The world is much easier to explain in black & white and when I was younger I lacked the knowledge and wisdom I have earned over the years, not that I’m old, but I can now appreciate the shades of grey in life. Someone told me once that we learn from our actions, but it is our mistakes that give us wisdom. I want to share some of my mistakes or mistakes I was part of.
Learn when to listen
As in store logistic manager in the Linköping IKEA store I worked close with the sales team in the store to take care of the articles that were being taken out of range. Two times a year we repeated the process of emptying out the old to leave room for the new products. Every time we faced the challenge of selling out the stock at a preset budget of price reduction. Best practice was to simply take the forecasted sales for the remaining period and see if we ended on plus or minus with the stock we had. If we had a minus we looked if the article was critical for our sales and looked if we could either get more of the old article or if the replacer was available earlier than the switch date. Then we looked at the plus too see where we would invest price reductions. We did not have advanced tools for price elasticity, so it was up to the sales organization to select what articles to push with price and articles to push through commercial actions. In some cases we traded articles that had not been delivered yet with other stores so we could focus on fewer articles and push bigger volumes. This was all done in Excel (blessed tool), and it was the plan. We only had the task to execute, but if the pile of stock was too big, this would be communicated back in the chain to see if we could change the time horizon (that very seldom had any effect).
One year we got a huge pile of 2-seat sofas. Let’s say that the original price was €60, because I can’t remember. Only problem was that the supply chain had delivered 120 sofas and ZERO covers. Another 80 sofas where to be delivered 6 weeks before the end date and there was no input on when the covers would arrive. Our feedback to the supply chain was very clear, if the covers don’t arrive with the last shipment of sofas, don’t bother sending them to us. Then we slashed the price of the sofa to €1.99, ordered some extra bedspreads that fit and sold it off as a package. The sofas where displayed everywhere in the store and we cut a deep whole in our price investment budget. The second delivery arrived, still no covers. By now I would cringe at the mere sight of these sofas, but we battled on. Two weeks before the end date we had 5 sofas left, that’s when we got a delivery of 200 covers. 195 covers that could not fit with anything, simply a waste of space. We could not even give them away. So we threw them out, costing us and additional €10-20 for disposal. My irritation is the fact that we spent money on cutting the fabric, sewing the covers, packaging, transport to the warehouse, handling in the warehouse, transport to the store, handling in the store and disposal costs when it could have started and ended with disposal. All that time and energy for nothing. If both sofas and covers had come at once, we would actually have made money, but that is sometimes too much to ask. My boss Stefan wrote about the supply chain being the good guys and sales being the bad guys. How good are we, really…
Supply Chain need to be able to understand the sales capabilities in their company and not just shrug off the sales input as a nuisance. In the end, if sales can’t do it or won’t do it, it won’t get done. No matter how sophisticated your forecast systems and supply chain processes are.
Also, the earlier in the chain you can take the cost, the lower the cost is, no matter what budget it affects.