Wednesday, June 2, 2010

JIT means Just-In-Time

You jobbers out there will remember the time when the majors decided to skim all the profits off of fuel, causing the greatest crash in the fuel business in recorded history.

Well, unfortunately, it's time for convenience stores to experience some of the same medicine.

You have cut every expense you know how and the results have been deterioration of image, lower customer satisfaction, and the lowest quality of store personnel I have ever seen.

What do you cut now? I can't think of anything, unless we switch off the electricity and let customers grope in the dark for the products they seek. Cost cutting has seen the end of its cycle. We must try something else in order to survive.

A quick study of WalMart shows us that WalMart has become expert at surgically removing the last vestiges of profit from each and every item that passes through their stores. WalMart has succeeded by creating the "illusion" of 'lower prices'. Yes, I said the illusion, because everything in WalMart is not cheaper, but they make it appear that way.

We may not be able to beat WalMart, or Target, or CostCo, but we can manage our stores better than they manage theirs. How? By managing our inventories better.

There's a methodology we have been ignoring that Henry Ford invented over 100 years ago. I don't know what Henry called it, but we know it today as JIT - Just-In-Time inventory control.

How does JIT work? The principal is simple. We carry just enough inventory to last until the next delivery cycle, plus a little bit more for safety stock. Just a simple move to JIT can save the average convenience store operator $28,000 a store. Then we can operate in a store half the size; or better, we can take that money and invest it in inventory that will produce a profit.

25% of the items in your stores might as well be bags of rocks. It just sits there taking up shelf-space. Another 25% is excess inventory that you don't need. How do I know? Because I ran tests in eleven convenience stores and one variety store for three years and figured it out.

I found products in some stores that had a shelf life of as much as ten years. Most had shelf lives of months. Some a year or longer. Why? Because, your suppliers have turned your stores into warehouses. I didn't say that. Convenience store managers have told me that, time and time again.

Over the years, suppliers and the associations they sponsor have claimed that they know best how to control your inventories, and it turns out they're right. But, best for who? You or them?

Four years ago, I was literally run out of a beer distributor's office for suggesting he didn't need pre-salesmen any longer. Why can't we tell our suppliers what we want to sell in our own stores? I'll tell you why. It scares the daylights out of them . . . that's why.

But guess what. If they would face the facts, JIT inventory control would double their sales, just as it will double yours. And we have the tools to do it.

But there's another reason suppliers don't want JIT. It's because they don't really know what they have in their warehouses either. They know there is something occupying cubbyhole # 2145656. It's probably beans, or aspirin, or even air fresheners. But that's the extent of it.

Maybe it's Libby's green beans the first time they deliver it. Then it's Bush's the next. In fact, it might even be Grandma's Beets three months from today.

Did you know that 60% of all supplier invoices contain errors? And 40% of those errors are in your favor . . . if you could only catch them. But with a cost of from $40 to $400 to correct each and every error, almost all of them go unnoticed. Those figures come from a research project done by Progressive Grocer. They claimed that $40 Billion is lost in the broken supply chain every year.

I once saw a store receive three gallons of antifreeze and they were billed for three cases. The manager should catch these errors, but let's be honest. There are so many discrepancies on invoices, they are probably lucky to catch 10%. The other 90% slips through unnoticed.

So how do we solve this problem? How do we go about doubling the profits in every store? It's simple.

First of all we take an inventory of every item in every store. It takes an average of two people working two or three eight hour days to get it done. We feed that information directly into our computer.

We hook your Passport or Verifone (or any other POS device) to our system and start scanning each and every sale that goes out of your store. If an item won't scan, we either create a barcode for it, or we get rid of it. You don't need inventory you can't track.

We audit the store every day. Not the whole store. Just part of it. It's done by your employees, three hours each day when they would normally be standing around talking about boyfriends, NASCAR and how much they hate their jobs; once in the morning hours, and again in the afternoon. Items that come up short (or over) are put on the top of the next shift's list. An employee who has filched a candy bar on the morning shift, will think twice when the candy bar they stole shows up at the top of the list for the next audit. Using this secure method of tracking inventory allows an entire store to be audited in less than a month - February included.

The next step is, we scan every item that comes into the store. This adds it to your inventory so you know at a glance how many Snickers are sitting on your shelves within the last five minutes. It also lets you see how many days are left before that item will run out. The manager compares the scanned list to the supplier's invoice. If the two don't jive, they find out why.

That's it. At some point you will be able to tell your supplier what you want. We can also tell them what we don't want. From there, it really gets interesting.

Price manipulation to affect turns is where we're headed with this. Just like WalMart.

Let me ask you a question: If Snickers turns five times a day, and Paydays turns five times a week, why are they priced the same? If an item would produce more profit if you could raise its price a nickel, why do we confine ourselves to the next nine-cent rule?

Why not a $0.64 candy bar? Do you know that one little candy bar priced only a nickel higher turning five times per day, adds up to $91.25 in additional annual profits. Doing that with only half the items in your store will increase your profits by $136,875. If you have eight stores, $1,095,000.00 a year in increased profits. Okay, so maybe it's not quite that good. Would you settle for half, or a third, or even a quarter.

Here's another one. If you have an item in your store that's been there for ninety days and hasn't turned at all, why not replace it with an item that will produce a nickel in profits five times a day. There's your $91.25 again. Money you won't get if you do nothing.

But ah, there's the restriction created by the use of archaic price-label guns. Get rid of them. More and more stores are not putting price-labels on products. Shelf tags work better and don't require nearly the time. Electronic shelf labels are an even better idea.

We all know where the economy is going. When inventory costs begin rising weekly, we won't have time to put new price labels on products anyway. Let's throw our pricing guns away and do something different.

Some items sell better in one time frame than they do in another. In fact, some items don't sell at all after their appointed hour.

Take honey-buns for example. I did a study on honey-buns and noticed that they sell like hotcakes before 9 AM. There's a tiny bump at noon and another around 7 PM, but the rest of the time they're just taking up space in your store. Why not use a big screen TV to announce a "Roll-back" in the afternoon. Let your POS drop the price between 2PM and 4PM and let's get some of those delicacies off the shelves and into our customer's tummies. If we can sell ten more honey-buns a day for a $0.25 profit each, it adds up to $912.50 a year. Do that in eight stores and you have an extra $7,300 a year. That will go a long way towards paying the light bill.

You see, when you start thinking about items instead of categories, all kinds of things are possible. Please think about this and let's talk. We can have your first store operating with a system like this is less than one week. Then when you see the advantages, you can roll out each store at your own pace.

Thanks for reading this. I have seen this type of inventory control system make a difference, and I would like to make that difference for you.

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