In my travels as a consultant, I sometimes meet with distributors that buy a software package to help manage assets but don't trust it or cannot figure out why the numbers are out of whack. It seems the most common problem occurs when the numbers the system outputs regarding everything from replenishment to finances don't match the distributor's expectations. After further investigation, I usually find the system is functioning exactly as it should, but the inconsistency comes from what the distributor did to the system.
A software system's override feature is designed to help distributors manage some data anomalies so they fully understand what happened. There are overrides for a variety of strange events. It's important to understand that using the override option differs from implementing a work around of the system's functionality. Overrides should be used to make the system understand the anomaly when it crunches the millions of numbers necessary to produce your reports.
Often, a distributor will put in an override because it generates the end result desired without having to go back and understand how to achieve the same result the proper way. People in the purchasing department put in overrides more than by any other employees because they want the history to reflect the most perfect reality. But when putting in an override, what will be the downstream impact? And was the reason for overriding the system data documented so others can understand why it was done?
Overriding usage history is the most commonly used form of system overrides. Software designers put in override usage buckets for end users for strategic reasons. Let's say, for example, your usage of a particular product is trucking along at a fairly consistent rate, and then there is a huge swing in actual usage. What should you do? Using the example below, you can see why you should take advantage of the override feature the system designers developed.
For the first three months, we have fairly consistent usage for this product. There is some movement up and down but nothing dramatic. Next, we look at April's actual usage and see 700 pieces. This is a huge swing from the recent past, and this is not a seasonal item, so we do not look back at last year's usage to see if a large amount always sells in April. However, we can easily see something happened in April to make this an override usage candidate. But what should we do with the override option?
Let's figure how many are sold on an average daily basis. Let's say we have 30 days in the month. Take 30 days and divide it into the monthly usage to figure an average daily usage rate per month. The results look like this:
Maybe we can use these numbers to help us. They make a little more sense when taken to daily usage, but we still have that huge 23.3 and miniscule 0.67 sitting in front of us. We need to make something happen in the override usage bucket so we don't have the 700- and 20-per-month usages roll into our average usage and order-point calculations.
Before we decide anything, let's look at some other factors in this product's usage scenario. Let's focus on the high and low months. Look to see if in April we did any ship directs that went directly to the customer but still ended up in our usage for the month. If some ship directs went from the vendor to the customer and we did not bring those into stock and redistribute them, we can identify them and the quantity. Subtract those from the normal usage stock sales to get a number more in line with normal occurrences. This might take us to a number that doesn't require an override.
If there weren't a significant number of direct ships, let's not give up hope yet. We might have another place to help solve the mystery. Let's look at the sales for the month of April and see if we had any single large orders. Maybe there is one sale for 500 pieces; then we simply make a call to the customer to see if this is a one-time event or something they will want to purchase in the future. Maybe we started a new project with this customer that entails the use of all the item for the project's duration. Maybe they started the first phase of a multi-phased project and will be buying this item in bulk for future phases. Maybe we look at every sale and nothing pops out to easily solve our dilemma.
By now, you have spent way too many hours on the answer and are even more frustrated than when you started. The good news is you have the override option to help when nothing pops out at you. Now is the time to use it like it was designed.
Look at the daily usages that make sense, maybe using a daily average over a couple months to guide you. Then, multiply it by 30, and that becomes your monthly usage in the override bucket. In this scenario, you could use 5.5 per day times 30, and manually put in 165 pieces for the usage rate in the system's override bucket for April. Now you have correctly used the override feature.
But don't blow away the actual usage numbers in your system. Good systems have buckets available to maintain the actual usage number and the override usage number. The reason for the huge sales in April still needs to be determined so you are not continually facing this situation, but you can let the system use the manually inserted override usage of 165 when calculating your next order point.
Wait a second. What about July when only 20 pieces sold? What should we do to help us figure it out? The most common reason for low monthly usage is stock outs during the month. Low monthly usage typically does not occur because sales dropped off drastically. Look to your days out of stock during the month. You might want to set up a simple report to tell you when any stocked items were out of stock for more than seven days in a month. This will at least sound an alarm that something might be amiss with the actual monthly usage. You might need to use an override to adjust what would be normal had the inventory been in stock.
Overrides are helpful in many areas in the system. You can use an override when the actual lead time is 25 percent greater than or 25 percent less than the normal lead time. You can also set up a simple report to let you know that such a variance in the lead times happened and prepare to make an override adjustment.
Overrides are not meant to make the system report things like you want. They are there because things happen that make abnormal what should be most normal. Either throw out highs and lows when calculating any averages, or use the override to put in something that makes the most sense to you.
If you find yourself putting in numerous overrides in the course of six months, then you need to make some adjustments elsewhere. Consider increasing order quantities if you are often out of stock. Consider increasing order size if you see upward spikes. It's probably a good idea to get to know your customers better to see if a few of them will continue to drive up usage rates. If that's the case, figure out when and how much they need, and use a special order or direct-ship method to handle them.
But whatever you do, please understand why you are putting any overrides in the system. Document what you are doing and why you are doing it. Do not use them and completely ignore the fact that an override in the system will impact some later decision. Create an override log each month that offers details about your decision for each override. When your numbers don't come out like expected a few months later, you can look back and see if it was something you did or if there is something wrong with the system.
Scott Stratman is president of The Distribution Team, Colorado Springs, Colo. He consults with distributors on improving net profit and has been a guest lecturer at many national and regional distribution-industry events. His articles have appeared in numerous trade publications, electronic publications and association newsletters. Contact Stratman at (719) 597-5978 or e-mail him at [email protected]nteam.com. Visit the firm's Web site at www.thedistributionteam.com.
Override Dos and Don'ts
If you find yourself putting in numerous overrides in the course of six months, then you need to make some adjustments elsewhere.
Consider increasing order quantities if you are often out of stock.
Consider increasing order size if you see upward spikes.
Get to know your customers better to see if a few of them will continue to drive up usage rates. If that's the case, figure out when and how much they need and use a special order or direct-ship method to handle them.
Always understand why you are putting overrides into the system.
Document overrides. Create an override log each month that offers details about your decision for each override.