I heard a great story on how Nick Saban’s Alabama football team wins so many games.
The story goes like this: They never focused on the outcome of the game or looked at the scoreboard. Instead, they focused all efforts on executing the very next play. Every play was treated like it was a game and everyone needed to focus on putting everything into that play. As soon that play was over, it was forgotten, and the energy and effort went into winning the next play.
The idea was that if you follow this process, the score will take care of itself. (Of course, this is all part of a bigger process that Saban has for running the program. You can find more information on this here.)
What struck me was how much this story applied to tactical inventory planning. That is, how you can apply these lessons to the monthly grind of setting your safety stock targets.
Here’s how the lessons apply:
- Focus on every single play—Focus on every SKU. In tactical inventory planning, you need to set the right safety stock target for every SKU. This means that you need processes for cleaning the data so that you have the right forecast, forecast error, minimum order size, order frequency, seasonal factors, lead time, lead-time variability, and desired fill rate for each SKU. A tactical inventory project requires a lot more attention to detail and a sophisticated data management process. Running rules of thumb based inventory policies (which many businesses are guilty of) is like having an offensive playbook with half a dozen plays, running the same plays every time and hoping for success.
- Focus on every single play Part II. Taking this a step further, if you don’t like the amount of inventory you have for a given SKU, you need to work to change how the SKU is managed and what projects you start to improve it—you can make it more frequently, you can reduce the lead-time, you can forecast it better, etc.
- Forget the last play—Don’t worry about stock-outs. I’ve seen a lot of cases where a single instance of a stock-out event causes the organization to throw out solid scientific ways to set safety stock targets. Instead, they will bring in excess inventory to prevent this SKU from stocking out again. Sometimes, they bring in so much of the SKU that it never comes close to running out. The company eventually has to liquidate inventory because the item is now obsolete. If your fill rate is 99%, you should stock out 1% of the time. If you stock out you shouldn’t revert back to bad habits. One caveat, if you are stocking out more than you’d like, go back to step #1 and make sure you have the details right.
- Don’t look at the scoreboard—Follow the above two points and let your inventory decrease naturally and service levels improve. The only sustainable way to reduce inventory and improve service levels is by following the above two points. It is easy to just lower the inventory, but soon fill rates will tank and you’ll be under pressure to increase inventory to where it was before. Or, it is easy to bring in excess inventory for better service, but soon you will find yourself with too much cash tied up in working capital and lots of obsolete items. Put the process in place and let the inventory and service take care of itself. If you don’t like the results, go back to #1 in this list.
If you build a robust tactical inventory planning solution, it allows you to build upon successes. For example, when you reduce lead times, the new lead time data will flow into the system and the safety stock targets will be adjusted automatically. Without such a system, it is not clear how you actually get to lower safety stocks when you do manage to reduce lead times.
This article first appeared on SupplyChainDigest. (Picture source: Fox Sports)