Scary Stories for Halloween: End of Quarter Skew

I meant this as an answer to Michael A Massetti, of Gartner's, brilliant question about End of Quarter:

'...Are all areas of performance excellence in supply chain really strengths?

I know that many of us have faced and suffered the curse of the end-of-quarter (EOQ) surge. This stresses supply networks to the brink. Any of myriad disasters or hiccups can occur that cause your company to miss revenue or profit. And, to make it worse, once you get into a cycle of repeating this, it's very hard to break. Customers are trained to wait. After they buy at EOQ, they're not ready for more until the next EOQ anyway. Who wants to have a down quarter just to smooth this out and bear the wrath of the stock markets?....'.

My answer ended up as a novel so I thought it would be best to publish it as a post! Sorry Michael.

In my experience it has a major, ongoing and pervasive impact on an organisation - it is something that HAS to be tackled early and with focus!!!

How we deal with End of Quarter (EoQ) is a good area of discussion for Halloween - scary process that certainly frightens me!

How we deal with End of Quarter (EoQ) is a good area of discussion for Halloween - scary process that certainly frightens me!

Most companies have a skew - in some cases it is incredible! I have seen up to 30% of sales in the last 10 days of a quarter! Very much up close and personal!

The impact and the pressure on the supply chain and the overall business is massive. I have run teams that are world-class - Gold Medal performers - at running extreme EoQ’s - performing miracles quarter after quarter. They know who they are! None of us are proud of what we have had to cope with - conversely I'm incredibly proud of what that team has achieved for me consistently!

The skew has far reaching impacts across the business:  

Your BMS becomes EoQ driven, KPI's become EoQ driven. People focus on it as the one success measure in the business. Time off is EoQ driven. Communications tend to be EoQ driven.

It has a Human Cost: staff working extended hours through Christmas & Holidays & not being available for the first CRUCIAL week of the next Quarter.

It creates bad karma and people get rewarded for doing things that are BAD for the Organization. It tends to become the driving rationale behind the supply chain after a while - blasting all other areas of innovation & creativity to one side as it self-procreates and builds. Not good for talent retention!

It devalues those times when you really do need a miracle at the EoQ and the miracle you really need gets lost amongst the continual miracles the team are performing just to stay alive!

It tends to show a pervasive disregard the worth of 'Supply Chain' and is the mark of an organisation focussing on 'boxes through the door' not profit.

It creates that 'staring contest' mentality between buyers and sellers - the first one to blink loses!

Strangely it is the one area of Value Chain collaboration that works well between supplier & buyer!!

Strangely it is the one area of Value Chain collaboration that works well between supplier & buyer!!

It impacts along the end to end value chain to a far greater degree than we initially think:

• Capacity & resource costs in manufacturing and additional staff at all other points of the chain to deal with a spike - Supply Planning, Order Entry, VMI, Line side feed etc.
• It drives additional logistics costs as more finished goods space is needed. And partners need to pay more for the uneven demand. Inevitably it creates real capacity problems as ALL end of Quarters across multiple organizations coincide.
• One small slip – EDI connection goes down, an accident, a mislabel - has a 'Tsunami' type impact back along the chain – and cascades backwards, freezing up other areas in the upstream chain at that absolutely crucial & non-recoverable time!
• Uneven inbound flows driven by the peak have a consequence of  too much component inventory as the need to meet the spike is all encompassing. Indeed you are probably overpaying for components driven by additional capacity, inventory elsewhere.
• Increased operational sensitivity & a risk of missing the numbers at the last possible moment becomes a reality. Add the consequent impact of that with Analysts and share price.
• EoQ 'Deals' are likely less profitable. More is given away to ensure a sale: a direct impact on the bottom line!
• Service levels that go with these late deals may be incredibly tight (dare I say 'impossible'?): leading to a a greater chance of messing up and impacting all important CSAT + business repeatability.
• Additional resource, risk, cost, effort, complexity etc, duplicates at all points of the chain downstream.

The whole process tends to be like a drug that is addictive: a Mobius strip with no start and no end. Analysts want numbers + sales want deals = end of quarter skew + supply chain cost + lower profitability.

The whole process tends to be like a drug that is addictive: a Mobius strip with no start and no end. Analysts want numbers + sales want deals = end of quarter skew + supply chain cost + lower profitability.

So how to stop it?

• Firstly it tends to be a cultural thing in an Organization: you definitely need to look at that uniquely.
• Secondly, DO THE MATHS! Create a business case for the total additional Cost to Serve of the EoQ skew using ALL of the areas above and show the value of reducing it. Show what each % reduction in the skew is worth and socialize that number. Shame some people!
• Thirdly create an ongoing measure of cost per unit. Sit it next to and report it alongside the performance metrics in the EoQ BMS.
• Fourth, just don't allow DEALS at the EoQ unless they are signed off at an identified senior level: once there is no reward for it in Sales, it will very quickly stop.
• Fifth, don't reward EoQ hero's. I'm not saying don't act positively with the supply chain guys for the 'diving catch' but don't make it a personal objective.
• Lastly, just take the one time hit - it is one time! Cost improvements will be massive & all will be forgotten within a month!

It’s a major problem.

It says more about a company than just its profit, complexity and cost impact.

It says more about a company than just its profit, complexity and cost impact.

It creates a problem culture. It demotivates - it's great the first 4 or 5 times you do it and the buzz is immense - but after that you begin to question the reality and logic!

BUT it can be resolved relatively easily and logically IF a business wants to resolve it!

Happy Halloween!

Just ping me if you want some help!!