Toyota President Taiichi Ohno developed and implemented the first Just-in-Time inventory plan in Japan in 1938. The concept was simple: “make only what is needed, when it is needed, and in the amount needed.”
Fast forward eight decades later—Walmart has adapted this basic JIT model to their retail inventory management in an unbelievably efficient, effective way. It’s downright impressive how formidable Walmart is when it comes to moving products through their supply chain and out their front door.
This focus on inventory management is what elevated the replenishment manager role within the walls of Walmart. A lot of retailers view supply chain and replenishment functions as a necessary cost in the profit equation, while Walmart views it as a true competitive advantage. Next to your buyer, the relationship you build with your replenishment manager may be your most important. To succeed, it is critically important to keep up with what is critically important to your RM. If you can make them look good, they will move mountains for your business. But to make them look good, you must know which metrics they are focused on.
Metric 1: Shipping on Time
Don’t be tempted to dismiss this measure as a “no-brainer.” The first essential metric of the JIT model is shipping the product on-time. The whole theology behind JIT inventory management falls apart if, at any point, the product does not move as planned through the supply chain—therefore, beginning on time is critical.
Metric 2: Shipping in Full
If you consider the simple concept on which JIT is built, you will notice the phrase “in the amount needed.” This means you need not overproduce or carry too much inventory, AND that it is critically important not to underproduce or carry too little. When Walmart orders product, they order what they need and expect their suppliers to be able to provide it.
Metric 3: Forecasting
An essential precursor to success of the JIT system is skill and diligence around forecasting. Walmart provides a lot of tools, particularly with the launch of Supply Plan, to provide great visibility and insight into what Walmart is “planning” to purchase. This information is based on seasonality data and POS history. It is critical to align your production with forecast AND to call out to the RM when you believe forecast may be under or over actuals.
Metric 4: Safety Stock
Safety Stock may sound like the antithesis of the JIT model—that’s because it is. Walmart expects its suppliers to carry a certain level of safety inventory to cover unexpected fluctuations in the purchase cycle. The remedy for poor forecasting is safety stock, so the worse you are at forecasting, the more expensive your inventory carry cost will be.
Metric 5: Proactive Communication
This metric is a bit “softer” from a measurability standpoint than the previous metrics, but it’s just as important, if not more so. If opportunities or challenges arise in any of the above areas, it is absolutely essential they are communicated to the replenishment manager as soon as they are identified, along with a solution.
Part of JIT management is being able to adjust and prepare to mitigate the risk of lost sales resulting from issues within any of the previous metrics. For this reason, proactive communication is absolutely essential.
There are any number of additional metrics, or forms, or processes your RM may request of you, but knowing, understanding and delivering against these critical five will provide a solid foundation for your relationship and will help your RM meet their deliverables.
If you have questions or if RM seems like too many details to manage or maintain, please get in touch. We would love to discuss how Arena can provide a solution to keep you, or get you, on a firm foundation with your replenishment team at Walmart.