Saturday, December 27, 2008

Tyranny of Averages

Playing with one of my new toys, I rediscovered the "tyranny of averages". My wife's Toyota Sienna with AWD currently gets 16.4 mpg for the past few years (per a gauge on her dashboard), yet looking at the mileage in realtime with the scan gauge indicates much different information. It sucks gas at the lower speeds/higher rpm getting all that mass moving, but at constant speeds or going down hill gets very high mileage (+64 mpg or higher)

With one tank of gas for a set of measurements - I was able to get to 20.1 mpg. The experience is a bit like a video game. Managing the "low" mpg periods can dramatically increase the average by 25% (20/16). Not bad for a fairly simply device.

This leads to me to wonder where else are we assuming averages are true and missing a huge opportunity to improve business.

I once built a smart shelf for a retailer in Cambridge UK using RFID. As an aside to the project, I started tracking the inventory turns and how it related to day of week, stock levels, assortments (#of different products). Amazingly, you could radically improve turns (and hence) margins by just ensuring that the stock clerk fully stocked the shelf on Thursday afternoons. Fully stock meaning that they put all 3 versions of the product on the shelf and did it before the peak sales happened (Friday and Saturday). Simply monitoring that product on a Thursday afternoon would have more than paid for that stock clerk's salary by delivering additional margins.

Given sales results for this Christmas, I imagine many retailers (and CPG) companies will be searching their portfolios to avoid the "Tyranny of averages"

Monday, December 22, 2008

Great Case study on Consumer Goods Supply Chain

Wow -- nothing like winding down the year to get time to catch up on my reading and get time to post.

Here is a good article by my friend Amit describing the Consumer Goods Supplychain