This month's advice doesn't come from me - it comes from one of Britain's most successful retailers, Sir Philip Green. During an interview with the BBC a couple of weeks ago he was asked what was important in today's economic conditions. This was his reply:
"It is about speed to market; speed is more important than price"
In other words, you've got to have what customers want to buy - not just something cheap. And he went on to say, "the supply chain is everything".
You can be sure he knows about success. So how can you take his advice and create that fast, agile supply chain for yourself?
I've got three ideas for you. But before I tell you what they are, I want to explain what makes them work.
One of the greatest culprits when it comes to slowing down supply chains is stock. The more stock you've got, the longer it takes an item to get from one end to the other. So, when you take stock out of your supply chain, the speed at which products flow through to your customer will automatically accelerate. And that makes you improve your processes to support that faster supply chain.
So my ideas for you aren't based on speeding up processes - they're based on removing the blockages. I've identified three reasons why stock grows - and suggested what you can do to stop that happening to you.
REASON #1: KEEPING UNIT COSTS LOW
One business maxim we're all taught about is economy of scale. The more you make of something, the cheaper it gets. The trouble is, it's so well-known that hardly anyone thinks about why it's true - which means we don't know when we should challenge it.
Long production runs give you lower unit costs for one reason. It costs you a fixed amount to set up a production run, irrespective of how much you make. So the longer your production run, the cheaper your product - because each item carries less of that fixed cost.
That's why there's always pressure to increase production runs - it brings your unit costs down. But don't forget, there's another way to get the same result. Instead of increasing the production run, you can reduce the set-up cost. That has exactly the same effect. And short production runs are what you need if you want to respond quickly to what your customers want.
REASON #2: LOTS OF PRODUCTS
If you're trying to increase your sales, then you've probably increased the number of products you stock. That's because it's usually easier to sell new products to your existing customers than it is to find new customers for your existing products.
But you need to know what effect that has on your stock. If you double your sales by doubling your product range you'll need a lot more stock than if you double your sales by doubling your customers. In fact, you'll have to hold almost half as much again.
But you can do something about this. If some of your products are variants of the same generic item - for example, if you label a product differently for different customers or different markets - then you can keep your stockholding low by only creating these variants when you need them.
Stock your product in the generic form, and only customise it when you've got an order to despatch.
REASON #3: YOUR CUSTOMERS ARE UNPREDICTABLE
You don't know what your customers are going to buy. Conventional stock control tells you that the answer to this lack of knowledge is to invest in safety stock. You hold stock just in case one of your customers places an order.
But why be passive? If the underlying problem is lack of knowledge, then you can also solve the problem by knowing more - about what your customers are likely to order from you.
Don't just invest in more safety stock. Invest time and effort in talking to your customers and understanding their markets. The better you are at understanding and predicting your customers' behaviour, the less safety stock you'll need.
So here are my three practical ideas for how you can take Sir Philip Green's advice and make your business all about speed to market:
- work on reducing your set-up costs so that you can keep production runs short
- stock products in generic form, and customise at the last minute
- don't just invest in safety stock, invest in knowledge about your customers
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Lucidea can help you speed up your supply chain. I'd be pleased to come and explain
what I can do for you - completely free of charge. Why not give me a call - today.
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