Golf is a game where you often cannot see where you might land. When you tee off you may not even be able to see the green and the flag. There are hazards along the way and you have to decide a strategy that minimises the risks and get your ball ever closer to the hole. Hitting the perfect shot is very rare. If you play well you will make par for the course.
Some shots are more difficult
At critical points you may well have to decide how much risk you should take.
Is it better to play a two shot strategy and be safe, or go with your driver and aim to be on the green in one, but run the risk of ending in a bunker off the fairway.
Inventory management has some very similar challenges. Perhaps the most difficult is handling the product that you only sell to one customer, but you sell a lot and you really want to continue what has generated a lot of profit in the past.
If you sell to many customers then it is much much easier. It is just like the short hole where you can see the pin, there is no wind and you hit a comfortable iron shot. Just swing and muscle memory does the rest.
However the rewards are probably not as high either. Everyone can make par.
How do you play the harder shots like a high volume to just one customer and make par more often, and even hit some birdies?
Making par more often
The first thing to understand is the lie of the land. Why might this be a risky play? If you are only selling to one customer and they only use it on one piece of equipment that may well be decommissioned at the end of a mine's life or on completion of a project then that could well raise your risks of being left stuck in a trap.
On the other hand if you know when a project is about to be complete then you will find it much easier to manage your risk. Information can save you.
However something like COVID19 is the sort of business disruption that is much harder to overcome as it can come out of the blue, like the sudden wind storm that interrupts the golf tournament. With appropriate scenario planning you can prepare for eventualities and react better.
The key message is information and preparation can certainly help frame the best response to the risks and challenges you might face.
Price the Risk
Whatever you do however it is important to recognise that there will always be some residual risk you just cannot manage through information or preparation. You cannot always see the 18th hole. You therefore need to include a provision for possible obsolescence and that could be 15-30%. In our experience the carrying cost on the really fast movers might well be say 20%, but on the very slow movers it may need to be 35%. That means you need a far higher gross margin for the slowest movers.
Manage and Share the risk
If your provisions have to be too high then maybe you need to have a conversation with your special customer along the following lines … "We have been supplying product X for several years now. It is important to us both. We want to make sure we have the stock so what are your plans …". There may even be merit in offering a discount for firm orders two months in advance or similar. Share the risk.
And maybe for the slow movers to very few customers you need to adopt a less aggressive service level to avoid over stocking. Hopefully you have the right sort of club in your golf bag to do this.
Know when to play differently
Our inventory planning system is run on auto-pilot by our customers, or at least that is what they try to do for as many products as possible – it helps their productivity.
Not wasting time on the easy decisions means that you have time to invest in relationships and high value decisions with uncertainty where needed.
Importantly review scores can help you prioritise where to spend your time. High volume, high value item = good. But high transaction count, but with only one customer ought to trigger an alarm … time to contact the rep or the customer and have a friendly chat about plans for that old piece of equipment. Some investment in the relationship on critical items that are unique to that relationship can help them and you.
And of course you don't want to get taken by surprise. A product can so easily have been a top performer but now is only used by one customer – time to play differently.
So in inventory management you can stay at the top of the leader board. You just need to pick the right shot to play at the right time with the right clubs and perhaps have some good coaching too.