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Archives for June 2010

Will the Automotive Industry add some Spark to the Economic Recovery?

By Herb Shields | 06/23/2010 | 12:13 PM

The New York Times Business Section article from Friday, June 18 – “Bullish signals from G.M. and Toyota” raises some interesting questions about the possibility of further improvement in the global economy.

 

Two significant items are mentioned in the article.  First, Toyota has announced that it is planning to start production of Corollas at its partially completed plant in Mississippi by the Fall of 2011. According to its web site, Toyota states that the building in Mississippi is basically complete.  The remaining work is mostly equipment installation. Approximately 2000 jobs will be created as production ramps up.  The NY Times article points out that Toyota used to build Corollas in a now-closed California plant, so these are not “plus jobs” for the industry.   Second, the article states that “G.M. said that nine of its eleven U.S. assembly plants would skip the regular two week summer shutdown.”  56,000 additional vehicles will be produced as a result, including new models that been in short supply.

 

The automotive industry has been one of the principal drivers of both the U.S. and global economies for decades so this is good news.  The trickle down effect for states that have been particularly impacted by the recession is well documented, so the General Motors announcement must be making news in Michigan, Ohio, etc.  I would expect that Tier 1 and Tier 2 companies in the automotive supply chain are already benefiting from the over-all improved sales in the U.S. this year.

 

The industry is still well short of what used to be the norm – 12 to 15 million vehicles being sold annually.  However, if the automotive industry is a significant customer for any of your suppliers, this is a probably a good time to make sure that the capacity that you need will continue to be available. 

Can Inventory be a Real Business Asset?

By Herb Shields | 06/07/2010 | 5:16 PM

 

When prospective buyers conduct a due diligence review of your business, and ask about your inventory control systems, how will your answer affect their offer?  When you are seeking additional credit from your banker, how will they value your inventory?  Your inventory may not have the same value in the eyes of the buyer or the banker that it did in the past.  I discussed this subject recently with Bill Finn, Executive Vice President of Highland Park Bank and Trust, a Win Trust Financial affiliate.  He and I agreed on four actionable suggestions that will insure that your inventory has the most value to you, and when necessary to prospective creditors or buyers.

 

The key metric for managing and valuing inventory is turnover or “velocity.”  We like the term velocity because it reminds us that inventory at rest is costing your company money.  Inventory that is moving through your process - that is being picked, packed, etc. is potentially earning money.  Turnover is defined as follows:

 

Inventory turnover = Annual cost of goods sold/ Average inventory

      

There are two ways to improve turns – sell more with same amount of inventory or when sales are declining reduce inventory at a faster rate than the sales decline.

 

Inventory accuracy is critical to keeping your customers satisfied, for insuring that buying decisions are made correctly, and for demonstrating to your bank that your numbers are reliable. Annual physical inventories only guarantee accuracy for a brief time. Soon after you finish, your inventory counts can change. So, if your annual inventories only remain accurate for thirty days, you’re operating with inaccurate data 92% of the time.  The best way to develop and maintain location accuracy is a cycle count program.

 

Cycle counting is done on a regular basis, either weekly or daily depending on the size of the warehouse and the number of items.  A cycle count team – one warehouse person and someone from either inventory control or finance - should count a randomly selected group of items.  Then they should reconcile the physical count with the computer record, book the adjustment, and do a root cause analysis.  The benefit of cycle counting is that when you do it regularly, and address the root causes of errors, accuracy will improve. With cycle counting, inventory accuracy is improved, and prospective buyers and creditors gain confidence in the accuracy of your financial data.

 

 

 

A third element of effective inventory management is “chunking.”  Most companies measure ‘turns’ for the entire business and think they can mange inventory at the “macro” level.  Don’t stop there.  Inventory decisions are made at the item and product family level of detail.  You need to find the manageable “chunks” of inventory for your business – i.e. product lines, locations, customer specific, etc.  When you can measure the turns for each chunk, you can make fact-based decisions about how much inventory to buy and hold.

 

A fourth important inventory management measurement is forecast accuracy.  Forecast accuracy directly impacts the amount of inventory in your system and how many turns you can achieve. 

 

While sales people may resist the idea of forecasting sales, they do know what their customers are likely to buy over the next 6-12 months.  There is also some history regarding sales data except for your newest products and customers.  Start measuring forecast accuracy, it will never be 90+%, but even small improvements can result in inventory reductions.

 

 

Velocity…accuracy… “chunking”… forecasts...  Sounds like a lot to do when you already have a full plate, but the fact is it’s easy to implement and maintain these processes.  Bill Finn mentioned that banks will view prospective borrowers who can demonstrate good inventory management practices more favorably in the loan approval process.  Banks may be willing to loan more against “good” inventory as compared to overstocks, obsolete, etc.  And, good inventory management will free up cash for the business, even if you are not looking for additional credit.

How many times can a Hair Care Brand be Re-staged?

By Herb Shields | 06/01/2010 | 5:06 PM

Bloomberg News published an interesting article last week about Proctor & Gamble’s latest efforts to reverse the declining sales for many Pantene SKU’s.  The writer, Mark Clothier, cited some information from P&G that the re-staged products will include some newly developed materials not commonly used in shampoo or conditioner.  He mentions that 17 PhD’s were involved in product development

 

Industry veterans such as your blogger have watched this happen many times with most brands in this category.  Sometimes restages produce great success, others become the last “gasp” of the brand.  There are many iconic hare care brands including Pert Plus (originally owned by P&G), Suave (developed by Helene Curtis, now owned by Unilever), and Herbal Essences (introduced by Bristol Myers, now owned by P&G) that continue to prosper by meeting the needs of a significant number of consumers.  Each of those brands has its own positioning as does Pantene which was a hugely successful restage itself back in the 90’s. Pantene has been the number one brand in the category for several years.

 

It will be interesting to see how P&G markets the new products.  While the Bloomberg article cites research and development and those unusual ingredients, I would guess that we will see little mention of that as compared to the benefits offered by the new products. Given the success P&G has had in the daily hair care category, my money is on this being the 3rd or 4th successful re-launch of the Pantene brand.    How many times can you re-stage a hair care brand?  I know it’s a big number, and with the number one brand, it should not be difficult.  What do you think?

The opinions expressed herein are those solely of the participants, and do not necessarily represent the views of Agile Business Media, LLC., its properties or its employees.

About Herb Shields

Herb Shields

Herb Shields has run Chicago-based HCS Consulting since 2000, helping clients across multiple industries and in higher education improve their supply chain strategy and execution. Shields has more than 30 years as an operations executive for capital equipment, automotive, electrical machinery and consumer products companies. As vice president of materials management at consumer goods company Helene Curtis, Shields led the supply chain organization that helped Helene Curtis win "Vendor of the Year" awards from Wal-Mart Stores and Target Corp. Shields has a B.S. degree in Electrical Engineering from Clarkson University and did graduate work in business at Bowling Green State University.



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