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ScanningForProfits

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Scanning for Profits
By Bill Scott

Convenience store operators have investigated every avenue to lessen expenses in their stores. Soon, new federal minimum-wage increases are going to take another bite out of profits. Convenience store operators need new ways to increase gross profits in stores because there are very few areas left where they can cut costs. The smaller operators especially need help. It’s time to take another look at technology to see if we can find new ways to make things better.

This article is about increasing gross profits using scanning, integrated with a real-time perpetual inventory system which includes computer assisted ordering, auditing and analysis. If used properly, a system like this can double the gross profits in every convenience store in America, recover unnecessary investment in inventories, reduce shrink, and prevent theft.

In the summer of 2004, when I began this project, I wanted to develop a system that would allow operators to manipulate retail pricing so that it would affect turns of individual items in the store, with the result of maximizing profits on those items. Notice that I said “affect turns” because I believed that “turns” is where the solution for increased profits live.

It occurred to me that if I could get one extra nickel from a single item that turns 20 times a day, that one item could produce an extra $365 a year in additional gross profits. If I could replicate that technique and apply it to 100 items, it would translate to $36,500 in increased profits. That puts a new light on a 69-cent candy bar I think. Replicate that in 10 stores, and it adds to up $365,000 in annual profits. Gasoline is not the only place where pennies matter.

Scanning is the basic tool for getting the job done. RFID (Radio Frequency Identification) is years away from being of real use to convenience store operators. In order to get RFID to work, manufacturers and their suppliers need to make drastic changes in packaging, the classification and reorganization of their inventories, as well as upgrades to their computers and software to accommodate it. The tool we use is not as important as the fact that we need to get up close and personal with each item that we buy and sell.

The latest statistics I have heard indicate that the majority of stores are scanning at the point of sale, but that’s about as far as it goes. The POS systems most operators are required to use (due to proprietary credit card networks and pump interfaces) fall short in helping them to manage their inventory. Certainly they will provide a list of every item that has been sold, but they can’t tell you how many items they have in the store, how long the items will last before the next delivery cycle, or if they’re selling the items for the right price; and that’s the information we need to turn scanning into profits.

There are at least 100,000 of these proprietary POS systems being used today, and the cost of upgrading them would be horrendous. So it became necessary in my thinking that I needed to develop a system that would work with existing POS systems, buying only the equipment necessary to provide an interface to connect existing POS devices to the Internet and a powerful computer with a centralized database that could be accessed with Java and SQL, and proprietary systems running Unix, Linux, and the family of Windows products. 

The three main areas that require special attention are sales, receiving, and auditing, all in real-time, or as near real-time as can be accomplished. I have not read of any experimentation done to this extent, but I suspect that there are other groups that have studied the practicality of just such a system or at least thought about it. I have spent the last three years working with convenience store personnel and using scanning in ways that most people have only dreamed of, and the lessons I have learned have changed my prospective on retail operations, and according to what one Wal-Mart business partner told me, “Wal-Mart is only dreaming about doing what you have accomplished.”.

The project was started using a generic POS systems created for experimentation and ultimately tested and perfected using Gilbarco GSITE POS systems in twelve convenience stores and one variety store. I will describe the general environment the project was created for without mentioning names of specific brands of computers or software. At this time, it is not my intention to recommend one brand of system over another. I will be happy to respond to any and all questions posed to me.

The Environment ---
At the onset it was absolutely imperative that the “system” had to be capable of serving every convenience store in America in one, centralized environment. I believe that data shared between enterprises is twice as valuable because everyone can benefit from the knowledge acquired in one way or another. For example, the ability to maintain a universal UPC table that is accessible to everyone is not competitive in itself, yet everyone can benefit from it by assisting in the creation and policing of it.

I also wanted suppliers to become involved as well. Suppliers can benefit by helping their customers manage and sell more inventory, in the same way that Wal-Mart and its suppliers have found success in their relationships. The moment a sale is made, an order received, an audit performed, or a new item is introduced into the market, everyone will have access to that information and be better equipped to make informed decisions. The information had to be instantly available to everyone while at the same time protecting proprietary secrets.

We share many things in business. For example we all use the same electricity. How ludicrous would it be for each of us to build our on power and water plants? We also meet and discuss issues at trade shows and forums that benefit us all. Non-proprietary data is no different. It is in the spirit of sharing what I have learned that I will begin. There is no speculation or blue-sky involved here. It is based on real experiences and real data that I have acquired through implementing real systems in real stores. I have created new procedures, tested them, discarded more than I have saved, and arrived with a plan that will double the profits in every convenience store in America. Maybe you won’t agree with me on some points, but I hope you can at least learn something from my experiences and consider using these ideas in your future businesses.

After determining the platform (computers and operating systems) that would be used, our next problem was how to get the GSITE to communicate with our main database in real-time. For this purpose we purchased a device which connects the GSITE to the Internet and allows GSITE to be accessed via the Internet using dial-up, DSL, cable modem, satellite, or a wireless connection. Gilbarco does not allow connections to their database directly, but after a lot of work and much experimentation, we were able to use the data from the GSITE’s journaling files obtained by polling the devices every few minutes to do what we needed to do. Since Gilbarco does not provide unique identifiers for each sales record, we had to devise a scheme to insure that we received all of the valid sales records without duplicating them. The only thing we could not get in near real-time was fuel sales, (mainly due to the “pre-paids”) and we were forced to get accurate fuel sales data from the shift close tables. This did not hinder us in the least, because our main objective was working with the non-fuel items as these were the items of interest.

GSITE requires an “Update Stock From Pending” operation at the cash register so price changes, which occur in real-time, do not get updated until the supervisor at the store performs an “Update Stock From Pending” function on the GSITE. When price changes occur, it is necessary to alert the store manager to perform that function. One method we have found successful is to include an “Update Stock From Pending” operation first thing each morning and between shift changes.

It was also important to insure that in the event of an Internet interruption, the POS system would continue to operate on its own. For this reason the only duplication of data occurs at the POS level. Immediately, when a re-connect is established, the main computer updates the POS system with any changes that have been accumulated (including the addition of new items) and begins to transfer sales data to, and retrieve updates from the main computer. In fact, we made sure that if the GSITE crashed, the entire database could be reloaded immediately so that the store could get back into operation as quickly as possible. We put the whole process on the web so store managers can see the processes at the office and on their personal computers at home. It can also be accessed by cell phones and PDA’s. Price changes can also be made from devices such as laptops in the field or any kind of device that can access the Internet.

Database ---
A database is a collection of tables such as customers, inventory, vendors, employees, etc. The tables we created were modified many times as we designed the scanning system, mainly because we had no way of knowing what we would end up with until we actually did it. For example, experiences dealing with suppliers had a huge effect on how the tables and the processes that acted upon the data were designed. 

The UPC table is global to the entire system as I mentioned earlier. A centralized UPC database allows access to all of the UPC codes that retailers, suppliers and manufacturers might contribute over time.

The ‘RETAILER’ and the ‘PRICE’ tables work together to form a logical price book. These two tables are unique to each store.

The ‘SUPPLIER’ table, which started out being more global in nature, ultimately became unique per store for several reasons. Among others things, the ‘SUPPLIER’ table is where parent/child relationships are maintained. Since convenience stores don’t always sell what they buy, we had to connect boxes of candy to individual items for a variety of reasons. Items that can be sold in multiple forms such as cartons and packages of cigarettes had to be interconnected as well.

These four tables work together to form the core of the scanning system. I wanted suppliers to be able to access store data for the purpose of determining store needs. For example, “how many days will the Snickers last before the supplier needs to send more?” The supplier is also able to update current prices related to cost, announce promotions, add new items to inventory and discontinue old ones without affecting sales at the store. The store is able to notify the supplier that certain items are being discontinued at the store level on a specified date, certain items may be “pushed” to the store and others may not, etc. By utilizing this information supplied by the retailer, the supplier is able to forecast his own future needs. If a supplier can estimate the inventory needed from all of his customers over a certain period of time, taking into account, weather, seasons, etc., he will be able to manage his inventories better and pass the savings back along to his customers and ultimately to consumers.

The ‘PRICE’ table is able to handle 2’fers and price changes out into the future. For example, Saturday, February 18, the price of Budweiser 24 pack will be $11.99 until 4 p.m. the same day. Price changes made to the ‘PRICE’ table are re-directed to the GSITE instantly, in a queue that we created to contain all the information a GSITE needs to assign new items to categories, update pricing, etc.

There are many more tables dealing with interfaces to the POS system, historical information for later analysis, audit tracking, purchases, items en-route from suppliers, SKU tables, sales history, etc. 

Bar codes ---
Gathering the bar codes for all items sold in the convenience stores was a real challenge. We found several sources for bar codes but they were mostly inaccurate and incomplete, so we devised a method to collect them and identify them reliably. This proved to be a real chore at first but it is now ‘old hat’. To date, we have cataloged and identified a total of 22,654 items and more new ones come to us every day. Parent/Child relationships had to be identified as well, such as cartons/singles as well boxes of candy/single candy bars and we continue to expand our knowledge in that area. We also had to devise a scheme to convert 8 digit bar codes to 12 digits, etc. Since GSITE will not normally support 13 digits codes we did not address this issue with the GSITE.

Our first real disappointment occurred when we discovered suppliers really don’t care about bar codes at all. Understandably they have to categorize their items with their own unique supplier number as in most cases they sell only the parent item and the store sells the child, so we had to work out a method to group these items according to the supplier number as well as by their bar codes and work out the parent child relationships. Some parent items do not have bar codes and some do. We took that into consideration as well as ‘broken’ cases where you may buy as few as three or four items out of a single case.

Shippers and cigarette “deals” posed another problem which was solved by creating a “bill of materials” process that explodes the contents of a carton when it is purchased. Since most shippers occur only once, it is usually simpler just to open the box and scan and price each unique item that is to be sold, but for deals that recur, this feature saves a great deal of time. Cost of sales for accounting purposes is maintained as a weighted, moving-average cost for each item in the store. All stores do not have the same cost for that Snickers if the cost is changing, and lately they have been changing a lot.

Equipment ---
With the main computer located in Colorado and a failover system in California, other than the GSITE we only needed a hand-held data terminal that could read barcodes, run our software, and work over a wireless Internet connection, a wireless router, and the device that connects to the GSTITE (we refer to as ‘Black Box’) and some CAT-5 cable. In dial-up situations we were able to acquire a device that converts analog phone signals into TCP/IP format, in which case we used a wireless access point rather than a wireless router for communication with the hand-held. Black Box hooks directly to the router or to the device we incorporated in dial-up situations. The wireless device turns the store into a W-Fi hotspot as well.

Personal computers were incorporated in the store for the purpose of communicating with the main computer via the Internet for running GUI programs to update prices and edit received inventory. Since these computers were already in place for creating daily store reports in real-time, we began providing access to many of the interfaces available to personal computers because the small screen of the hand-held can be aggravating if you try to put too much data on it all at once. Since it is possible to do all of the work from headquarters (or anywhere an Internet connection is available) the necessity of a computer at the store is not required, but we have found it to be an asset in accomplishing our goals.

Brief overview ---
Items are scanned at the point of sale, items are received using hand-held scanners, inventory is audited using hand held scanners, price changes are made at headquarters or at the store using simple personal computers or on any device such as a PDA that can be connected to the Internet. Received invoices are edited on the store PCs. Since the entire system is running in a real-time environment, ad-hoc audits can be made during the sales period and except in the case when a customer is walking around the store with an item in his hand at the same time we are doing an audit on that same item they are carrying, the count will be accurate. The database is used for determining re-ordering requirements and it is possible for suppliers to access the system via the Internet to find out what the store needs and subsequently can be used as a ‘picking list’ at the supplier’s warehouse minutes before the delivery truck leaves the dock.

Receiving ---
Approximately two years ago we sat down with five suppliers- three major suppliers and two smaller ones, and received commitments from all of them to participate in the development of this system. It didn’t take long before we encountered major problems - the first being the identification of items on their electronic invoices.

The way convenience stores identify their items and the way suppliers identify the same items are like comparing apples to oil tankers. That’s when we discovered that bar codes were of no importance to suppliers as they worked with their own numbers they assigned to identify products. It makes sense, because a case of lima beans and a can of lima beans need to be identified as the same product but in different sizes. The same can of Beanie Weenies from supplier ‘A’ will have a different identifier than the number assigned to the same item by supplier ‘B’. It’s kind of an “SKU” for suppliers.

We also discovered that items identified by one supplier id number could change abruptly without notice. For example, a supplier id number of ‘400876’ might be beans, which started out as ‘Campbell’ beans. But it might not be ‘Campbell’ beans anymore. In fact, the supplier might suddenly decide to change it to ‘Sure Fine’ beans. In fact, it might turn out to be Libby’s black-eyed peas by the time it arrives at your store if the picker grabbed the wrong item in the warehouse or they were out of beans and he decided you don’t know your beans from you peas anyway. We discovered trying to identify items by the number assigned by the supplier and tying it back to a valid UPC code using the electronic invoices was a terrible waste of time. For this reason, we learned the hard way that processing the electronic invoices sent to us by suppliers, only served to jumble up our UPC database and wreak havoc on our parent/child relationships. We abandoned this practice after the first year and began to work out a more accurate method of handling supplier invoices. It was at that point that we began to scan in received inventory and to explore the possibility of paying the supplier for what we received and let him solve his own problems instead of our convenience store employees trying to solve them for him. According to a recent article in Progressive Grocer magazine, most errors are absorbed by the suppler but what a terrible waste of time and resources in the convenience store and back at headquarters. 

Another lesson we learned from working with suppliers is that they are not too keen on stores telling them what they need. Apparently it upsets their operation terribly. Suppliers really like the arrangement of determining what the store needs themselves and the orders received from the store or sort of like “suggestions”.

At one store we found over 1,000 days worth of Orbit Wintergreen chewing gum, and for some reason the store got another box with almost every delivery. The shelves located under the cigarette counter were packed with chewing gum, cigarette lighters and boxes of candy that had been there for years. Store managers told me that they continuously accept inventory they don’t order because they don’t know whether it was sent by mistake, or it was ordered by the office, or ordered by management six months prior at a trade show where they made some deals that they were not aware of.

At one store we found out-of-date cigarettes that had been in the store for so long, they “crunched” when you squeezed them. We found candy melted in the box, corners eaten by mice, and dirt so thick on some items that you could hardly read the label. Recently, at one location we found that 75% of the cooler was taken up by one brand of soft drink. I won’t mention the brand but I will tell you the majority of the room was taken up by inventory that turns only 3.25 times/per day and does not deserve to occupy that much space in anybody’s store.

Now please don’t misunderstand me, I don’t think suppliers are intentionally trying to turn convenience stores into auxiliary warehouse, but that’s exactly what is happening. It became apparent early on that under the circumstances, the coolers should be larger than the sales floor.

Every convenience store in America contains at least twice the inventory it needs to meet customer demand. That means simply, if an organization has $4 million in inventory, $2 million of it would be working better for them in a simple savings account drawing 2% interest.

By-and-large, suppliers become horrified at the very prospect of delivering only what the store asks for, but the irony of it is that if they would, they would increase their own sales by over 50%, because if you have 500 days of candy in a convenience store, all that dead inventory is occupying space for items that would sell if there was a place to put them. Let me give a few examples;

In one store we found they sell less than one Air Head Cherry candy item every 2 days. There are 102 Air Head Cherry items on the shelf at this moment. Why is it necessary to have 102 days worth of this product? They have enough Aguafina Alive Orange Lime to last 111 days, enough B & H Almond Roca for 273 days, Breathsavers Citrus Mint – 168 days, County Time Pink Lemonade – 264 days, Wild Berry Gummi Savers – 288 days, and of course my favorite, 1,032 days worth of Laffy Taffy Grape candy. I could make a list of overstocked products in this one store alone that would fill several pages and still not scratch the surface of the problem. I wondered, “why does a store that receives two deliveries a week from a supplier need 1,032 days of anything?”

By having tools to determine how much inventory a store needs between delivery cycles, can not only save money on investments made on unnecessary stock, but according to a recent study by Miller Brewing Company, it will increase sales by 60%. There is something to be said about full shelves making the stores look better, but give me a break, does it have to be 1,032 days of the same product?

It’s true some items must be bought in bulk, but I question the value of making the customers crawl over items to find the item they are looking for. For this reason, one large convenience store retailer now entering the American market is forcing his suppliers to make more frequent deliveries. Clutter in the stores make the stores look sloppy, the coolers more difficult to restock, and serves as an invitation for theft and shrink. We also discovered that over 10% of items in the store have never sold and probably never will sell. They would do a better job for the retailer sitting in the dumpster than occupying perfectly good selling space in the store. Better to get a nickel for an item than to let it take space away from merchandise that can turn a profit.

Pre-salesmen need to learn that they can make higher commissions by insuring the stores have the correct inventory than looking for places to put more stuff. Employees will not, and cannot keep the coolers organized if they are expected to lift heavy cases of beer and soft drinks to restock the bins. They just don’t do it. And in many places it creates serious safety hazards. I’m surprised we don’t hear of more lawsuits involving accidents in the coolers. I have personally witnessed someone slipping on a pool of slimy beer residue and landing on the cold concrete floor, because keeping the coolers cleaned up is impossible if you have to move eight cases of 2 liter soft drinks to do it. So, broken glass and pools of beer and soft drinks continue to litter the coolers and stockrooms.

When a shipment arrives and the inventory is scanned using a hand-held scanner and edited and accepted at headquarters or in the back office of the convenience store, you would be amazed at the errors we have found. Too often we don’t receive items that are on the invoice, and we receive items that aren’t on the invoice. I do not believe the suppliers do this intentionally. I am convinced that they have simply lost control of their own inventory. This is not good for the suppliers or the convenience stores they serve. On one recent invoice arriving at one of the stores I was working in, they received 24 units of an item in which they were billed $8.50 per unit and the retail of the item was $4.99. How many of these errors go unnoticed by stores and their suppliers? I believe that millions of dollars is being needlessly wasted due to simple errors like this.

Substitutions presented another problem. Suppliers will often substitute one brand for another, and when the item is received, we designed a system that switches a pointer from the supplier number to the most recently received item without interfering with the sale of items already on the shelf. Having a pointer that switches from one item to another allows us to re-order by the supplier number without changing what goes through the POS system.

I noticed that the stockrooms and coolers began to accumulate a mountain of damaged and out-of-date goods. Since these goods are no longer available for sale, it was necessary to keep track of them until their disposition had been decided. When the office sees the huge quantity of these items that has accumulated in the store, they begin to get picked up or discarded; and believe me, if upper management had any idea of how much of their money was sitting in the back room gathering dust and feeding the mice, they would come unglued.

Pricing ---
Store personnel routinely rely on the retail prices provided by the suppliers when a shipment arrives. The supplier does not have the information to determine the correct selling price of any item in any store. In most cases neither does the convenience store manager. The correct price should be determined by profit and turns, not by some arbitrary suggested retail price provided by a supplier or manufacturer. Many sales opportunities and/or profits are lost because of incorrect pricing. To make matters even more complicated, the correct price for a given item may change by the season, monthly, weekly, daily and even hourly. I have been visiting more and more convenience stores lately that do not price the products on the shelves at all. Good for them! They just put the price in the POS system and have the items priced by the POS at the point of sale. People do not go to convenience stores to compare prices, but sometimes they do come away from a store with an opinion of whether the store’s prices are competitive.

Once I suggested not pricing items individually and was asked, “What do we do when the electricity goes off? How will the clerks know what to sell the items for?” It’s a good argument but I doubt its validity. My answer was, the electricity does not go off very often, price tags seem to not be as reliable as they should be, and your clerks are guessing at the price of unmarked items anyway.” Often when I am auditing inventory in a new store, I encounter items that have not been priced. I have yet to find two cashiers that can agree on the same price. The electricity doesn’t go off enough to worry about it.

The costs of electronic shelf tags are coming down. They can be acquired for about $5 each but that’s still adds up to about $12,500/per store. To me, it makes more sense to not price the items and put a scanner accessible to the customer on the sales floor and if they are curious, they can scan the item and get a price before they go to the sales counter.

Pricing can be rotated to give the ‘perception’ that prices are low without them actually being low. By varying prices (like Wal-Mart does), the customer can become persuaded that your prices are lower than your competitors. This is where the “art” of retailing comes into play.

Pick up any grocery tabloid that comes in your newspaper. Every week your grocery stores will highlight certain items that they put on sale. I’m not suggesting convenience stores start placing grocery ads, but the point it these grocery ads drive customers to their stores. Why? Because selective price cutting gives the “impression” that you can save money if you shop at that store. Price cutting is not new, but it works, and very few convenience stores have the tools or personnel required to incorporate it effectively in their stores. If you have a pricebook that can manipulate prices, and a computer that can learn from the effects these price changes have on profits and turns, there is no reason not to assume that you can rotate loss leaders to give the store a reputation of low prices, and use the same computer to zero in on the most profitable retail price for every item in the store. Who has time to experiment with a 69-cent candy bar? A computer does! 

The only reason that all candy of a certain size should have the same price is to make it easier for store personnel to put pricing labels on them. Costs between candy items of the same size will vary. Shouldn’t retail price vary accordingly? Shouldn’t an item such as Snickers (040000001027) which turns at 5.3125/per day and sells for $.69 be priced higher that another item such as Payday (010700807229) that cost less and turns only 0.7333 times per day? Why not sell the Snickers for $.74. But all prices have to be to the nearest $.09! Why is that? Pricing practices again. Putting pricing labels on individual items costs you money. Getting better control of the inventory will make prices more competitive and reduce pricing errors.

Another issue with pricing items occurs when new items arrive at the stores. The receiving program had to allow for pricing new items when the shipment arrives. Waiting for the office to upload new prices to the POS system can take forever. The moment the item is received, it is given a name (if it doesn’t already exist in UPCTABLE), priced, categorized, and can be placed on the shelf to sell immediately.

Audits ---
One of the secrets of keeping an accurate perpetual inventory is to maintain an on-going audit of every item in the store. Ah there’s the rub. This will require the use of store employees to do these audits and we advise that all store employees should be incorporated into the auditing process.

Many operators hold a skeptical view of using store employees to audit the store’s inventory for fear that they may cover up shortages. But keeping employees in the dark about the volume of products in the store doesn’t make any sense to me. On the one hand we are saying, “We don’t want the employees to know what’s in the store, but we expect them to order it when they don’t have enough.” (Someone please explain this to me).

Keeping inventory by item, rather than by category, changes everything. By using the computer to enforce a strict routine during the real-time auditing process, operators will quickly realize that it is the only way to maintain accurate figures concerning the amount of stock on-hand, and will result in a far superior method of auditing the store’s inventory than any other method being currently employed.

Our experience has shown that it takes about 16 man-hours to completely audit an average store’s inventory, however when subsequent audits have occurred using our system, 85%-90% of the store inventory is neither over or short. This accuracy is due in no small part to the methods we employ while doing these daily audits and cannot be compared to the inferior method of auditing inventory by category on a monthly or semi-monthly basis. Therefore, the answer to the problem of auditing so many items is to concentrate on the 10% or less, that is ‘high-risk’, and audit the other items once or twice a month.

Using the 16 man-hour figure as our guide, we can assume that the most time that will be spent on high-risk items in the average convenience store should be no less than 2 hours- 24 minutes per day. By requiring employees to spend an additional 36 minutes per day on auditing low-risk items, each low-risk item can be audited monthly. Therefore the total time that is spent daily on auditing the store should be no more than 3 hours per day. By breaking the audit up into shifts, each individual audit could be accomplished in three one-hour shifts, or two-1.5 hour shifts. Our experience has also convinced us that there is ample slack time available during the day in which these audits may be carried out.

High-Risk Items ---
10% or less of the items in the store are considered high risk. Some people might say that the cigarette category is one of them, but that’s category management thinking. The truth of the matter is that not all cigarettes are high-risk. Some cigarettes that are placed in the cigarette bins are so unpopular that even employees won’t steal them. We designed a sophisticated set of computerized procedures running in the background, providing employees with information to identify high-risk items in the store, by using the data that comes from the audits and creating the ‘daily audit lists’ moments before the audit process begins.

Employees are going to make mistakes when auditing the inventory. If mistakes are suspected, the system will include the item in the “high-risk” area of the next audit. Surely we have no way of knowing why an item is short or over at the time the audit is made, but the employees don’t know that, and by letting them know that an item has been targeted on the high-risk list, you can bet that the entire staff will focus on that item more than on items not on the list.

One simple example is that if the Snickers keep coming up short, maybe they need to be moved to an area in the store that is less hidden from the store clerks? Whoever thinks about these things?

The “High-Risk” lists should be posted in the stockroom every day for all employees to see. To an employee that has stolen items before, being presented with the knowledge that headquarters is paying more attention to the item or items they have stolen has a tremendous psychological impact, and employees begin to get the idea that someone actually is paying attention to the items on their shelves.

Another unexpected advantage has appeared by having employees participate in the audit process - the stores get cleaner and better organized. 

A Learning Process ---
The auditing process is as much a teaching tool as it is a tool for maintaining an accurate inventory. The rewards are a cleaner, more organized work environment. Employees become frustrated when items don’t scan, are not correctly priced, or when customers complain that they can’t find items on the shelf. Employees will be encouraged to remember what is in their store and where it is located. Keeping the store clean and organized will make the auditing process much more enjoyable.

Each employee is assigned a User ID and a password so that the audits will be flagged with their names. Items that are skipped during the audit will be flagged and the store employee should be made to explain why the item was skipped. Items that fall below zero units on hand or fall below the desired stock level should be re-scanned to determine if they need to be re-ordered. Employees will become aware that they are an integral part of the overall business environment and that they are being supervised as if they were working in an office at headquarters.

Finding Items in the Store ---
The auditing process is just challenging enough to attract employee’s interest, instill pride and confidence in their work, and takes their minds off of personal matters while putting the focus on customer satisfaction, store presentation, accuracy, and quality of service. If employees are involved in the audit, they will take the initiative to organize the inventory so it can be audited more easily, and in the process, discard the empty boxes, remove the items that need to be returned, and they will learn where the items are located in the store.

Profits ---
Profit margins in convenience stores are usually determined by the supplier or store personnel using methods dictated by management with little or no regard to turns. All candy of a certain size is priced alike whether it turns once a month or 30 times a day. Prices remain static while the cost of the items continues to rise, remaining unchanged for a year (or years) without being reevaluated. Changing prices and sitting back to watch the results offers us an opportunity to test the validity of our theories without making long term commitments. Along the same line, some items can produce greater profits at different times of the day, week, month or season.

As an example, Little Debbie Honey Buns sell well between 7 a.m. and 8 a.m., then sales fall off until late in the evening. Why not lower the price around lunchtime and late in the afternoon to increase turns? The Japanese are doing it with sushi products in their stores, if you have the right pricing tools you can do it with Honey Buns. If we can sell ten more Honey Buns during the day, it could add up to hundreds of dollars per year in increased profits.

I have found that focusing on pennies as opposed to focusing on categories, makes a lot more money for the store. If you don’t know the contents of the category, how can you know the category’s earning potential?

Out of Socks ---
Convenience stores are a center for impulse buying. Inventory that is not on the shelf for the customer to see is a lost sale. Items that are out-of-stock or covered by other products occupying the holes they leave make the item invisible to the customer and the employees doing the ordering. Knowing how many days are left before running out of fast moving items, and keep adequate safety stock, can add thousands of dollars to a store’s profits.

For example, I am looking now at a store that sells seven pints of Ben & Jerry’s NY Fudge Chuck ice cream a day. They have 22 left on the shelf. Odds are that they will run out before the next delivery. The same store sells 0.2666 pints of Ben & Jerry’s Cherry Garcia. They have 35 pints of that product, enough to last 131 days at that rate of sales. If the supplier had swapped 121 days of Cherry Garcia ice cream for 5 days of NY Fudge Chuck, the supplier would have delivered the same number of pints, but the store might sell more pints in all. The driver doesn’t have the knowledge or the inclination to do that for you. He’s just there to unload his truck. It’s little things like this that cost the convenience stores and their suppliers a lot of money.

Rack Jobbers ---

When elephants fight, the natives get killed. Rack jobbers given free reins to stock shelves, will shove whatever they can get onto those shelves because they get paid for every item they put there. Sometimes they will move another supplier’s product to make room for their own. We have developed the tools to tell the rack jobber exactly how many ‘fresh’ units the store needs today and provisions for removing out-of-date inventory from stock. It also serves to keep the delivery people honest. Rack jobbers should be met at the door and told, “Take the out-of-dates, and leave me this many.”

 

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