The Situation: One of the largest computer retailing franchise companies with over five hundred franchisee store locations had outgrown their product distribution systems. Things were not good. Nearly every order was late shipping and had many errors. Inbound carriers were frustrated at delays in having their freight unloaded, as the retailer’s receiving operation was constantly several days behind. Suppliers were up in arms over payment delays prompted by a beleaguered payables department unable to validate receipts to invoices. No one trusted the inventory numbers on the computer system and "search and count" the warehouses had become a daily ritual. Customer service moral was falling lower and lower as the phone calls from irate franchisees steadily rose. A hasty relationship with a contract-warehousing provider was established with hopes of rapidly expanding capacity and cutting order fulfillment costs and lead times. Inventory shrinkage was rising astronomically. Franchisees reported their shortages and kept the overages and miss-picks for free. Service grew steadily worse. Franchisees threatened to withhold fees and leave the chain. Operating expenses were out of control. At the same time the computer market was shifting and expanding, double-digit growth was the norm. An incredible opportunity to capitalize on the proliferation of PC technology was in jeopardy.

The Solution: Working with managers, associates, customers, and suppliers, we began by creating a list of undesirable effects (UDEs) that could be observed in the franchised reseller’s current situation. They are listed below:

• Inbound carriers are frustrated at delays in having freight unloaded.
• Suppliers complain about over due payments and are getting more and more reluctant to ship additional products.
• No one trusts the inventory numbers on the computer system.
• Customer service moral is getting lower and lower.
• Franchisees threaten to withhold fees and leave the chain.
• Franchisees complain about the "high" cost of freight for their orders.
• Operating expenses are out of control.
• Order cycle times are too long.
• 1st pass order fill percentages are too small.
• Almost every shipment has multiple product errors. (1. Shortages 2.Overages 3. Wrong items)
• Losses of inventory are growing larger and larger.

From constructing the Current Reality Tree for this situation, we identified two core problems that were causing the majority of the undesirable effects (UDEs). They were :

(1) The operational processes are fragmented and error prone and lacking support systems.

(2) Customer demand is very dynamic and difficult to predict.

Our direction of solution was determined from these two core problems as follows:

• We needed to redesign all operational processes and support systems to be oriented toward trapping errors as close to their source as possible and to facilitate error correction at that time. And, to not make error identification and resolution punitive.
• We needed to redesign all operational processes to be constructed of activities with built in redundant checks for upstream errors that were not previously handled.
• We needed to add automatic data identification to reduce errors and add efficiencies.
• We needed to redesign operational processes to support better inventory tracking and control.
• We needed to better exploit the existing inventory to increase 1^st pass order fill by improving forecasting accuracy.

The following high level injections were developed to begin our construction of a Future Reality Tree.

To read more on the actual outcome of this case refer to this  ID Systems article.

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