Data can highlight hidden inefficiencies in logistical processes better than simple human intuition. And for that reason, most futuristic logistical organizations have already incorporated data into their operational management practices. However, the challenge for almost all logistics companies is to generate valuable business insights from their data analysis efforts. Theoretically, it is easy to say that data adds value, but in reality, the “how” is more difficult. Below, you’ll find six steps to incorporate data into improving your operations management. The goal of these steps is to lower your operational inefficiencies — in essence, this is the path to increasing your profitability.
Step 1: Create a Credible Sales Forecast
Because your sales are influenced by myriad factors ranging from general economic conditions to your customers’ behavior, a credible forecast takes time to establish. For an accurate forecast, you must invest time to understand and quantify the impact these factors have on your business.
No matter how small your business is, you’ll likely find an overwhelming number of factors affecting your business. To avoid analysis paralysis, narrow your focus to a handful of variables that have the biggest influence on your sales.
Your forecast accuracy will probably be low the first few times you do it; however, that shouldn’t deter you. As long as your forecast accuracy improves over time, you are on the path to creating a credible forecast. After all, forecasting isn’t a science, but rather an art of predicting things as close to reality as possible.
Hitting a forecast accuracy of about 90% is usually good enough to prove that your model is credible. It’s not uncommon for demand planning models to take a couple of months to hit 90% accuracy, and some take years. However, don’t get hung up on 90%: The key thing is having a forecast that can guide you to make good decisions. A good forecast is only good until it is not — and thus, it is important to periodically update your demand planning model to reflect the ever-changing business landscape.
Step 2: Translate Your Forecast into Resources Needed to Fulfil the Sales
Once you have a credible forecast in place, you need to know the resources you’ll need to fulfil the expected sales. This step seems to be the most obvious one — but this is usually where most businesses fail.
Based on historical performance of your logistics, you should have an engineered performance standard. Use the engineered performance standard to deduce the optimal resources needed, such as labor hours and equipment.
The concept of having an engineered performance standard seems trivial, but such a standard is key to eliminating inefficiencies: An engineered standard implicitly establishes the expectation of how operational tasks need to be performed to avoid idle time. The absence of an engineered standard creates room for unnecessary idle time to affect your operations.
Don’t forget to take breaks and other clerical activities into account while planning for resources needed, and pay special attention these activities that fall outside the scope of your engineered standards. It’s generally best to have operational procedures dictate how and when clerical activities are done, coupled with strict enforcement, to deter unnecessary idle time.
Step 3: Share the Plan and Clear Expectations with Your Team
After you have established the optimal resources needed to fulfill forecasted sales, communicate with your team — especially those supervising labor and equipment usage. In most cases, labor and equipment usage plans don’t go beyond senior managers, even though such managers do very little to manage day-to-day operations.
However, communicating needed resources to supervisors isn’t enough. You should also set clear expectations on what employees need to achieve to adhere to the plan you set. For example, if the plan says employees will need to put in 100 hours of overtime to fulfill expected sales, you must inform the shift supervisor. Most importantly, you should hold the supervisor accountable to overtime hours after the sales are completed. If they do better than the plan, give everyone involved a pat on the back. Otherwise, the supervisors will need to explain why they failed to stick to the plan.
Unfortunately, holding people accountable in the workplace can create negative connotations. Our version of holding people accountable focuses on understanding why the issue happened. Thus, an operations supervisor should be expected to explain why they used more overtime than they were allowed. A reasonable such explanation could be unexpected sales spikes or orders that were difficult to process.
Step 4: Monitor Operations Status for Forecast Deviations
Creating a labor and equipment usage plan based on a forecast is just half of the work. The other half is building a contingency plan in case the forecast is wrong. In fact, having a completely accurate forecast takes a lot of luck. In most cases, a forecast varies slightly from actual sales figures. If the deviation is small, you usually don’t have to do much to arrange more resources to complete orders. However, if the deviation is large, you might need to activate a contingency plan.
A contingency plan can take many forms, such as having an arrangement with a temp agency to bring you extra labor if there is a sales spike. What you don’t want to do is search for a temp agency for the first time when you see a sales spike. Instead, you’ll want to speak with an agency early on, so that if you need extra labor, all you have to do is make a phone call.
Step 5: Collect Feedback, Review Operations Data, and Make Improvements
After you have processed all the volume as per the forecast, collect operational data and feedback from all stakeholders. Collect feedback on the efficacy of the plan you created, how difficult it was to enforce, what went wrong, and how sales spikes and dips were handled. Use this feedback to improve how decisions are made in response to variation from the original plan.
If the forecast was off, identify the reason why you got it wrong and use it to improve the model. If performance was far below or above the engineered standard, identify why. You need to know if there was a labor issue, or if the engineered standard needs to be changed.
Try to avoid turning this step into a blame game. Remember, the most important outcome of this step is to improve the forecasting, resource planning, and operations management. Mastering this 5th step is what leads to process improvement which translates to more business profitability.
Step 6: Repeat Steps 1-5
Your logistical operations will change as much as your clients and their needs change. Thus, you will always need to improve your forecasting model, performance expectations, and your response to market changes. If you make steps 1 through 5 part of your organizational culture, over time, your business will become more efficient and your profitability will increase.
Don’t let continuous improvement fall to the back burner — your business’ competitive edge relies on it.