operations and supply chain professional focused on helping businesses optimize processes, reduce waste and improve performance. He has led initiatives that have delivered measurable cost savings, boosted productivity and enhanced customer satisfaction. Sounds great. His work spans end to end Supply Chain Management with expertise in things like process optimization, lean manufacturing, inventory management and loads more. The list goes on. He takes a practical, cross functional approach to problem solving, always with an eye on real world impact. So Evan, that sounds brilliant, especially the last line, real world impact. That's so important, isn't
Evan Powell 2:18
it? Yes, we want to make sure that whatever we're doing working with businesses, in businesses with people around us, is that we're making, you know, differences to their lives, differences to how we work in difference to the really the business and their customers. At the end of the day,
Catherine McDonald 2:31
yes, exactly, exactly. I share that sentiment, absolutely. So. Evan, our topic is inventory. Um, tell me. Tell me what interests you about this topic. Why are we making it our topic today? Why should we be talking about inventory and organizations?
Evan Powell 2:46
Yes, so I've been in and around inventory my whole career in some different ways, from, I guess, being in warehouses right at the start, touching and feeling inventory getting covered in dust, we've all been there emptying containers right the way through to leading national organizations and working with global organizations on how they run their supply chains. Now, for me, you know, going through that whole journey, I see that inventory really touches all parts of the business. It's not just your supply chain teams or your warehouse teams or your product teams. If you're a product or a manufacturing business, inventory touches how your sales team operate, the stress that your customer service team will have, day in, day out, how your finance team works, your cash flow positions, all that, everything bottlenecks around how inventory is managed. And often the way that our businesses work is we leave sort of inventory to chance. We're reactive to it. It's something that we all know, that we need, but we don't really can try to control it and manage it in the way that really enables us to run our business as optimally as what we can and if we can find a way to really go about supercharging the way that our supply chain our inventory works, there's massive benefits to be had. There's plenty of studies out there to show that businesses that really place a focus on optimizing and building their capability within their supply chains consistently outperform their peers. So it's a, why don't we get out and do more of it?
Catherine McDonald 4:04
There's so much that I want to dig into there. I really want to come back to the whole area of inventory is not just one person's responsibility or, you know, it hits on all parts of the business, so therefore it becomes every department's business. And I want to talk about that in a minute. Just, I think the way you answered that question, it told me that there's actually quite a lot of misconceptions about how inventory is viewed or understood in today's business. So what would you think from that list, or in addition to that list, what do you think is the most misunderstood aspect of inventory management in today's businesses? So I think
Evan Powell 4:41
there's, there's a few things to this, and one of the first ones is that many businesses see inventory as a set and forget system. We're going to have a set list of items that we're going to bring into our business, whether it's, yeah, stocked items, spare parts that went into our operations, and we're going to set a reorder point or a min, max to it, and it was done once, so we can just walk away. And leave it alone. Now, inventory is dynamic. Our business is dynamic, so we need to be seeing that we're in there, responding to those changes in our usage, our vendor performance, our requirements, how much we how well we plan, how well we bring all that through our business to make sure that we're running that in the best way possible. Then we then turn and say, well, software is going to help solve our problems for us. And, you know, we live in a world with, yeah, we've got forecasting modules that are bolt into our ERP systems that do all that work for us. We've got the advent of AI that comes out now, which, yeah, we'll have a role to play in how supply chain and inventory works and is managed. But we look at these systems and say they're a silver bullet that are going to solve all of our problems with inventory. And I've been, we've been in businesses where they've taken that approach, and then they've gone or stopped quite working how we've we've actually gone backwards rather than forwards, despite that. And we've got to bring somebody in, like myself, in particular roles, to come through and say, well, let's go and start understanding all the levers and all the buttons. We're not driving, you know, an old car. We're driving a Ferrari now, with all these whizb band buttons, we've got to understand how it works to get the best outcome. And then, finally, again, my biggest gripe, I guess, bug bear, I guess, in some ways, is that, you know, We rightfully so, place an awful lot of focus on cost of goods sold and driving how do we get the cheapest prices into our business? And, you know, we all go down the yeah, there's a historical legacy view of the world. And I guess, the legacy view of the world around economies of scale, and really to working towards making sure that we get the cheapest price possible through increasing our volumes. Now the reality is that buying more stock and larger quantities leads to bigger warehouses, which then means we overflow the warehouses. We end up in third party logistics to which is more cost, increased handling, increased insurance costs, and we end up with a bloated balance sheet. Now the difficulty here is, why do we go about that approach is, well, business leaders are their scoreboard is the profit and loss statement, and what shows up on the panel is our cost of goods line, and we want to be looking to say that we're making savings in that cost of goods line to increase our gross margin, when the reality is all those costs that sit around inventory show up on the on the panel, but somewhat more indirectly, because there's not a clear line for carrying costs. They trickle in through freight or handling or labor or Hey, well, I've got a 10 year lease on my warehouse. That's a fixed cost. I don't need to worry about that, when, in reality, it's still a cost that we need to be managing, and there's an opportunity cost to that, that investment. So how do we bring that focus from the P L to the balance sheet and understanding that all those impacts in around inventory touch all parts of our business? Excellent.
Catherine McDonald 7:36
Okay, very comprehensive. Yeah. So just to go back to a couple of things, um, it's true, I see it myself. When I'm in organizations, people have this view of inventory as an asset. I think they even, as you say, write it down as an asset. But in Lean thinking, which is what a lot of people listen to this show, will will will believe in and will practice. It's well, it's more of a waste than an asset. Yes, and that ties into what you're saying about the costs and the potential for having something else that we can't have because the inventory that we do have is sitting there, and it's not turning over, obviously, quick enough, and it's taking the space of something that could be bringing us in more. Am I on the right track, exactly?
Evan Powell 8:21
And to that point, I like to, I guess, try and liken the conversations that I have with my clients is that inventory is an investment, and it's one of the biggest investments that you're making, and you're effectively no different to making an investment in your personal life, whether it's into a share portfolio or property, is that you're basically making a bet that you can take on risk and you're going to turn cash into a product. You're going to hold that product for a period of time and take on the risk of distribution, of marketing, of storage, of insurance, of holding it and selling it in the view that you're going to turn that into profit, more money later on down the track. And managing that cash to cash cycle, and seeing it in that way is, is an important distinction. And unlike, you know, shares and property, which will have ups and downs, but generally speaking, will move in, I guess, an upwards trajectory, inventory will just about always devalue over time, and particularly if you're dealing in the world of, you know, expired date items or perishables of some sort, whether it's supplements or, you know, food and beverage products, is that they are on a ticking time bomb going down the longer that you hold them
Catherine McDonald 9:23
for. Yeah, yeah. So it really is. It's risky business. It's a risky misconception to have that, you know, we holding on to, to inventory that's not turning over for sure. Okay, and how much of this I'm interested is linked to our human behavior in terms of wanting to feel safe with more stock, or, you know, those kinds of fears, I guess, and how much of it is down to just really poor systems or processes that we have in place to manage our inventory. So I
Evan Powell 9:57
think a lot of it sits around training and capability. Reality is that, yeah, if I look at where I live in my part of the world, and I'm sure it's the same in a lot of other parts of the world, is that there's very little education in supply chain inventory management, you know. And if we compare it to say, you know, we send people off to, you know, business school to go and do accounting degrees or whatnot, it's very clear what the measurable outcome is. But there's very little that exists in that supply chain or inventory management space. And even compare that to say, Yeah, apprentices, you know, people might have to, if they're doing a trade work, they're doing a four year apprentice before they're allowed, yeah, on the tool solo, whereas a lot of businesses will give you the keys in a purchasing role, and we don't have the right systems and controls and requisition processes in place that you can basically run solo, and then you're putting the business at exposing them to risk around large investments in inventory through, yeah, yeah, typo issues or other issues that sort of come through there. So it's one that really sits around capability and getting that right, coupled with the way that our systems work and understanding how the system needs to work.
Catherine McDonald 10:58
Yeah, yeah. No, I see it too. Yeah. Good point, and I agree. I mean, even in business classes, do we even touch on inventory and procurement and supply chains? And not so much. It's sort of very specialized, and it's done after your generic training. So not everybody in the business has a good understanding of it. So I see that too, for sure. And what, are we what are the dangers here, Evan, when it comes to this kind of misconceptions around inventory and managing it badly? What are the real risks for the business, I suppose, when it comes to customers and reputation and brand and all of those things. Do you think so?
Evan Powell 11:37
Yeah, there's a lot of statistics that sort of sit out there, and it is hard to support together because no one support together, because no one really looks and brings some of these statistics together, but because we're not sort of held accountable to how well inventory performs. But in this is why I say there's a problem with inventory, is that there is a huge amount of waste that goes on each year through under Managed Inventory. There's 930, 1 million tons of food waste globally each year, and retailers will lose about 170 $7 trillion through stock outs and over stocks to their to their revenue and their profit positions. And what we then see, if, from a customer perspective, is if we haven't got the right inventory on hand to make that sale that you know, generally speaking, over 50% of shoppers will switch brands if the item isn't available. You know, that's a massive impact for businesses. If they've not got the stock that they need to satisfy their customer orders, the customers are going to you know, is a loyalty to the product that they're stocking if they're a distributor, or is it loyalty to the business itself? So it's really understanding how tightly those come together to make sure we've got those clear understandings that our demand signals, and we've got really the upstream agility to respond to the demand in our supply chains, so we've got the right buffer stocks in the right locations, and we're collaborating closely with our vendors and our suppliers to make sure that they're able to work on that and enable that. And I see that really the job of a business and the supply chain function of business is to make sure that we're really reducing the distance between our suppliers and our customers, because if we bring those closer together, we're able to respond much more rapidly, and we offer more value for all parties.
Catherine McDonald 13:12
That's a really interesting take, because I don't again, I don't know if this, if business owners, business leaders, think about this enough. So what you're talking about here, if I'm correct, is how to balance, I guess, the sort of strict, lean inventory principles, with, obviously not having too much inventory, with the need for flexibility and the need for having enough and the need to be able to be responsive to customers and get the product out in the you know, to meet the expectations of the customer. So it's not that we're saying we carry no inventory. We just have to get the inventory processes and systems right to be able to get the products or service to the customer in what's been agreed
Evan Powell 13:49
exactly right. The first of the supply chain is to enable the customer. It has to be seen that way is that business exists to serve our customers, so we have to gear up to make sure that we're enabling everything that our customer needs. And now that needs to be an important distinction, which is very much into the lane thinking whether it is the internal customer or the external customer. Yeah. We need to make sure that the internal customer of our production facility has got the raw materials and the components, and we're managing that in the right way to do the build of their job right the way through to external customer, getting the goods distributed
Catherine McDonald 14:17
out to them. Yeah. And this is where relationship management, I think, becomes really, really important in the whole inventory management sphere. Because, like you said, you've got your internal relationships and communications, and then you've got your external with the customer and with suppliers, who are hugely important in all of this. And if you think about it, how organizations work, usually. So if we kind of break this down and look at it so an order comes in, so you've got the, you know, sales team taking the order from the customers, then very quickly, what we need to do is we need to get whatever the is entailed in that order. So the parts, the materials, we need to get, you know, in contact with our suppliers, to get. Get those parts, or to get whatever we need in. So we need, and we need, you know, procurement, to work on that. And then once we have that, we very quickly, obviously need to the logistics team has to plan and schedule the
Catherine McDonald 15:12
whatever it is the product. So you've got
Catherine McDonald 15:18
all of these need to be connected internally. And then beyond that, it gets sent to operations, and they maybe make the product, or, if you're talking about service sector, they deliver the service. And in in all of that, there's working parts there and processes that need to be done efficiently as well. And then you've got the delivery piece and the aftercare piece. So I think your point about relationships and the relationships between everybody is really key here when it comes to flexibility, because we know that business is built on relationships, and the better the relationships we have with our suppliers and our customers, the more flow we have, the more agreements we have, the more commitments we have, and the better everything, everything goes. Is that fair to say?
Evan Powell 16:00
That's it. There's, there's so much in that Catherine. So you know, first of all, I'd say, you know your supplier, and how you treat your supplier, in a lot of ways, will make or break your business. You know you're choosing to, I guess, enter a relationship with a supplier, and they know in a lot of ways more about the they know more about your business than you do, in some ways, more technically, about your products that you're bringing into their business. We need to enable our suppliers to work with us, and I've had so many stories about the times that I've actually brought supplies in to solve problems. It's done wonders. I've gone out to client sites, and we've had issues with particular, particular products, or the vendor was a problem, or a perceived problem, and I've reached out to the vendor and said, Hey, can we get you up to site? I've been trying to get in here for three years. I've never been allowed to get in here. It's like, Guys, come on. We've got to work to enable your vendors. And it's called a supply chain for a reason. We need all those links strong and good amounts of overlap. If there's good amounts of overlap, the chain remains strong, then to your point of obviously, when a customer places an order, how do we get that into our system? And then what's our system doing in this kind doing? And this comes back to the point of how the systems work from that perspective, because, again, I work with other business, some businesses, where they they there's no clear line of when there's a demand actually created, and having that clear line of those demand in the system. Now, through that sales order, or through a work order, it's qualified and it's real that needs to be able to then trigger off all those other activities to take place, and we should be able to see that that that request rolls up to the purchasing the net inventory positions, what we see to the potentials being because we've now qualified, that's there and real to make that buying decision happen. So understanding how we can really leverage systems to connect demand with supply and bring those together, is such a critical part to make sure that this all smooths, all runs through as smoothly as possible, and we can optimize the way that we're doing, particularly if we're in those make to order type environments. And then just another final point, then on that understanding that customer side of things, you know, we might work in a production business, and production takes say, yeah, they've got a two week lead time. So we tell a customer, yes, Mr. Customer, will get the order out here two weeks. But understand that if we've got 123, days worth of processing and back and forth at the front end of it, because we've not got a good workflow to how we're bringing things into the system, and then we've got a couple days on the back end of it with our legit, you know, hand over from production into our warehouse now logistics and then distribution. There's a chance that we're not actually going to deliver those goods to the customers for three weeks or four weeks, even if production hit their 10 day lead time. And that's where we've got to then see that that inventory is going to flow through. It's a business time frame, and we've got to reframe it in the eyes of the customer. We've told the customer, it's a 10 week lead time or 10 day lead time. How do we hit that and gear our business up to make sure that all parties are working together with really smooth handovers to ensure that's delivered?
Catherine McDonald 18:48
Yeah? Yeah. No, that's brilliant. I fully agree that's such a such a good answer. I want to go back to how we work together internally on inventory to make the systems better. But just you mentioned there a couple of times about technology, and obviously this is something every business is looking at now, not just technology, obviously, but AI, data driven, working. How do you think is the best way to go about, I suppose, taking into account we have so much now that we could use. How do we even go about looking at technology and AI now to see what it can do to help us manage our inventory better. So I
Evan Powell 19:27
think it's really important to again, just start with software is never going to be silver bullet. And yeah, that might be a bit, yeah, old school. I guess it needs to say that with what AI can do these days. But I think the first thing is that what we as a business need to do, or any organization or a department of an organization, is we have to understand those clear processes that we've got. Because if we go and start saying, I want to automate how I do my purchasing, and I don't understand how to do how the system works, or the how the process needs to work, I'm going to automate something that was already inefficient to start with, and then start to create even more problems from. Self. So it's really important we just bring it back to that, almost, that first principles, type logic of, let's go through, what are all the steps that are required into this process? Are they real? Are they valid? Who's responsible, who's accountable? And how does it flow through? Then we then go, have to get again into, once we've got that clarity, we've got to get into, I guess, making sure that we're clear in how our master data works, because if we're using AI with bad master data, we're just going to get a wrong answer, but we're going to get it faster than what we'll be able to do it before. So we've got to make sure that that master data knows that is really clearly understood. And you know, the risk of not understanding and not cleansing that data in the right way is we start to, yeah, the world runs off percentages as we start to get some real big percentage changes in the wrong direction. So making sure we've got that process clean master data that then allows us to start to then look and go, Well, where do we start to then build that up? Because once we know what the process looks like, it's very easy to find out what the right solution is to be, and the solution that we may have had at the start of that process may be very different to the solution that we actually get to at the end of it, which may deliver a much better outcome.
Catherine McDonald 21:03
Yeah, yeah. No, really, really good points. I worked with a company once, and they had invested in this lovely software, very expensive, very excellent software, by all accounts, but they kept having the same problem. So what they what the system, what the computer said was in stock didn't actually match what was in stock in the actual warehouse, and they just could not figure out why it was happening when they hadn't made the investment. And this should have solved everything. So your point about the silver bullet and it not being a silver bullet is obviously spot on, because what they didn't have there was the right processes, with the operators not actually doing the audits properly, logging the data properly, simple things like that weren't happening, and then their system just showed up the errors.
Evan Powell 21:52
That's what happened, and that's it. And to that point, you know, we're promised with software, yeah, live tracking of inventory, exception reporting, just a story on that inventory tracking. So again, I've worked with a business recently that had their software in place, and they was told that, hey, we've got a stock take app on your phone. You can go out and do stock takes on all your phone. So they've been stock taking every item on their phone, which, yeah, and that sort of things worked well. The difficulty was, is because they had that as a system that they thought was important. In place and was robust, and they had been told it was robust. The issue with that is that they'd never actually done a full inventory reconciliation against what the system said was there. So if I'm only counting what I can see, I'm only counting the tip of the iceberg, when the reality is that a whole inventory listing is the whole iceberg. And what the end result of that is that we had to write off over a million dollars worth of inventory that wasn't there because they'd never done that reconciliation against each location. So what does the system actually think is there? And again, if we then come back into that whole Yeah, more that Lean approach to it every time that there's a stocktake variance, that's a process failure. Why has the process failed? What do we need to be doing to go into that and do a root cause on that? Yeah, and we Yeah, if there's a quality failure on a line from a production perspective, we're going to all jump in straight away and start to do a root cause analysis, go through our five lives and step into that. But when there's a back order, or when there's a stock take variance, unless it's a really big one that creates a lot of noise, we're not going to jump in, you know, for a root cause analysis to go through where's that failed. Because if we get that right and fix that, we're going to fix it up in a lot of other areas as well.
Catherine McDonald 23:32
Yeah, not really good points. I know which, you know, we often see this happen, don't? We get stuck in the same problem. We keep trying to solve the same problem.
Evan Powell 23:39
It's band aids.
Catherine McDonald 23:39
Yeah, it just doesn't work, okay. And I think a lot of what we've talked about here, it still comes back to, I guess, the human, human communication, collaboration, how we set the invite environment up, the right culture up, in order for people to know their roles and for people to contribute to, I guess, improving what's happening in inventory management. And like we said at the start, that's just not the department belonging to one department. It belongs to everybody. Because, as as you mentioned, as well. You know, sales, understand certain things about the customer, procurement, understand certain things about the supplier. Then you've got logistics and you've the operations team. Everybody understands something different. So really, what we should be doing is bringing those people who have the important information together to make our inventory management work better. Is that fair to say?
Evan Powell 24:32
Certainly is Catherine. That's a lovely segue in terms of, you know, from that best practice side of things, you know, we've got terms that and processes that are out there, you know, that are regularly used around sales and operations planning or integrated business planning. And this is, again, where we see that, you know, the supply chain side of it, and you know, through the whole logistics, some of the business and with production, they're the ones that are picking up, I guess, the heavy lifting around how inventory moves and making sure they've got the right controls and processes in place to make sure that purchasing is done well, stock takes it unwell. So. And so forth. But what would the business needs look together is, how do we bring everyone together to set that clear goal, and if we manage that well, and this comes into the more how do we plan and what do we commit to and understand capacities is we deliver much more predictable outcomes for our customers and for the business. And you know, at the end of the day, you know people might not want to hear it, but we want to be working in boring businesses. We want to minimize the range that our business performs over. We don't want to be going through peaks of peaks and troughs of work. We want to be working in that much small, smooth, smaller range with small, frequent, repeat orders that continue to go through our business. And our business becomes more predictable because we're running to a plan. And that's what sales and operations planning, or integrated business planning really starts to do is we as a business start to bring the key facets of the business together and plan out, what does the next one month look like? 2346, months, even potentially 12 months, looking at to go through. What are those assumptions that we're making on the horizon? When are we going to start to see some tactical issues? Then we're going to have to make some strategic decisions around our capacity or sourcing requirements, or if we got demand fall offs there, and we then start to then what we need to then do is rank the performance of the business on the current month and the previous month to make. And once we then start to do that, we set a goal and say, We want to keep this number, we almost gamify the equation that we then start to get that buy in from those other parts of the business to say that it's actually not my problem, and say, No, it's a shared problem. And this is why it is a problem that we all come in together, because we're setting that clear target. So it comes with having a really clear purpose. What are we trying to do? And what are those clear measures of success that we've got around, say, forecast accuracy, inventory terms, slow and obsolete inventory, and that velocity and, yeah, having those customer centric metrics as well around perfect order index or fill rates and whatnot, having that real clear set of metrics that sit there and say, how do we make everyone's life easier by hitting these and then collectively, we get this overall number for our business's performance that starts to get that much greater level of buy into it, and we all read the book rewards from it. Yeah.
Catherine McDonald 27:00
And it doesn't have to take much time, I mean, a quick meeting every week and do this. It's not, it's really not a big change for a company to start doing this. And it's hard to understand why it's not done when you know you lay it out so well like that. But, um, I think that's one side of it as well. Evan, it's the forecasting. I also think we, we live in a world where we can't forecast everything, and things will inevitably maybe go wrong, right? There's going to be some issues from time to time, but I think when you've got the habits in place to bring those people together regularly from the different departments, to really focus in, zoom in on inventory, I think what you've also got is you've got, like, this rapid problem solving team which wouldn't exist otherwise, and where, you know what, whether it's, I guess, stock outs, whether it's over stock that you know we can deal with, that we can use our Lean tools on, that we can analyze and we can understand and put action plans in place a lot quicker, and get those actions done, because people are already clear on they play a role in this.
Evan Powell 28:00
You spot on Catherine. And you know, if we come through, you know, supply chain, historically, it may just be focusing on forecast accuracy. That's almost, I would say, almost, the worst metric that we want to be chasing, right? Because, to your point, no forecast is ever perfect, and if we're just running a business based on forecast accuracy, we're not going to bring those collaboration and those review cycles into it. The way a forecast should work and how it how it does work is it's effectively that anchor for forward demand. It is an assumption for what we think the best view of the world is going to look like going forwards. Now your forecast, so I've got a pretty good idea of what's going to happen today. I've got a reasonable idea of what's going to happen tomorrow, but if I start looking at two three months, there's more uncertainty in terms of what's going to come into that and say that my forecast for this month could be wiped out today by something coming in that just gets, yeah, big customer order, or us that we've had an issue with a supplier making a shipment, and it's just all fallen apart. So that doesn't take away from the fact that, yeah, as a business, we're more in control than what we think we are. We just need to have the right systems and review processes in place to be in control. And to your point about, you know, weekly or, yeah, I'd say that there's two review cycles that we need to be looking at within a supply inventory. The first is the daily review cycle, where we're getting into, yeah, the, I guess, the high level nitty gritty around what happened the previous day, what's the current status on eight in band orders, and what's going to flow out to be exceptions. And then that gives us what's our action list on what do we need to start to be chasing to buy because items have dropped below their reorder points, or they're into the certain but yeah, depending on, I guess, the philosophy, I guess that we all agree to, or there that buffer that we need to start to action to replenish stock, to come back in through to then there's those more monthly review cycles that tie into that sales and operations planning, or that integrated business Planning, where we then start to that, that high level review around our assumptions around capacity, our recent review for usage forecast and correcting any system changes that we've got around that to reset reorder points and vendor lead times and vendor performances, getting that, that review cycle there and what that then plans out for the next couple. Months does a lot to them, such that that high level business plan, and then if we're managing that day to day cycle rapidly, and it doesn't take long, if we're doing it daily, yeah, it's that 10 to 15 minutes each day that we just get in. We've got that clear set of Action Lists. We're ticking those things off, those what we need to be doing that sets us up for success.
Catherine McDonald 30:16
Yep, yep. Oh,
Catherine McDonald 30:17
brilliant. I love the way you've integrated into like daily management systems, which is you, we often hear those words spoken about in Lean and by lean consultants, your daily management systems. And like, really, what we need to do and is looking at all the important speaking points, communication points that need to be communicated as a team, and we need to just bring them in into our agendas every day, whether it's through daily huddles, or whether, you know, it's through Sq, CDP boards, whatever visual management or technique, it's so important that we have the right discussions. And obviously inventory management is so important. But I don't think it comes into a lot of our daily management systems, which I see as a gap monthly it probably comes in a little bit more from my experience, but still, we're probably not following the whole plan. Do Check Act PDCA cycle as much as we should, which, again, is probably leading to more issues. And then, of course, we don't see this cross functional, cross functional collaboration approach that we spoke about. So all of these gaps lead up to inventory issues. And sometimes we think, Oh, well, somebody is just not good at inventory. Somebody's just not good at ordering. It goes so much deeper than that, doesn't it?
Evan Powell 31:27
It's this thematic problem, and it's understanding, yeah, to your point there, there's gonna be frustration that's probably coming through on those, yeah, those daily SQb, DAP boards and whatnot, that's going to come through. And there's a good chance inventory is related to something we're just not capturing in it. So capturing in its own, its own form. So what we need to start to then do is, how do we then build a system that manages our inventory for us? And I'm not talking computer systems. I'm talking our management systems for how we go about doing it. And it really starts with us. Understand what are all those jobs that we need to do to yeah, those tasks that need to be done, and then what controls and steps we put in place to make sure that it's ticking off what we need to be doing, and that's where we then start to come into those review cycles. Should be those counterbalances to the activity? Is it in control? And there's really basic things that, you know, a lot of people, a lot of businesses, do, or the miss out on doing that. You know, if they put that in place, would have wonders for them. A simple one is just tracking the status of your purchase orders. So it's all, well, I've picked, I've placed all my orders for the day. Has your vendor acknowledged them? Have they given you an ETA? Do you know that that's got them? Because so often, you then go into it and then say, we're out of stock for an item. You pull the system apart and say, Well, hey, what's the status in this item? Oh, there's 10 on order. Okay? When was the order placed? Oh, the 29th of April. Oh, that was four months ago. Now, I like, had they got them? I like coming in, not managing those vendors in a proactive way. It just leaves you, you exposed up to chance. So it's setting up those right review cycles and building up that system to make sure that you're ticking off all those boxes and really then integrating and collaborating with the rest of the business again, what their requirements and what their needs are, and you can then make sure that you find the right messaging out to the other parts
Catherine McDonald 33:08
of the business as well. Yeah. Well said, I also think this whole idea of end to end visibility is just so, so important that you know you mentioned there, when you pick up on issues with purchase orders or whatever it is, and the only way to pick up on those, I think, is to visit, make it visible, make the whole inventory management process or processes visible to everybody, and then use your cross departmental team to look at it with a with a critical and analytical eye to understand well, what are the issues and what do we need to do to improve them? So I think that you know that visibility is important. Have you ever any tips on making that, let's say, end to end, supply chain and inventory management process? Have you any tips on making it more visible to the entire company?
Evan Powell 33:57
So linking the two together, supply and demand is very is very difficult in the traditional ERP and MRP view of the world. Now, I think with the out of end of tools such as Power BI and things like that, there are definitely ways that we can do a lot to make it visual, but we've all got to start with what are those key things that we need to be looking at? Now, one of the most useful things that I do, well, I like to think that it's useful with my customers, and working through and just understand that net inventory position for that view out of the world. So it's, yeah, what's our inventory on hand today? Less, what's our forecast plus what's inbound orders, and what growth or other things that were coming into that inventory? Less the forecast plus inbound gives us a net inventory position at the end of this month, and then we can project that starts to get a really good view of the world if we're then managing based on vendors and lead times that we can say, well, where's everything going to be sitting in end of August, in September? What do we need to be acting on? Because that comes back down to that, if our forecast can get blown away today, but we can act on that now, we're going to sell ourselves a big headache ahead of time. Yeah. Yeah, so working to create some clear tools. And, you know, breaking that, there's a page by the vendor, you can just look straight down a page and see how's that performing. But then I think a big part of it's working them through. Well, what are those key filters that we need to be looking at based on the activities that we need to be doing to keep our business in balance? And then it's them working through, I think, with the system providers or your IT teams. But how do we then start to bring those in places so that we've got a really clear view of the world around those exceptions? Because once we start to see what's in control and what's out of control, it's very visual. Bringing the colors into it makes it a lot. It's very easy to work through. So it's going there needs to be, obviously, the inbound side of things, with the managing supplies on the end, there needs to be the bit around what items are currently low on stock or likely to become low on stock through the back orders, because a back order is too late. That's your lag indicator. It's already taken place. But if we didn't start to go well, what drives a back order? An out of stock is going to lead to a back order? Well, there's a good chance that an out of stock will lead to a back order. But then we can actually get further and say, Well, what's expected to be out of stock. And if we start looking at that way, we can then start managing that exception list as well. And then that all sort of thumbs down and builds the way up of how that starts to work. So it's going through and think, what are those key disciplines that we need to be looking at all those key functions. That was what our business needs it to be. And we then start to then utilize the reporting we've got available to tie those data sets together. Because again, the challenge, I think, is often we would just get a push button report that comes out of a particular system, but we've never actually time to think, to go, Well, what do we need to make this useful? For me that's scalable, that I can come back to every single day, because, yeah, we'll run the same push button report every day, but it's static. It's not live. It doesn't integrate with everything else. I've got to take that information and go looking up over here. Up over here, and then integrating with my sales team, we've got to end up pull all that to, you know, to go, what's the solution that we can really run to on a much more regular basis, that can then become as a visual dashboard, that the business can then all be geared up to and whatnot, and that then ties into those daily and those more monthly review cycles that we need to get into True.
Catherine McDonald 37:01
True, yeah, so keeping your metrics clean and simple as well, so that everybody understands them, I think half of the time when people look at graphs, I mean, when we get down to like, right throughout the organization, so many people don't understand what they're looking at on a dashboard. So that is half the battle is to have less metrics, almost and more people that understand the fuel that you have. You know, for me, there's,
Evan Powell 37:25
there's three metrics, there's three metrics that are important. You're stuck on hand, and, yeah, that's your big lag indicator. But and stock on hand is very hard to look at. You know, it doesn't mean anything if I look at it today, but if I track it over time, it tells me a story. It's like looking at, you know, rocks in the Grand Canyon or whatnot, where you've got all those layers of the rocks that the geologists is you can then start to then see that over time and say what decisions were made over time that's led us to this particular outcome. So inventory is one that overall value, that's it set. Then there's the stock on hand, or stock days and our stock terms, because we want to make sure that at the end of the day, we want to see that our days on hand is reducing because we're increasing the velocity of product moving through our business. And that's that real sign that we're then optimizing the way that things are working. Because again, if we increase velocity, we increase how much we decrease how much is just sitting around gathering dust. And that's going to have also wonders for our working capital as we start to really start to then smooth and free better. And that will have an impact on reducing the inventory down, and then we have to then bring in those customer service metrics. So I like to use perfect order index, because it aggregates a lot of things together around your delivery, performance, your quality, your order accuracy, and it brings a whole business geared and focused on, how are we as a team working on enabling our customer and I think if you're managing those three metrics, and have them really clear what they are, you can start to see those, those impacts, that the benefits from it as well.
Catherine McDonald 38:48
Brilliant. Yeah, I'm glad you brought in the customer voice there as well. It's obviously huge. We We know that inventory problems, they're usually process problems, and we know that we need cross functional teams to solve them, but the voice of the customer is also really, really important here to tell us, well, what are customers happy with, what are they not happy with, and what did what problems should the team actually be be working on, and what's most important to the customer? So, yeah, really, really, really, great. Well done. Okay, so I guess there's not much more to go through, I think Evan, but um, couple of questions I had. Okay, so we talked a little bit about we talked a lot, actually, about the processes and systems. We haven't talked a lot about leadership. So I just want to ask you one question, which we probably ask most people, what role do you think leadership plays in all of this, in terms of making inventory management work? What do you think? How do you think leadership influences, and what should leaders be doing to make this all work?
Evan Powell 39:48
So strategy and all starts with leadership, right? And again, as I said, right at the start, the businesses that really put an emphasis on supply chain and building capable and supply chain outperform their peers. So, yeah. From my perspective, there does need to be a clear directive, I guess, in that, you know, collaboration through from leadership right the way through the business, and say that this is the part of the business that we need to be focusing on. And the reasons why is that we need to make sure that we are able to service our customers in a better way, and we're able to then make sure that we're offering, you know, a ton of business for everyone to work in, because it comes with actual respect for people, right? If we know the way that our supply chains work, we're going to take a huge amount of noise and stress out of the business. So they need to start to, I guess, reset that, that vision for what the future starts to look like, and then saying that, you know, your supply chain should be is something that can really grow into a competitive advantage for your business and something that enables your growth. Yeah, look at what Amazon was to what Amazon's become now through their supply chain prowess, and that's just, I guess, one example that's been able to use that really leverage that away. So there is a clear view that investing in supply chain and the way that inventory works enables your business. Then it then comes down to the as managers and leaders in the business, they then be working on, how do I coach and how do they develop their teams, to then start to think cross functionally, and start to then come into what do these review cycles look like, and how do we start to really set that mandate, almost, that we want to create a predictable business to work in with outcomes that we can plan and forecast out with confidence. Then we then come into that, yeah, the role of leaders need to be. Then really starting to step down into attending those daily review meetings, going to GEMBA, going to the site that's taking place, getting out and really seeing how where inventory touches the business and is it, is it is it level? Is it smooth? Is it working how it should be? Or have I got forklift operators are driving pallets of stock here and everywhere just to make space for what's coming in. That's where we need. Then leaders start to be trained to observe where, what are those symptoms of underperforming inventory, and how can we then start to feed that back into those review cycles to enable those better outcomes?
Catherine McDonald 41:47
Yeah, brilliant. And that it has to be driven. It doesn't just happen. You know, it is a role, isn't it?
Evan Powell 41:53
It requires, as with any, as with any change in leadership and any change management, it requires active buy in and active work on it, and it's sustained, active work over not just a month or two, it's months to years to make sure that maturity continues to really shift, and then the business can then really embody that as it goes through.
Catherine McDonald 42:12
Yeah. Great, good. So I hope there's lots of list leaders listening in here today and getting all these nuggets from you, because it's really, really, really important. Okay, last question, Evan, if a company, I guess, suspects they have an inventory problem, but they're not sure, what do you think are the the signs, the red flags they should be looking out for to tell them that actually, yes, you need to listen back over Evan's interview and take every all of his points really seriously and do something differently.
Evan Powell 42:39
So yeah, generally speaking, you'll see symptoms of underperforming inventory, which will be what's bubbling along on the scene. So frequent stock outs, high absolute excess inventory, congested space. You need to get into three PL requirements, inaccurate data, regular, urgent or expedite orders for visibility, lack of poor Orcus, poor relationships, poor performance. Now those might be things that is bubbling away under the seams that are just how we operate. It's how we do things. It's always been this way. It might not be that tipping point which you'll get some businesses will go they've had a major stock write offs, they've had to get a stock take order done, or something's gone on, and then they've had a big six digit, if not more, it to their their panel through a stock take, and then that creates a, oh, goodness moment. We've got to go do something about that. So those, I guess, the same of they're the things that are bubbling around, the same. So if you've got any of that, it's time to then start to maybe, let's start to go, what are our metrics? What are our measures? What? Why are these things coming up? And why is it a common talking point that we've got there? Understand the stress of your customer service team is a really good just, you know, litmus test as well. Litmus test as well, to see, well, are we putting them under pressure regularly? Because if they're under pressure, our customers are feeling the pain, and we're not satisfying our customers in the right way. Once we then start to, I guess I go through and understand, I guess one of those, what are those symptoms? How they performing? Like I said, we get into those, those three measures that we should be looking at, which is that stock days on hand, our stock value over time, and our perfect order index fulfillment rate to customers, because that gives us that good current state of, yeah, we've got that check and that balance in of our inventory investment, how well our inventory is performing with the stock turns and then how well it's servicing our customers on the back end of it, that gives us a good starting point to go through and say, Well, what's our current state today? From there, we then start to, then step into going, what's that inventory management system to be which comes into one of the jobs to be done, the tasks to be done, and how do we make sure that we've got the right structure to those workflows and then the right, I guess, counter measures or processes to those review cycles to make sure that things sit tight? Again, simply two review cycles, daily and monthly. Make sure you're nailing those daily review cycles as you start to step into that. And with that real clear focus on those exceptions and those problems that have come up, and if there are issues that are coming up regularly, take the time to do a root cause, deep dive into those and see what's causing that. And then you then start to hopefully get to those fixed, forever solutions. Don't just fix it for that item. Don't just fix it for that vendor, going through and say, well, which other items, which are the vendors potentially fall into that category? And then we can then start to fix it across the board. One final thing is that inventory management is not a one straight, yeah, one size fits all approach. It can't be a one size fits all approach. I liken it to painting a house. If I've got to paint a wall in my house, I'm going to have a little brush for cutting in. I'm going to have a roller, and then I'm going to have a brush for touching up the way that you start then categorize your inventory and understand how your inventory is broken down. It's different strokes for different folks. We've got to then say there's different strategies that we put in place for our A items, our runners versus our repeaters, although that are more variable through that long tail at the back end of it, how do we then start to manage and create to manage and create different strategies for all? Because that's when you'll start to then really unlock the optimization and then free up that working capital that comes through as a result.
Catherine McDonald 45:50
Yeah, and I think that's particularly relevant for different size companies, small, medium, large multinational businesses. They have different resources, different budgets to even spend on inventory management. So that's a really, really good point. So Evan, I just want to thank you. That has been really informative, really educational, really important discussion, I think, and not something we focus in on by itself in a big way, especially on the podcast here. I don't think that I can remember we haven't done it in this season or last season, so I think it's been really beneficial. I just want to thank you and Evan, if people want to find you, where can they find you or contact you? Yeah, perfect. So thank
Evan Powell 46:31
you for the opportunity. Catherine, it's been wonderful to be part of it, and I can share my mission to solve the world's problem with inventory and ending inventory headaches. You can find me@evanpower.com.au or on LinkedIn. Evan Powell 90 as a handle there, and look forward to, I guess, yeah, reaching out to any of your listeners, or hearing from any of your listeners. I'm sure they
Catherine McDonald 46:50
wish to reach out brilliant. Okay, I encourage anybody who has any inventory questions or issues do reach out to Evan. He obviously has so much knowledge to share. So to all the listeners. Thank you so much, and I hope you will join us next time on the Lean solutions podcast. Bye for now. You.
Transcribed by https://otter.ai