Getting to the Root Cause: Finding the Real Business Issue

Stoke Consulting | Business Assessment | Project and Change Management

Problem

As Management Consultants, our work often mirrors everyday experiences. Take, for example, a visit to the doctor. While the doctor initially focuses on symptoms, their primary concern is identifying the underlying cause. Once the root cause is addressed, long-term health can be achieved.

 

Similarly, businesses often call us in to solve specific issues, which are usually symptoms of a deeper problem.

 

One such case was a building products company that approached us because they were facing an “inventory problem”. They had too much stock, much of which was slow-moving or, worse, not moving at all.

 

When we arrived at the client’s site, the issue became immediately clear. Both the undercover warehouses and the open yard were filled with stock in various sizes, shapes, and configurations. Our task was to determine the root cause of this excessive inventory.

 

Common assumptions might include:

  • A downturn in the market
  • Aggressive competition, such as a significant price reduction
  • Quality or production issues leading to customer attrition
  • The introduction of newer, more innovative products by competitors

 

However, at Stoke Consulting, we don’t jump to conclusions. Instead, we began by asking key questions to some of the client’s most knowledgeable employees:

  • How did this excess stock accumulate?
  • Had any of the above scenarios occurred?

 

We asked the same questions to different people and compared their responses. In this case, none of the commonly assumed causes were responsible for the overstock.

 

So, we dug deeper, employing a method similar to the Japanese “Lean, 5 Whys” technique, where we ask “why” multiple times to uncover the root cause. Our questions included:

  • Why was this stock ordered?
  • Who authorised its purchase?
  • What approval processes exist for purchasing?
  • Why didn’t the stock sell as expected?
  • What measures are being taken to clear the excess inventory?

 

Our findings were surprising and unexpected:

 

The initial orders for many of the overstocked items came from the Sales department in response to specific customer requests. These items were often obscure: unusual colours, dimensions, small quantities, and similar niche products. Despite the limited demand, orders were placed with suppliers for minimum quantities, which far exceeded what the customers needed.

 

These orders were largely unchecked. Purchasing and Finance departments were often overruled, and the orders were placed anyway.

 

The result? The client’s warehouses became filled with large quantities of leftover stock that had been sold in small lots. Worse, these products were so unusual that other customers had no interest in them, leading to significant overstocking.

Solutions

Stoke Consulting recommended the following actions to the client, which were agreed upon:

  • All stock purchases required approval from both the Purchasing and Finance departments.
  • A “clip level” or “Delegation of Authority” system was introduced, where the level of management sign-off required was determined by the value of the purchase.
  • The higher the value of the potential order, the more senior the management approval needed to be.
  • For particularly significant purchases, the company’s Managing Director would need to sign off, backed by a ‘mini business case’ justifying the purchase.
  • An excess stock sell-off program was implemented to clear the current overstock (details on this process will be discussed in another article).

Outcomes

The end results were highly positive:

  • The client significantly reduced the purchase of obscure or slow-moving items.
  • Most of the excess stock was sold off or otherwise disposed of.
  • The level of inventory, both in the short and long term, was reduced.
  • Permanent, long-term processes were established to address the root causes of the issue.

Do you have a problem in your business? Do you need help to get to the bottom of its cause?

Stoke Consulting can help you with this. Contact us to find out more

 
Rod Wallace
Stoke Consulting

Previous line management roles (Supply Chain, Customer Service, Logistics, Sales Management) in SME businesses through to large companies have underpinned Rod’s success with a variety of clients. Key solutions in previous engagements have included Project Management, Business Improvement programs, Facility Development and Relocations and Company Governance.