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POS Services

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Note: Before you read any further, remember that big-box retailers like Wal-Mart use similar inventory methods to manage their inventories. When Wal-Mart, Tesco and others start building convenience stores on every street corner, we are going to need a better method of managing inventory to compete. What you about to read involves two years of study based upon real experiences in actual stores. We are convinced that these numbers can be realized if we care enough to do whatever is necessary to make it happen.

Scott Systems has integrated its headquarters software to several POS devices including the Gilbarco GSITE and Passport systems. Data is collected in realtime or near realtime depending upon the capability of the POS device. GSITE does not allow realtime access so data is collected from GSITE every 5 to 10 minutes. Passport data is available in real time. In non-fuel installations, Scott Systems Inc can provide its customers with a PC based POS systems that are accessible in realtime.

The integration of these POS systems has allowed Scott Systems to launch Scott’s POS Service©. The environment created when dealing with a 50-store operator is discussed in detail below with a table that fellows:

“Category Management”, the method chosen by the convenience store industry to manage in-store inventories, does not include provisions for tracking quantities of items in stores. The only way to get a physical count is to go out into the store and count the items. This is also true of grocery stores and almost all other retailers. 

In convenience stores, reorder levels are rare, and seldom if ever changed. When building an order, managers literally walk the aisles and guess as to what inventory they need to order on the next delivery. This procedure has proven to be so inaccurate that most operators have allowed suppliers to make the decision of how much to ship based upon past deliveries. The result is that every convenience store in the US has at least twice the amount of inventory needed to meet customer demand.

Further, suppliers are allowed to “push” products to the store without prior approval and managers at headquarters with no knowledge of the number of individual items in stores, attend trade shows, purchase “deals” and “shippers” resulting in large quantities of product arriving at the stores at a time when the stores are already crammed to the ceiling with overstock. Almost all convenience stores have some items that will last for over 1,000 days.

Scott’s POS Service© provides the ability to maintain an accurate minute-by-minute accounting of exact quantities of each item in every store, and the cost is a fraction of what the operator is losing now by using only “Category Management” techniques.

The system, when operated as designed, allows the customer to recoup as much as 50% of his current inventory investment within 90 days after implementation. Suppliers are usually required to take back unsold product when asked. A 50 store operator would have at least $2.8 million of in-store inventories on hand. If the company were to return only 40%, they would receive a refund of $1.1 million from their suppliers. Immediate Savings $1.1 million - $1.4 million.

According to a recent study performed by Miller Brewing Company, reducing in-store inventories to 2.5 days will increase sales by 66%. I can cite several situations which make me believe this is an accurate statement. The top three being a reduction of clutter, uncovering camouflaged items, and making it possible for clerks to restock shelves to meet customer demand.

According to the National Association of Convenience Stores (NACS), the annual average for in-store sales in 2004 was $841,700 and the average gross profit received from non-fuel sales was 29.7%. Using these figures a 50 store operator would have annual sales of approximately $42 million and gross profits in the amount of $12.5 million. Increasing sales by 66% ($27.8 million), would mean a minimum increase in annual gross profits of $8.2 million.

There’s not much that can be done about labor costs. Store clerks have to be there regardless. But we can certainly make better use of their time by having them audit the store 1.5 hours in the a.m. and 1.5 hours in the p.m. insuring the inventory levels are adequate to meet customer demand and the psychological effect of that much control will most certainly reduce shrink. Using a conservative estimate of shrink as 9% of sales, a 50 store operator with sales of $42 million writes off approximately $1.3 million annually to shrink each year. However, only a small part of this is due to spoilage and the theft. Our research has shown us that the majority is due to poor inventory management. Because Scott’s POS Service© allows its customers the ability to manage their inventory remotely, and much more effectively, reducing shrink by at least 50%, will provide a 50 store operator - additional annual savings of $631,275.00.

One of my clients recently attended an industry event where he learned that rolled up into his labor, creating a single purchase order cost him $40. The average convenience store creates about 600 purchase orders a year. In a 50 store operation that adds up to $1.2 million annually. Scott’s POS Service© eliminates purchases orders by using a “trigger” to reorder inventories automatically. By eliminating purchase orders entirely, our system will save a 50 store operator $600,000 a year

Progressive Grocer Magazines reports that 60% of all purchase orders contain errors, and 43% result in losses to suppliers and each error cost between $40 and $400 to reconcile. Actual losses in dollars are unknown, but the sheer volume of mistakes is one of the reasons that suppliers have embraced Wal-Mart’s inventory system. Much of the costs to correct these errors certainly goes in part, back to the convenience store chain. The elimination of purchases orders should result in significant costs reductions to the retailer and the supplier.

The savings from being able to implement staggered pricing is incalculable. Small retailers simply don’t do it. This is just one of the reasons that Wal-Mart has gained such an advantage over independent retailers. Scott’s POS Service© can help to level the playing field.

The cost of implementing Scott’s POS Service© is insignificant compared to the savings that can be achieved by using it. Someday all retailers will manage their inventory in this way.

Below is an example of the effects Scott POS Service could have on a typical 50-store operator: Tables for 1 store, 10 store, 20 store and 100 store configurations can be seen by clicking on the links in this sentence. Contact us for a personalized analysis, using your actual historical figures at info@StoreReport.net.

Number of Stores

 

Annual

Monthly

One-time Cost

Number of Stores (Dialup)

10

 

 

 

Number Stores (DSL)

40

 

 

 

Total Stores

50

 

 

 

 

 

 

 

 

Typical Store(s) Current Financials

 

 

 

 

Inside Inventory on hand @ Cost

$2,800,000

 

 

 

Annual Inside Sales

 

$42,085,000

$3,507,083

 

Less Inside Cost of Sales

 

($29,585,755)

($2,465,480)

 

Less Shrink

 

($1,262,550)

($105,213)

 

Inside Gross Profit Before G & A

 

$11,236,695

$936,391

 

 

 

 

 

 

Scott's POS Service

 

 

 

 

Inside Inventory on hand -Reduced 40%

$1,680,000

 

 

 

Inside Annual Sales + 66%

 

$69,861,100

$5,821,758

 

Less Inside Cost of Sales

 

($49,112,353)

($4,092,696)

 

Less Shrink

 

($1,047,917)

($87,326)

 

Inside Gross Profit

 

$19,700,830

$1,641,736

 

Savings Due to Computer Assisted Ordering

$1,200,000

$100,000

 

Inside Gross Profit Before G & A

 

$20,900,830

$1,741,736

 

 

 

 

 

 

Scott's POS Service

 

$362,988

$30,249

 

Cost of Internet Connection

 

$29,400

$2,450

 

Dedicated POS Employee

 

$22,704

$1,892

 

Additional G & A

 

$415,092

$34,591

 

Gross Profit after Additional G & A

 

$20,485,738

$1,707,145

 

 

 

 

 

 

 

 

 

 

 

Equipment and Setup Cos Amortized

 

3 Years

36 Months

Total Cost

Router for Dialups

 

$2,167

$181

$6,500

Wireless Routers for DSL

 

$1,200

$100

$3,600

Black Box

 

$2,500

$208

$7,500

Scanners

 

$4,167

$347

$12,500

Wireless Access Point

 

$500

$42

$1,500

Handheld Data Terminal

 

$40,000

$3,333

$120,000

Installation

 

$5,000

$417

$15,000

Implementation & Training

 

$6,667

$556

$20,000

Amortized Set up Cost 3/36

 

$62,200

$5,183

$186,600

Less Reduction in Inventory

 

($373,333)

($31,111)

($1,120,000)

Net Amortized Cost

 

($311,133)

($25,928)

($933,400)

 

 

 

 

 

Net Gain

 

Annual

Monthly

 

 

 

$9,560,177

$796,681

 

Scott Systems Inc & StoreReport are trademarks of ScotSystems Inc
205 David Sherman Rd - Newhebron, MS 39140 - (601) 847-6209
FAX 601-847-6205 Contact: Info@StoreReport.net