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How to Prevent No-Selling?

Author Eric Slond  Eric
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– The average reading time for this post is 4 minutes –

In early November, I attended the ICT & Logistics exhibition in Utrecht, which coincided with Logistica. If you love logistics, like me, that’s a nice convention. At Logistica everything moves, from massive forklift trucks to automated baggage handling systems. Beautiful. ICT and Logistics is the less spectacular of the two. What are those IT’ers actually trying to sell?

In parallel sessions organized alongside the exhibition, several speakers gave their views on (changes in) Supply Chain Management in the coming years. Briefly it came down to this:

 

Customers must make clear choices!

Customer Intimacy, Product Leadership or Operational Excellence. Not to forget selecting the right system with it, because putting everything into one system is impossible.

It was all clear and informative, and a great way to steer an organization in the right direction with the right focus, but I missed the translation to the logistical consequences. What is the impact on stock management?

I think all three strategies share one common denominator: Revenue maximization.

How does it come about that one aspect is rarely talked about: Item availability. In my experience, item availability plays a subordinate role in all the solutions I’ve seen. There is often a lot of emphasis on efficiency and the automation of repetitive movements, preventing mistakes and even the “optimization” of stock. All of which are important given the costs involved, but in my opinion suboptimal. A lot of energy is focused on cost reduction – only realized after a usually not-that-small investment.

What if we consider the following question the most important for Revenue maximization?

 

How can I be as successful as possible selling my product to my (potential) customers?

I am convinced that the biggest gain is tucked away in the prevention of no-selling!

A common argument maintains that it is impossible to guarantee 100% availability for all products, because infinite stock would be needed! But is that so?

There is evidence enough that it can be achieved without having the stock go “through the roof”. One of the largest sporting goods manufacturers in the world already proved several years back that it is possible to eliminate no-selling without increasing inventory levels to unacceptable heights. On the contrary. The average inventory level even declined. And major retailers, such as Walmart, in the United States, achieved similar results. How did they do it and can you do that as well?

 

Be convinced that change is necessary and possible

To start with the last question, yes you can. How? Initially by starting to think that it is really possible and being convinced. One of the biggest obstacles is in fact convincing people. Not the technique and not the resources, but the organization and the manner in which the processes and systems are designed are the problem. We are holding ourselves back. And that starts with the need to address the question differently. We often fail to see that we need to change, because everything’s fine if we are not doing too badly right now, so why would it be much better? Roughly speaking, we do not have too many problems with dysfunction, because it does not hurt enough. But the solution begins with the process, and accepting the fact that change is necessary. If that belief is there, it naturally leads to intrinsic motivation. The will to change.

Once we are open to change, we can see that it is smarter.

 

Align supply chain with Point of Sale needs

But what goes wrong?

The focus is not on the most vulnerable link: the availability – at any time – of stock at the place where the sale is made. Everything, all processes, all activities, all attention should go there. And all the activities we do in addition would depend on, or rather, should serve this objective.

How do we ensure that the right amount of inventory is available in the right place? And the right place can be a warehouse for online purchases, or shops. Different supply chains in one company. It is even more important to optimize the stock – in order to avoid no-selling.

 

Push vs Pull

The difference in approach can be seen best in two words: Push and Pull. If you’re “pushing”, you start at the beginning of the chain, the supply side, and try to pursue the highest possible efficiency, among other things, by working with optimal order quantities and by trying to achieve economies of scale at virtually every stage of the distribution network: production, transportation, storage. Availability is as it were pressed into the chain in numbers that are higher than necessary, with the result that inventories are high. But the push strategy has another complementary effect: we “save” orders, meaning that orders are only made when a certain minimal amount is reached. The result is – paradoxically – deficits. These are the two main disadvantages of the push strategy.

A pull strategy starts from the other side, with the customer. Once the customer orders an item, the question trickles down to the previous link, where demand comes together from different outlets, and where aggregate demand is again put through to yet another link. This is repeated down to the first step in the chain. The idea behind a pull strategy is to minimize the creation of the “amplification effect”, for example handling minimum order quantities or long waits to order. A clear view of the actual demand is precisely the aim, so that we can effectively respond to changes, both positive and negative.

Use our Profit Calculator and find out your how much you can profit using Inventory Management software based on Pull approach!
Use our Profit Calculator and find out how much you can profit using Inventory Management software based on Pull approach!

 

Always selling: YES!

A pull strategy has many advantages over a push strategy, including a much lower risk of no-selling. The average stock in the chain is many times lower. The advantages are obvious, so why not focus on software systems to achieve precisely that? There are systems that can. Might just be the start of a sustainable way of working. More revenue, higher service level, lower stock costs.

 

SOFT4, as a provider of software solution for efficient inventory management, is constantly releasing blog articles about how to meet and cope with the trends, tendencies, and challenges, and give suggestions as to how to react to the changing environment in order to stay competitive.

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