Harvesting The Cash Locked In Your Inventory With Scott Blakemore

TRANSCRIPT

Scott Blakemore helps businesses to get really smart about efficient inventory management to improve their cash flow and their profit.

And this helps the productivity of their production.

Scott, welcome.

Thank you, John.

So Scott, how did you get into inventory optimisation?

Well, I was referred a client by a very senior sales executive who.

Said that something wasn’t quite right about the operational side of the business and would I mind coming in to have a look and to ask a few questions?

Yeah.

So I arrived at this client and assembled the management team to ask a couple of very simple questions that would allow me to get a fix on how the business was travelling.

And the very first question I asked of the senior management team.

Because they were a very large distributor of products, of medical products, was how many SKUs do you have?

That is stock keeping units.

And they all looked at each other and decided to have a guess.

And the reality was that there wasn’t one person in the room, the CFO, the COO, head of distribution.

The purchasing manager, no one knew, and this business was, you know, quite a large distribution organisation.

So I would have expected that because their business is in distribution of products, they would know how many SKUs they had currently in the system and also in their warehouse.

And the fact is that no one in that business had a read on exactly just how much.

Inventory they had both in range and also in depth, right.

So that obviously told me a lot and what was really important was that the conclusions I made were really quite shocking because.

Of the trajectory of growth the business was enjoying.

So I asked them to do one simple thing.

They were using SAP and I asked them to interrogate the data that they had in the supply chain side of the organisation.

There were no metrics that were being collected, for example, not delivery in full on time in spec DIFOT as we all know it to be.

So I really didn’t have much data other than or or a fix on how the business was performing.

Only anecdotal evidence from the senior executive in sales that told me that we were missing deliveries.

So I dug out a model that was given to me or sorry that I was taught at Swinburne University when I was studying my postgraduate qualifications in lean, the Toyota production system and one of those models was specific to inventory.

It was a very, very simple diagnostic tool and it’s called the Glenday Sieve Analysis.

And the the word Glenday comes from Ian Glenday who is a British management consultant and just like how we normally saw inventory in A’s, B’s, C’s and D’s.

This is very special and I believe superior because it assigns colours to inventory types.

Oh yeah, and colours are of course emotional.

It’s hard to get emotional about a letter A or a letter D, but it’s very easy to get emotional about the colour green and the colour red.

Yeah, and so.

Once we assembled or once they assembled and I asked them to go away and interrogate the information, the rest is history.

It led to a four-year consulting project that was incredibly successful and enabled the business to achieve stratospheric growth from $270 million top line revenue to $660 million top line revenue in four years.

And the ratio of inventory that it value against revenue fell from 26% to 14%.

Oh wow.

So suddenly I had an operating model that was incredibly effective and that began, you know, that started my journey on inventory optimisation as dry a topic as it is.

Well, actually some of us don’t think it’s that dry.

So Scott, what is inventory optimisationthen really in its simplest form, it’s a systematic continuous improvement system that will allow us to move our products in its, you know, most efficient way.

So it’s end to end, it’s.

From the manufacturer through to the enterprise and from the enterprise to the customer.

And in its simplest form, it’s about flow and speed, reducing lead times by being absolutely spot on with your forecasting and having the right product in the right place at the right time in the right quantity.

Yeah, that’s what inventory optimisation is.

Yeah.

And what are the real benefits of doing this?

Well, fundamentally it means that our delivery in full on time in specification measurement, which is how our customers judge us, climbs to well above 99.

8%.

So in other words, it’s about meeting our customers expectations because in the end as consumers and we buy something online.

All we really care about is having the product that we ordered and paid for delivered when it was promised, the right product in the right quantity at the right cost.

That’s how customers judge the performance of any enterprise.

So that’s the main benefit, being able to give our customers confidence that we’re going to do what we promised we would do.

Yeah.

And I know from my experience dealing with with some of my clients that.

You know, when I ask them, you know, what’s their DIFO and some of them can tell you, Yep, we’re sitting around 95, we’re talking about 98.

4, you know, we track this on a weekly or a monthly basis and that’s great.

And others look at you wanting you for you to sort of say delivered in full on time and specification and then they say, hmm, don’t know, I think it’s pretty good and and that’s I always sort of work on the assumption that.

Therefore it’s probably about 70% if I was being generous and then and the next question I asked him is so out of every 10 customers, how many are you trying to upset and disappoint and is that what you want your business to be known for?

And and it seems to be that that’s the sort of penny drop moment when they sort of think, OK, so I’ve gone to all the effort of either.

Finding new customers or or nurturing and supporting my existing customers.

And in a in a snap of a moment, I can actually destroy all of that hard work simply because it doesn’t turn up.

Or if it does turn up, what’s in the box isn’t what they ordered, or if what’s in the box is what they ordered, it might not actually work.

And that’s a big deal.

Scott, take us through your approach to this.

Because this is not simple, but but it certainly isn’t dry either.

No, look, I’m, I’m really excited to be given the opportunity of talking you through, you know, the model that I’ve developed.

I’d have to, I’m going to disclaimer this and say it’s a hybrid of many other models that I’ve attached and brought together, but I have.

Over the course of the last 6 to 8 years, I’ve enhanced these models and added, you know, I guess a few things that that make sense to the original.

Yeah.

So in essence, you know, I’ve certainly improved and you know, lived by the credo of continuous improvement by improving these models and enhancing them to best effect.

So how do I do it?

I believe in simplicity, and simplicity is all about getting the right information and interrogating the data that the enterprise, the organisation, the company has in a very, very simple way.

So I’ll take you back to the Glenday Sieve Analysis model and the colours.

So the real power of the Glenday Sieve Analysis is its simplicity.

And strikingly, it’s ability to be able to help transform the culture of an organisation to understand what potentially is quite an abstract function in the business.

It’s very you don’t learn necessarily inventory and inventory management unless you actually do a specific supply chain related degree or undergraduate degree or modification.

Yeah, it’s just something that you need to serve a customer as opposed to realising that it it can actually cripple you, correct.

And what’s really interesting is that most of the people in most of the functions in an organisation are concerned in some way about inventory, except potentially HR.

So the accountants of course are very interested in inventory, totally.

The warehouse manager is very interested in inventory.

The pickers, the Packers, the factory operators in a manufacturing organisation are are concerned about inventory because if they don’t have the part to work on or to machine, then that’s obviously an issue.

So everybody throughout the organisation, apart from maybe one or two functions, are really keenly interested.

and are touched by inventory in some way, shape or form.

Yeah.

So therefore, if there’s a simple model and a common language that we can use together throughout these functions about inventory, then suddenly everybody knows what everybody else is talking about, which is sounds pretty obvious, butI think we’ve all been in business long enough to know that perception about what someone says is not reality.

So the Glenday sieve analysis has a very, very curious mix of categories to define inventory statistically.

And the statistics of this, how many SKUs give you 50% of consumption?

Or sales or margin or movement or cost.

But let’s stick with consumption, cause that’s the easy one.

So how many SKUs give you 50% of total consumption in the course of a year?

How many SKUs give you 45% of consumption?

How many SKUs give you 4% of consumption?

And how many SKUs give you 1% of consumption?

And what I did was add another one.

How many SKUs have not had transaction for greater than 12 months?

Zero.

And what we do is we assign colours.

So the 50% of consumption, they’re the high movers, they’re the fast moving stuff that flies off the shelf.

So let’s call them green because green is a positive colour, yeah.

Then the next 45%, let’s call them yellow and the next one, let’s call the 4% blue and the 1% is red.

And then we’re going to call the zeros, that is the ones that have not had a transaction or move for greater than 12 months, slob as we know it, we’re going to call it grey.

Slow moving and obsolete.

Yeah, correct.

So we’ve now got a road map to assign value or consumption of widgets and putting them into a framework.

And a simple pie chart is probably the most, the most powerful way.

of showing everybody in the organisation what our inventory really looks like through the prism of the Glenday Sieve pie chart.

Umm It is phenomenal the impact that this has.

I have been in rooms where there has been disbelief, noticeable gasps and shock.

And in fact, potentially even anger and denial.

Yeah, this can’t be right.

that’s impossible.

Well, I’m sorry, Andrew, it’s your data.

So what I will say to you is this, if you can imagine a pie chart with five colours on the disk.

The smallest colour on that disc is green.

And I can tell you, after having done well over 200 of these programs, irrespective of the industry, irrespective of the products that companies sell, the disc looks the same.

It’s incredible.

So I can say to you that less than 3% of the SKUs that most businesses hold, less than 3%.

Of the SKUs that most businesses hold give you 50% of sales or consumption.

Jeez, I can then flip that and say on average 50% of the SKUs that give you 1% of sales are in red and the disc is dominated by the colour red, right?

So in between you’ve got the yellows, which are 45%.

So when you add the green and the yellow together, you get 95% of consumption, right?

And when you look at that disk, only 1/4 of the disk features green and yellow.

So all the rest is just sitting around waiting for something miraculous to happen.

Correct.

Chewing up, chewing up warehouse space, chewing up management space.

Correct.

So it’s the, it’s the unending accumulation of in lean terms, waste.

And what’s really interesting when we look at lean and the teachings of lean and the principles, one of the eight wastes of lean is inventory.

Yeah, because inventory by its very nature is waste.

Because you’ve paid for it, you’ve paid for it to arrive here.

If it’s come from overseas, you’ve paid for it to be freighted to you.

You’ve put it on a shelf.

It sits there for however long.

If it’s red, it’s got a very low stock time.

We then take it off the shelf, put it on a truck and send it to our customers.

Or in its simplest form, we buy a box.

We put it on the shelf, we take it off the shelf and we put it on a truck.

Or in manufacturing terms, we buy a box, we put it on the shelf, we add value to it and then we send it on a truck.

But in distribution businesses, that’s a pretty simple business model, buying a box, putting it on the shelf, taking it off the shelf and putting it on a truck.

So what happens is that these businesses become very, very fat.

Because of the accumulation of slow and obsolete stock because their forecasting mechanisms are weak.

Yeah.

So for example, the business that I mentioned previously, when we did the analysis of their SKUs in SAP, we found that they had 80,000 SKUs in the system.

They had 36,000 SKUs that were live.

That is, had had a transaction during the course of that year and they had 16,500 SKUs in the warehouse.

The most frightening thing when I arrived on that first day with that client was that the COO was so proud of how much the business had grown.

He actually said to me that they are going to relocate to a much bigger warehouse.

I highly recommended to him that we wait until the analysis is done.

So when we did the analysis on the 16,500 SKUs that were in the warehouse, of the 16,500 SKUs that were in the warehouse, 267 gave them 50% of consumption, 267 out of 16,000, sixteen and a half thousand.

That’s nothing.

That’s nuts.

And so then I love to flick to the Reds.

So how many red stream items are there?

If green is only 267, how many of the SKUs sitting in your warehouse give you 1% of sales?

10,500 of the 16,500 or 1%?

Nearly 2/3.

Wow.

He had a warehouse that was literally burdened by slow and obsolete stock.

Yeah.

So when you pull that thread, there are so many other questions.

Yeah.

So once you’ve done the analysis, the diagnostic using this incredibly powerful but stupidly simple tool, the question then becomes, well, what what the hell are we going to do with red stream items?

So what I have done is I’ve linked it to, again, the lean teachings and the lean principles.

Of using 5S or in fact we’ve added another S of course which is safety.

So we apply the Japanese principles of 5S to our inventory and of course the very first S in the 5S process is sort.

So we then go through the manufacturing plant or the.

Distribution centre and we apply very large fluorescent green, yellow, blue and red stickers throughout the entire factory and throughout the entire warehouse.

Wow.

And we go through every single bin location.

We go through every single space in a manufacturing plant, including work in progress.

and we tag it.

And the end result of that is hopefully a kaleidoscope.

So we are going to see with red, of course, being the dominant colour.

Umm It’s a very, very shocking moment when I grab the CFO by the hand and take them into the warehouse that’s been fully tagged and just go, sorry, go for a walk.

And we go for a walk and I take CEOs down into their businesses to see the waste and to have meaningful conversations about what this means for the business.

And so we apply this the the success process using sort the time frame of which.

Can vary dependent on how large, physically large the organisation is, but it’s a fantastic opportunity to get people involved.

It’s a it’s a meaningful activity to uncover just how ugly the baby really is and to engage the pickers and the Packers and the receivers because they all know.

Because they live inventory every single day.

They know what moves quickly, they know what moves slowly.

They know in the bowels or the depths or the seller of the warehouse, the stuff that doesn’t move.

So getting them to actually apply the stickers is a fantastic opportunity to start the conversation and build a new culture, a culture in in in understanding the dynamic of moving stuff.

Right.

So the upshot of all of that is that you’ve done the diagnostic, you’ve used the Glenday sieve.

Hopefully you’ve done a stock take recently so the data is accurate.

You then apply the first principle of sort, which is tagging and once you’ve tagged everything.

You then remove the red stream items from all locations and quarantine it.

Yeah.

Once you quarantine it, you create a space that is exclusive for all the products that do not move or have minimum movement.

Yeah, including the grey stream items, if there is any.

Now the grey stream items, remember, are products that have not had a transaction for greater than 12 months.

In essence, potentially dead stock.

Yeah.

So certainly in some organisations like for example medical devices, you’ve got expiry dates.

Yeah, you’ve got products that potentially could be damaged and can’t be can’t be sold.

There are a whole list of of of permutations related specific to to some products that make the decision-making easy.

Yeah, we want to be ecologically friendly.

We want to have the ecology of the planet in mind.

So the last resort is to send this stuff to landfill.

There must be an opportunity to find the value that this product has.

If it does, if so, for whom does it have value?

Can we promote it?

Can we give it away?

Can we?

Use it for training purposes.

Hopefully there’s some sort of value associated with the red and the grey stream items that will allow us to to give some benefit to someone again in medical devices.

In a client that I’m currently working with, we have excess stock.

Certainly we have a lot of red stream items and we are right at this moment arranging a flight to Ukraine.

To give wound care products to people throughout, you know that that war zone for desperately needed supplies.

So there are opportunities to to do something good with slow and obsolete stock, but once of course you’ve removed the red stream items from the workplace.

As work in process in manufacturing or as stock in distribution centres, suddenly you’ve got an empty warehouse.

Yeah.

So suddenly you’re able to see the footprint that you were paying for.

Yeah, to host product that had no value to your customers.

What that allows you, it’s a game changer on itself.

It’s a game changer.

Just the visibility of it, correct.

So then what it does is allows you to reorganise and redesign and relay your factory footprint.

You have space where space did not exist and what you’re able to do is ensure that the fast moving products are closest to where the activities occur and you can colour code.

All the bays or all the locations in the factory as to what products are consumed.

So you’re actually building another tenant of lean into the system, which is visual management and suddenly you’re able to create flow and you’re able to get the most out of your space, space utilisation, yeah.

I’ve had businesses that have been so effective in this because they’ve had so much red stream items, they’ve actually sublet half the factory and created another income.

Umm So that’s very exciting that the planning of a new footprint, again, gives you opportunity to engage the staff, to engage the staff and get their buy-in.

Because they’re the people who are best suited to help advise what the flow should be given good guidance, and therefore they own the decision, they own the solution, and it transforms the culture from the ground up.

One thing to note is.

How did it get this way?

How do these businesses get to a situation where they’ve put so many kilos on that they can’t move?

Umm And you’ve got to pull that thread to see what the culture of the organisation is like and what drives the culture of the organisation in its current state.

Many businesses are sales driven organisations.

They are top line focused.

There are two ways of making profit in business.

Only two ways.

Reducing your operating costs or increasing your margin.

Yeah.

Unfortunately, what I have found, irrespective of whether it’s a distribution business or manufacturing, although it’s more prevalent in distribution, is that it’s a top line driven organisation.

Yeah.

And when you look at the costs that are incurred in having a large footprint with inventory that doesn’t move, the margin is eroded.

Umm So it’s about having meaningful conversations with the sales team about whether or not they truly are forecasting accurately.

And many of the organisations that I’ve worked in recentlyDo not forecast.

So once we have an eye on what’s driving the purchasing decisions, we’re able to start the conversation concurrently with the rest of the rest of the management team.

So whilst the warehouse and operations or production and manufacturing are getting on with their job.

We now need to start to have hard conversations about the quantities of products that we’re bringing in and whether or not we are forecasting accurately, which obviously determines what product we do bring in, in what quantities.

Yeah.

So at this stage when we focus on operations, we’ve done our sort.

We moved to set in order, which is starting to contemplate a reorganisation of the factory or warehouse and redesigning it so that it flows, so that it’s more efficient.

Some of the productivity dividends we’ve had when we’ve reorganised these operations have been in the vicinity of 250%.

So an example is when I worked in a 5 1/2 thousand pallet warehouse.

We were picking with 18 people and getting 300 orders out a day.

When we reconfigured the warehouse to the Glenday sieve colours, we were getting 1200 orders out a day with 16 people.

Wow.

Yeah.

So there’s also a product, massive productivity dividend and a fantastic capacity increase.

Absolutely, absolutely.

Which which enables you to.

You know, not add any more cost as the business grows.

Exactly.

Yeah.

So we’re at sort and set in order.

Shine, of course, which is cleaning as we go, bringing all things up to an as new standard, new lighting, you know, transforming the place into somewhere that is not old and tired as so many older factories are or older warehouses are.

I’ve had people come up to me with older, older blokes who have had difficulty reading barcodes when they’re picking because the lighting has been so poor or the aisles have been so narrow that the light doesn’t even permeate down to to the level of of what they’re picking and they can see and it’s such an incredible thing and you know, it makes their job easier.

Anything that makes any person’s job easier, more effective, more efficient is worth doing.

Then of course we have standardise and sustain.

So standardise, take a photograph of what that aisle should look like.

Take a photograph of what that value added activity is in the manufacturing or production environment that.

The state of that process should be fixed to allow, you know, excellence to be performed.

And finally, you sustain that by auditing that process and ensuring that everything has a home.

There are no boxes on the floor.

There are no boxes in bin locations that are incorrect.

And the final thing is obviously sustaining doing the Glenday sieve analysis every quarter.

Yeah.

Because it’s a spectrum.

If your business is involved in seasonality or is impacted by seasonality.

Yeah.

What was green in summer, if it’s a skin cream, maybe a deep yellow or a low yellow in winter.

Hmm So that gives you the opportunity of fine tuning the factory or the warehouse according to the seasons.

So you’re levelling up and you’re levelling down.

So once that part is done, the physical transformation of the business in terms of helping it become more efficient, isolating the red and the grey, removing that from the process.

Bringing green and yellow to the front, which all sounds pretty common sense and obvious.

It’s amazing how many businesses don’t do it.

Then we move into the really important next phase.

How do we prevent an accumulation of or how do we stop receding back into the old habits and the old ways?

How do we prevent putting on those kilos again and the best model?

that’s been around for quite some time is an S&OP process.

So sales and operations planning, the old Oliver Wright model.

It’s amazing how many companies perhaps have not even heard of S&OP.

Now in its current guise, it’s called IBP, Integrated Business Planning.

📍 But I like to call it S&OP because it brings the sales people and the operational people together in one room to talk about inventory and to talk about forecasting and to talk about purchasing and to make sure the effort that goes into ensuring that we have the right product at the right place at the right time in the right quantity at the right cost.

Umm So we implement An SNOP with a view to preventing the accumulation of waste, red stream and grey stream items and to make sure that we are never out of stock of green stream items, never out of stock of yellow stream items.

And if you wanted to, you can even simplify your business even further with looking at the top 20% of the yellow stream items or top.

20 to 30% of the yellow stream items and that will give you your 80:20.

So in other words, you’ll have a significant few SKUs that give you 80% of your consumption.

Yeah.

And if you’ve got, for example, the the company that I’m working on or working with at the moment that has 7000 SKUs, they have 134 green stream items and the next.

Um, 20% of yellows, of which there’s 300, you’ve actually got 434 SKUs out of 7000 that give you 80% of consumption.

So as we get better and better at understanding the dynamic of inventory, you can simplify it and simplify it again, concentrate just on those products.

Then you can look at those products and see where you know, um, who was supplying them.

And it’ll only be a handful of suppliers.

Yeah.

And so when you tap into your suppliers forecasting and sales and operations planning process, you’ve now got an incredibly rigorous and strong supply chain, which will prevent the disruptions that we’ve all seen in the last three to four years with COVID and now with geopolitical stress and also the weather.

Impacting on global supply chains.

This is a really simple method of being able to build in a structure and a system that is simple, that will protect most organisations from significant supply chain disruptions.

Yeah.

So once you get the sales and the operations guys sitting around the table and sales being held accountable for their forecasts, yeah, up to.

Three to six months in advance.

And certainly if they are a project based business, in one case I had a building materials company that manufactured building products and drainage systems.

When you think about a major project like Badgerys Creek Airport, the drainage systems for this company, they are now planning the manufacture of products to go into the Badgerys Creek Airport precinct.

Two years in advance, yeah.

And they have their eye on that every week.

So an S&OP process is a cycle.

It should occur every month and it’s all about demand planning and it’s all about supply planning.

Can manufacturing make the forecasted demand?

It’s very hard to get.

Above, say, 80% forecast accuracy.

But if you measure it, you can control it.

Yeah.

And what gets measured gets attention.

So it’s about not isolating or making it difficult for anyone.

It’s about having honest conversations as a team about what’s coming up and what do we need to do to supply our customers.

Yeah.

So once that process is done.

The one of the final steps we do is we look at product life cycle management.

So the Glinday sieve analysis is incredibly effective at helping us manage our product life cycle.

So if you think about it for both new products and established products, if they’re a hero product that is.

High volume, high margin at the top of the product life cycle curve, they’re going to be a green.

But the competitive dynamic of the marketplace may mean that a new product arrives on the market that supersedes the capability of your product.

Yeah.

So you’ll see it fall from green and then transfer through yellow to ultimately blue.

Now remember, blue’s a really strange statistic.

It’s 4%.

4%.

It’s a really strange number.

So basically it’s the canary in the coal mine.

It’s identifying that once a colour or once a product moves from green to yellow and then into blue, you know that that is the time before it becomes a red to exit the product.

Yeah.

So you need an inventory manager or a supply chain manager or a demand planner and supply planners to be red hot on this so that when the product does fall into a blue, it immediately triggers a conversation about do we keep it?

And if we keep it, what do we need to do with it?

Do we need to promote it?

Do we need to repackage it?

Do we need to change the formula, et cetera, et cetera, or.

Do we remove it from inventory now before it becomes a red and make sure that we don’t purchase any more of it?

Yes, turn off those automated purchase orders.

That’s right.

So that’s what Blue’s job is.

Blue is is the Canary in the coal mine.

Now in theory, if you’ve got a new product in theory.

that you bring to the table, then it should enter the product lifecycle management curve as a blue.

Yeah.

Because there is already demand for it.

Yeah.

And then we track it and hopefully get it into the yellow.

Yeah.

And then drive it really hard and get it up to green.

So the spectrum of colours is dynamic.

HmmSo the products will move up and down that spectrum, whether it’s a high yellow or a low yellow, whether it’s a yellow that unexpectedly moves into a green, you can track these items.

Yeah.

And that allows you to allocate, you know, resources to how those products are performing.

So in a nutshell, that’s the model it’s.

A system through system.

It’s interrogating the information using the Glenday Sieve analysis.

It’s redesigning and reorganisation, reorganising the operational capability of the organisation, either in production or in the warehouse, so that you become more efficient and you reduce your operating costs and increase your capacity.

Yeah, and then the next step.

Is getting the sales guys and the operations guys to be talking to each other to get some accurate demand planning happening so that we can prevent the accumulation of that waste.

And suddenly what are you left with?

You’re left with an agile organisation.

You’re left with a business that can pivot.

Uh, it’s not carrying all the weight of a front row forward.

It’s an agile half back.

Yeah, put it in, you know, I guess rugby league or rugby union terms, but also in AFL terms, it’s about having the old Ruck Rover.

Yes, being a Ruck Rover and being agile, you know, being able to turn on a dime and respond to the market or even set the pace.

All those resources that used to be wasteful because we were burdened by so much inventory can suddenly be repurposed or redeployed.

Into new product development, into innovation, into research and design and suddenly you’ve got a totally new business.

So out of the the 200 plus projects that I’ve done in the last eight years, the success rate is exceptional and the result is a a significant improvement in cash flow.

Yeah.

Which during these really difficult last couple of years has actually triggered interest in this particular type of model?

Oh, without question, I mean the savings or the in warehousing facilities.

new warehouse relocations and additions is astonishing in that regard, just alone, but also, you know, creating capacity.

I mean, a lot of a lot of people sort of think, oh, well, if we go, if we’re going to save all this time, then that means that we can pull pull labor out of the business.

My view is always, well, if you’re actually creating capacity, how much more could you do with it?

How much more could you do that would actually be interesting for those people as well?

How could you challenge those people as well?

Absolutely.

There’s a real opportunity there.

It’s it’s it’s not about a cost down exercise, it’s actually about capacity and growth.

Absolutely.

And exploring opportunities that that didn’t even exist.

One of my clients um was so successful in implementing this model they actually created.

Out of nothing, a kitting process.

So they were actually adding value by bringing common products together and branding them specific to their customers.

Now that’s a value added activity in a distribution business that didn’t exist before.

Yeah.

And suddenly the margin that they’re selling that product on is, is incredible.

They’ve now got a new innovative process that they didn’t have before value adding in a distribution business.

Yeah, that is absolutely fundamental.

And we’ve also seen an incredible uptake of of click and collect.

Yeah, or you know, door to door direct to the consumer.

Suddenly when you know you, you rethink the business and look at the new channels to market that are emerging with technology, then suddenly there’s no reason.

Why businesses can’t explore new markets through new channels and new value-added activities and a new revenue stream.

But at the moment are so burdened by, you know, the weight of their inventory, the weight of space, the cost of the space, the cost of the people, the cost of et cetera, et cetera.

This is how to transform your business into a truly agile 1.

Yeah.

Without all the technology that’s required.

Yeah.

Yeah Excellent.

So, Scott, do you want to walk us through a case example?

You’ve already covered a few insights, but is there a case example you’d like to walk me through from sort of start to finish or?

Yes.

Well, I’ll use a a a reasonably current example.

You know, I was asked recently to to look at helping to transform the culture of an organisation.

And when I asked some questions and did a walk through the organisation, there are a couple of things that stood out.

One was in their warehouse, it was a mess and there was product everywhere.

And there’s also a culture which was dominated by blame.

And when we started to, you know, what I call peel the onion, ring after ring after ring and get to the, you know, the the core of what was wrong, everybody was talking about inventory.

Yeah, not in a good way.

We were missing deliveries.

Our fulfilment rates were very low and yet they had a warehouse that was full.

So how could that be?

So.

What it did do was immediately make me go to the source of of what was happening.

So that was in the warehouse, talking to the people about what they saw, what they were experiencing, speaking to the inventory manager, speaking to the customer care and customer service team, and it all came down to the dominant.

The the dominant conversation piece was all about stock, not having enough of it, having too much of the wrong stock and not enough of the right stock, if you like.

Yeah.

So when you’ve got that situation, it puts stress on everybody because everybody is there to serve the customer.

They recognise that, they know that, and it’s a stressful environment because they know that they’re missing their goals.

Or their targets.

And it’s only human nature to blame everybody else or blame the person who you perceive to have more influence than than yourself.

So again, the very first thing was to go to the data, have a look at the data and understand what it’s telling you in a very simple method.

So we did the Glenday sieve analysis.

And we found that 2.

8% of the product that we currently had on hand was green stream items, 50% of sales.

Unsurprising now that I’ve done it so many times that that that figure keeps coming up below 3% of total stock on hand generally gives you 50% of consumption.

And of course then there’s looking at the red stream items.

So we’ve ended up with 50% of 7000 SKUs, which is obviously 3 1/2 thousand SKUs of Redstream items.

The initial conversation I had with the senior leadership team was that the warehouse wasn’t big enough and that relocating the warehouse and finding a larger warehouse was imminent.

I was able to influence them.

And put to them that in fact the two are in inextricably linked.

The culture of the organisation and inventory are inextricably linked and in fact one is a symptom of the other.

Culture, given that it was a difficult, unhappy culture, was a symptom.

Of the fact that we didn’t have the right products at the right place at the right time in the right quantities and everybody was blaming each other.

So once we did the Glenday sieve analysis, it allowed everybody to share a dialogue with a common purpose and that people immediately understand what a green stream item is and they understand what a red stream item is.

One of the conversations that we did have, however.

The difficult conversations is getting people to let go of the red because it’s precious.

We’ve bought it, you know, it’s uh, there’s this psychology of hoarding, of not wanting to let it go because I might need it one day.

And when you look at one of those 12 years ago and I might get another, that’s exactly.

I remember working in a manufacturing plant.

It was an aluminium window manufacturer and it was dominated by offcuts.

So the offcuts were stacked vertically, which was clever, which is how you want it to be.

But the very first thing when a assembler would get a picking slip was would.

Is that he would go to the offcuts and try and match the profile of the aluminium to any offcuts he had.

And because there were so many offcuts, it would take him about 45 minutes to find one offcut.

Geez, in the misguided belief that they’re saving money.

Yeah, and to have that conversation, you know, I mean, of course, aluminium.

Is a highly specked and you know, a quite a an intensive product to manufacture from an environmental point of view.

And so it’s, you know, whilst I applaud wanting to save offcuts of aluminium, I also found it very difficult to have the hard conversation about.

Well, in actual fact, the time that it’s taking your fellow to find the offcut is misguided in.

Well, it’s misguided in the fact that you think you’re saving money.

But the time that that person’s spending looking for that offcut is actually where the real waste is.

So anyway, back to that other other project.

So look, we are deep in.

A huddle about redesigning and reorganising that warehouse is entirely likely that we will give them three years before they will need to move to a larger location.

And that in itself is a significant cost by being clever about removing the red stream items, removing the grey stream items, reconfiguring the racking.

And in fact what I really try and do is is remove racking.

The more racking you have, the more horizontal space a place has, the more likely something’s going to be put on it.

And in fact, one of the worst things I’ve ever seen is conveyors, the conveyor rollers.

So in most warehouses or in most manufacturing plants, the conveyors are a fantastic table to put stuff on, so.

You know, it’s generally the very first thing that I remove is a conveyor, because what it does is, is it makes us lazy.

If you reduce the amount of racking and reduce the amount of utility that exists in the warehouse or managing inventory, it forces you to behave in such a way that you only touch it once.

That is the most efficient way of dealing with anything.

In a factory or a warehouse.

So it forces you to find a home for it, and that that becomes its home.

It forces you to move it and touch it once instead of double or triple handling.

If you have a set amount of racking for the optimum amount of inventory that you’ve calculated, then it’s impossible.

To overburden the business because there’s no space to do it.

So in essence you can actually design the the factory or the warehouse to mistake proof it.

Or as the Japanese say, poker yoke, which is mistake proofing and preventing it, making it impossible for.

The accumulation of waste, if you’re really clever about it.

So the forecast for this business is fantastic.

I think we will redesign and reorganise the warehouse, warehouses and I think we’ll get a productivity dividend and increase our capacity.

by probably around 200%.

At the moment, the business has 20 casual staff working with them.

I believe that the full-time employee numbers will stay.

We will redeploy the full-time employees, but we will have no need for casual employees.

That is a huge benefit to the business.

And we will able, we’ll be able to train the full-time employees in the new methods and cross skill them using the colours.

So a picker is now now no longer a picker.

They can also receive green stream items and it it helps with the training matrix to develop the capability of employees in the factory or in the warehouse when there is a visual management system that allows them to.

Be guided by.

So it has incredible, incredible benefits and I’m, I’m very focused on on the cultural aspect of building capability and initiative amongst employees on the factory floor, on the warehouse and this allows us them to allows them to do that.

So yeah, the the opportunity for this organisation is significant and.

It couldn’t come fast enough because demand is almost exponential in this, in this industry.

So yeah, yeah, we’re built in capability and the legacy of, I guess my team’s involvement is that they have a new language and that language is green, yellow, blue, red and grey.

Yeah, yeah So Scott, I mean that that Talks to extraordinary change.

What can go wrong?

Well, that’s a great, that’s a really good question.

There are lots of things that can go wrong.

The buy-in from senior leadership team, they’ve got to own it.

Like with all continuous improvement initiatives, they’ve got to own it.

I guess the Glenday sieve analysis helps with that because it is about shock and awe.

It’s about creating disbelief.

Cause it’s a call to action.

And some, you know, most get it pretty quickly, especially the CEO and the CFO.

Yeah.

But if they don’t get it and and they don’t stand behind it, then actually you’re in deep trouble.

Yes.

And I’ve, I’ve unfortunately had one in incidents where.

You know the implementation not only of the Glenday Sieve analysis, but the next phase of 6S, which was the redesign and re reorganisation of the factory and the warehouse was seen by most people in the business, in sales in particular as just a tidy up and that misses the point.

Everything we do, we do for our customer.

Every action that we take, we do for our customer.

If it makes us more efficient, then that’s to the benefit of our customer.

Yeah.

So, you know, having a superficial understanding and not deeply immersing yourself in, you know, what this means for the organisation and what it means for our customer is a threat.

Yeah, bad data.

Information that is has been inaccurately stocktaked or audited is is obviously going to give you a false reading.

So we’ve got to make sure and in fact in in some instances we’ve demanded that we do not start the program until a stocktake has been done.

Yeah, you really know that your data is valid.

You’ve got to know.

Yeah, absolutely.

I mean the worst case scenario is to tag it red only for it to be a high yellow.

And then remove it from the shelf and then suddenly there’s demand for a product that’s no longer there.

So there are quite a few issues that that you’ve got to look out for.

Some of the others are.

You know, turning off your auto replenishment.

I remember a client once.

Yes, the trouble of they got rid of all their red items.

I love it.

Yes, I love it.

Yeah.

Turning off.

It was great.

Yeah.

No, brilliant.

And and also hesitation about wanting to remove red and grey stream items can slow you down.

Yeah.

Because the speed of the reorganisation of the warehouse, you know, plans slowly implement rapidly.

Is the mantra, you know, be considered.

Look at all options when you’re planning the reorganisation, the flow, the space utilisation, the velocity of product through the factory or through the warehouse.

Plan that slowly and be very considered and collaborative.

Ask everybody’s opinion.

But if there’s hesitation in removing the red and the grey stream items that are sitting over there.

you know, occupying 30% of the space with flags and bollards showing.

Look at me, I’m red.

If the product managers or the sales guys are having difficulty letting it go.

Then that is a real threat because you can’t start the reorganization without removing that.

So I actually sing the song.

Let it go from a well-known children’s movie.

Because it’s the only thing I can do to show my frustration, because I think it’s interesting.

I think human beings by nature are quiet hoarders.

And so that that can certainly be a threat.

Poor execution of success, you know, is is also a problem people.

It’s always good to do do at least half a day’s training.

With everybody to get them to understand and adopt the the disciplines.

Yeah.

So yeah, they’re the they’re the main ones bogged down in poor data, hesitation to remove red and grey stream items, poor execution of success.

You know, really do need to be guided by by a mentor or a coach.

Yeah, to make it work.

They’re the main impediments, constraints and threats to A to a well.

A well executed process.

Yeah, good, good And and this is not an insignificant undertaking.

So if I’m an organization, how can I get inventory optimization ready?

You know, how do I, how can I get myself ready for this process to help me and in fact the entire program to be successful?

Great question, John.

I would start, you know, the longest journey starts with the first step.

And I think for any CEO or CFO that’s that’s interested in helping make their business more efficient and more capable, I would ask one simple question of the most senior person that you have on staff who is responsible for inventory.

And that one question is how many SKUs do we have so.

And if if the answer’s a stab in the dark, then I would start to funnel other questions to see how much we really know about our inventory.

Yeah.

Because remember, it’s literally like the blood in the veins of an organisation and almost everybody in that in that in your organisation’s role.

Is in some way, shape or form touched by inventory.

Whether we buy it, whether we store it, whether we take it off a shelf, whether we work it to add value to it, whether we pick it up and put it on a truck.

You know, almost every single person in an organisation should be concerned about inventory.

Yeah, how well organised that is will determine how efficient and productive and profitable your business will be.

Yeah, so.

The first step of the longest journey is ask that one question.

The second step is to do a diagnostic, a very simple diagnostic using the Glendacev analysis to find out just how ugly the baby really is.

Yeah, that makes a lot of sense.

So how do you help Scott?

So I think shepherding organisations through the process.

Stage gating the process, ensuring that the company learns as they go about their business and their organisation.

Depersonalising issues, coaching people to learn the new way to interpret data in a clever and simple way and to encourage decision making.

That will enable the business to, you know, become more efficient and educating the senior leadership team about, you know, the meaningful activities that can occur and should occur as a result of getting, you know, really good quality information that’s telling us a story and a call to action.

And minimising cost, minimising the cost of how businesses would implement such a program by doing some clever and smart things.

It doesn’t have to be a massive transformation.

It can be nuanced at the beginning and then helping to educate and communicate to people the message about.

Uh, what the colours are and what they mean.

Then of course centering the business with the customer in mind.

So making sure that we’re doing this with the customer in mind because they are the ones who are going to benefit the most.

Yeah, yeahAnd I think with any of these programs, I mean the, the, the other thing that for CEOs and senior leadership teams is that.

When they’ve already got in their own mind the idea that, well, our factories or our warehouse is just not big enough or we just need to bring in RFID scanning or we just need to throw more technology or dollars at it, there’s all and and you’re actually suggesting the opposite.

Then there’s part of that that support that you provide is is the.

The raw data of success as well as the courage to actually challenge themselves as to what they previously thought was just more money equals more, as opposed to in a lot of cases.

This is actually very much around just taking simple principles, following what the data is actually telling us, which doesn’t need to be complete upheaval and and may mean.

Not having to build new factories, warehouses or lease them and, God forbid, get rid of that off-site storage that they’ve been hiding their blogs and their greys in it.

Yeah, the Reds and the greys are the sitting out in off-site storage that you see that untouched for for 10 years.

There’s yeah, out of sight, out of mind.

Yeah, and and you know, quite altruistic about this as well.

I mean, it’s good for the environment.

You know, I mean, it’s, it’s, it’s, we talk about a carbon footprint.

Well, the carbon footprint is purchasing too much, much more than what you need at any given time.

And you know, we’re talking about manufactured product, product that’s had value added to it.

I’ve got my own opinions and you know, which I won’t go into now about, you know, the push system, both in the European factories and the American factories where their belief is that if the machine is making, I’m making money.

So we’re going to make as much money as we possibly can.

So we’re just going to pump out product and then we’re going to push it to our clients.

You know that that is a prevailing concept with Europeans and Americans generally.

I I’ve witnessed it.

I’ve witnessed Australia being the dumping ground for medical products and medical devices in in far greater quantities than we could ever sell.

That is waste.

That is the worst of all wastes in the lean hierarchy.

The worst of all waste is oversupply.

Yeah.

because you’ve got to, you know, you’ve got to find a place for it.

And quite often that’s a warehouse offsite.

So the carbon footprint is increased by the amount that we consume that we don’t need, for which there is no demand.

And I feel very strongly about that because in the end, for example, if it is medical technology,It could quite have an expiry date.

Yeah, in which case it’s just landfill and and it is landfill fill because you can’t send it to a developing country.

The TGA will not allow you to send anything that has that you know that that isn’t within six months of expiry.

And yet how many places do we know could benefit from?

You know, the technology that we we’re privileged to have here in Australia, like, you know, the Pacific nations, yeah, even Pakistan with recent floods or of course the Ukraine, you know, these these are valuable.

It it breaks my heart to see beautiful products that have been manufactured for medical use and there is no alternative other than to send it to landfill because.

The regulatory, the laws state that you cannot onsell it.

Exactly.

If a CEO or a leader is looking to start adopting inventory management in their organisation, what #CriticalFewActions™ should they start tomorrow?

So I guess the Internet’s a wonderful thing.

Research the Glenday sieve analysis.

I’m a sharer.

I think to the benefit of of everybody who is interested, do some research on the Glenday Sieve analysis.

Ian Glenday is a wonderful fellow and his model has is exceptional.

He’s given me approval to use it to use his name and he’s given me approval to.

Also modify it as I see fit with the inclusion of grey for example as a colour in the spectrum.

So do some research, do some research on on key metrics that that might be suitable for your business in a particular industry.

A rule of thumb for example is to ask your CFO what your.

Inventory value is as a percentage of your top line revenue.

Now anything over 25% is almost terminal.

Best practice would be between 10 and 12%.

The best I’ve been able to do in an organisation is 14%.

So there there are restrictions there.

I haven’t been able to crack the 11:50 yet.

Well, I’m working on it and really get a a critical understanding of the dynamic of your inventory management system, irrespective of whether you’re a manufacturer or a distributor.

Yeah, yeah And the very first thing is you can run a report and show me.

Well, first of all, once I know how many SKUs we’ve got, I want to know how many SKUs we’ve had, we have in stock on hand that have not had a transaction for greater than 12 months.

Yeah, I understand.

That would be very concerning.

Yeah, absolutely.

Scott, thanks so much for your time.

This has been really informative.

I’ve learned a huge amount from it and I’ve thoroughly enjoyed the chat.

Yeah.

Thanks, John.

Look, I’m a sharer.

I enjoy sharing information.

I think, you know, it’s for the collective and greater good that we all share this so that we can help make Australian businesses more competitive.

Fantastic.

Thank 📍 you.

📍