Thursday, July 22, 2010

Auditing Inventory

One of the secrets of keeping an accurate perpetual inventory is to maintain an on-going audit of every item in the store. This requires the use of store employees to do these audits and I think all store employees should be incorporated into the auditing process.

Many operators may hold a skeptical view of using store employees to audit the store's inventory for fear they may attempt to 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 tell us what's in the store, but we want them to order it when they don't have enough." (Someone please explain this to me).

In an environment where you cram $56,000 worth of inventory in a 2,700 square foot space and come back once a month to see if there's any money in the till, I can see where there may be some validity in running your business in this fashion. But you don't have to do that anymore and changing the way you manage your inventories means changing other things as well …store audits is merely one of them.

Keeping inventory by item rather than by category, changes everything. By using the computer to enforce a strict routine in real time during the auditing process, operators will quickly realize 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 from eight to sixteen employee-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 nor 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 basis. Therefore, the answer to the problem of auditing so many items is to concentrate on the 10%-15% that is high-risk and audit the other items once or twice a month.

Using the maximum sixteen employee-hour figure as our guide, we can assume that the most time will be spent on high-risk items in the average convenience store and should be no less than two hours and twenty-four minutes each day. By requiring employees to spend an additional twenty-seven minutes per day auditing low-risk items, each low-risk item can be audited monthly. Therefore the total time that is spent daily on auditing the store is no more than three employee-hours per day.

By breaking the audit up into three small shifts, each daily audit could be accomplished in three one-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%-15% of the items in the store are considered high risk. Some people might say the cigarette category is one of them, but that's Category Management thinking. The truth of the matter is 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 provide 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.

I emphasize moments before the audit for a reason. Audit lists should be generated by the computer immediately before we expect the audit to take place. Employees will plan for an audit at a certain time, but they don't know until the last minute what will be audited.

Employees are going to make mistakes when auditing the inventory. If mistakes are suspected, the system will include the item into 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 an item has been placed on the high-risk list, you can bet the entire staff will focus on that item more than on items not on the list.

The "High-Risk" lists should be posted in the stockroom every day for all employees to see. To the 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 will have a tremendous psychological impact on job security and thoughts of jail time.

Keeping items off the high-risk list is a goal set forth by management. In a multi-store operation, the shift with the most consecutive days with no high-risk items on their audit list will receive an award of some kind. Instead of standing around talking about boy or girlfriends and how much they hate their jobs, they can participate in ideas that will cause the audits to come up with fewer errors. One simple example might be if the Snickers keeps coming up short, maybe they need to be moved to an area in the store that is less hidden from the store clerks' view? Whoever thinks about these things?

Imagining ways in which you can improve your business varies drastically when you alter the environment. Things that you never considered become possible when business practices change for the better.

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 they can't find items on the shelf. Employees will be encouraged to remember what is in their store and where it's located. Keeping the store clean and organized will make the auditing process much more enjoyable.

Each employee should be assigned a User ID and a password so that the audits will be flagged with their name. Items that are skipped during the audit will be recorded and the store employee should be made to explain why the item was skipped. 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
I generally do my grocery shopping at a local store. I guess you might classify this store as a 'large' grocery store. Over the past five years of shopping I cannot remember a single case when an employee could not take me to any particular item in the store that I asked for. The practice of scattering items in multiple locations may spur the occasional impulse sale, however too much of it confuses the employees and the customers. Keep it down to a minimum and the store will run smoother and more efficiently.

Our auditing process is just challenging enough to attract employee's interest, instill pride and confidence in their work, and take their minds off of personal matters, while putting the focus on customer satisfaction, store presentation, accuracy, and quality of service.

Tuesday, July 20, 2010

Misunderstandings

Recently, I was explaining to an 'expert' about the necessity of tracking inventory. At the point where I emphasized the importance of knowing how many units of a given item a retailer had on his shelves, he stopped me.

"They already do that," he insisted. Then he jumped up to his chalkboard and wrote the following:

Beginning of the Month

10 Units

Sales

6 Units

Purchases

20 Units

Current Inventory

24 Units


 

I looked at his figures and I said, "You have several mistakes in your equation." He quickly re-added, 10-6+20=24, and he stared at me like I couldn't add and subtract. I grabbed his marker and drew:

Beginning of the Month

5 Units

Sales

3 Units

Purchases

0 Units

Theft

2 Units

Current Inventory

0 Units


 

Then I began to explain: "You didn't have ten units at the beginning of the month. You only had five, because your auditor miss-counted. You didn't sell six because one of them was an overring and two were actually something else that was sold by the clerk with the wrong PLU. And third, you didn't receive twenty units because the supplier sent you something else entirely, and the clerks stole the two that were left, so the real answer is: 5-3+0-2=0 … and finally, why did you order twenty of something you can only sell six of to begin with?"

Now before you laugh, consider this. The truth is even more appalling. The current method of controlling inventory in convenience stores is done like this:

Groceries

 

Beginning of the Month

$12,000.00

Sales

6,000.00

Purchases

8,000.00

Adjustments

-2,000.00

Current Groceries

$12,000.00


 

It's called 'departmental' or 'category management' accounting. How do they determine the cost? The cost can be anything from charging off the amount of the purchases (at cost) for the entire month, or calculating what's called a 'cost ratio', determined by the dividing the purchase costs by the retail value, multiplying it by sales and entering it as one lump sum. Then outside auditors come in and add up the retail value by department and adjust the ending value accordingly; creating a loss or gain, depending upon which way the adjustment goes.

Is it any wonder why convenience store operators don't know what they have in their stores?

What we really need is a helicopter

I had a friend once that told me the story of how he was caught in a trough while swimming in the ocean off the Venezuelan coast. If you've ever surfed, you know it takes a great deal of energy to break out of a trough as the waves keep you stationary and impede your progress.

After awhile, my friend simply gave up. His only hope was a tiny, Styrofoam boogie-board he had swam out on. Fortunately a helicopter was dispatched to pick him up, but the waves were so high the heavy, metal basket, slamming into the waves, threatened to decapitate him. In desperation, the rescuer opted to jump into the trough to assist him. Instead of helping, now there were two swimmers fighting over the same floatation device. Only through a miracle were both men successful in grabbing onto a tow line so the helicopter could drag them to shore.

Sometimes our tried and true resources fail us, and too often we make a decision to remain in a trough until we are exhausted. Well-meaning supporters may risk their lives and careers to help, but what we really need is a helicopter.

I just received an email today from an organization called Trade Promotion Marketer's Association (TPMA). They have just released information obtained from retired K-Mart executives whose non-disclosure agreements had recently expired. I love to study K-Mart and IBM, as both are poster children for imbecilic mistakes.

What I found most amazing about TPMA's information is its astounding accuracy, and how it runs parallel to the data I have accumulated over the past three decades. It did surprise me that the increase in new SKU's has jumped by 836 percent between the years 1997-2009. In the year 2009 there were 89,000 new SKU's registered versus only 10,651 in 2005, and the average number of items in supermarkets jumped from 30,000 to 48,000 during the same period. This means in order to keep up with the influx of new products, a retail supermarket had to expand by 160 percent OR decrease the number of selling units per brand to make room for the new items they put on their shelves.

This makes it glaringly apparent that retailers must know exactly how many units of each and every product is present on their sales floor, else the store stands the chance of running out of popular brands between delivery cycles.

According to TPMA, when one of your customers finds an item out-of-stock, an astounding 35 percent will buy the item from another store. This leads me to believe we are experiencing a mass movement of customers among retailers. Of all the customer loyalty programs out there, the most effective one appears to be, having on hand, the items your customers want to buy.

In investigating new product trends, they confirmed my suspicions that 70-80 percent of all new products fail. So when you have a limited amount of shelf space, accepting new products with that degree of failure rate is suicide. A severe lack of research on new products is accounting for many of the losses experienced by retailers. The smaller an enterprise is, the less likely it is to do the data mining necessary to keep the right products and the right amount of those products on their shelves. It's a relatively simple equation: Two many products and not enough space.

Products, like businesses have life-cycles. How quickly you recognize a product's death throes, has a great deal of bearing on profitability. In most convenience store operations, dead products have a way of becoming permanent monuments on a store's shelves, and customers have to dig through the graveyard to find the items they're looking for. Unsightly rusting cans and candy bars with their ends chewed off can cause a customer to shift stores faster than anything else I can think of.

Like it or not, convenience store operators must find a way to swim out of the trough, drill down into their categories and pay more attention to items. Too much credibility has been given to category management and planograms. These age-old tactics just don't work anymore.

Monday, July 19, 2010

Your suppliers’ environment

The explosion of convenience retail outlets came at a time when suppliers needed it the most. The only problem was the majority of the new retailers weren't retailers at all … they were gas station owners and oil jobbers. For the right person, opening a new store was a no brainer. You simply identified a good location, erected a new building on top of some fuel tanks, added a few pumps, and filled the store with inventory.

The majority of these new retailers started with one, two or three stores and couldn't justify the hiring of a grocery manager, so they did the next best thing … turned the stocking of their new stores over to their suppliers. To a supplier, a new retailer was worth around half a million dollars in annual sales per location. If they picked up an eight-store retailer, it meant around $4 million in total dollars. Twenty such retailers, $10 million, and so on and so forth.

The only way suppliers could handle a retailer's inventory management for him was to eliminate the identity of individual items and throw them into classes like groceries, beer and cigarettes. These classes were called 'categories' and categories were made up of a mysterious mix of products that experts considered a good balance of a particular group consisting of types of items. For example, in the HBA section a store needed a certain percentage of aspirin, mouthwash, deodorant, band aids, etc. to make up a category.

Markups were high … Ridiculously high. Everybody made money at the expense of the consumer who willingly spent his hard earned dollars in the interest of 'convenience'. Compared to profits, losses were negligible.

As the years went by, suppliers became more and more entrenched in the retailer's management. Competition dictated they give up some of their profits to keep their retailers happy. They offered perks – trips to Maui, golf in Las Vegas, lavish dinners, kickbacks to retail store managers, free merchandise, even rebates … everything and anything that would keep the retailers happy.

Suppliers invested millions of dollars in supporting the associations retailers joined to assist them in their management decisions. The associations sang the praises of the supplier's knowledge and expertise in helping retailers maintain their inventories at the least possible cost. Bookkeeping systems were designed to support this Category Management form of inventory control. Suppliers hired pre-salesmen to go into the stores and make up the orders so the retailers wouldn't have to bother with it. Margins were high. There was plenty for everyone to get a nice share of the profits. Suppliers gained absolute power over the retailer's supply chain, yet everybody remained contented with the arrangement.

Power corrupts and absolute power corrupts absolutely. Suppliers became dictatorial about their part in the supply chain process, demanding control over placement and territory using a carrot and stick method of persuasion. They demanded more and more space to provide decent markups, and huge penalties were imposed if a retailer refused to cooperate. As retailers got weaker, suppliers got more persistent, and all the while … everybody was losing.

In an article in Progressive Grocer Magazine dated February 15, 2003, Joseph Tarnowski said:

  • $40 billion, or 3.5 percent, of total retail sales are lost each year due to supply chain information inefficiencies.
  • 30 percent of item data in retail catalogs is in error, and each error cost trading partners $60 to $80.
  • Trading partners perform 25 minutes of manual cleansing per SKU per year.
  • 60 percent of all invoices generated have errors, 43 percent of invoices result in deductions, and each invoice error cost $40 to $400 to reconcile.
  • Just a simple error on one purchase order can send a wave of data confusion throughout a grocery organization — from shipping and receiving to buying, merchandising, and back room inventory — and have detrimental impacts on customer service and sales.

Clearly, there is a situation here that's not getting any better.

The first to feel the pinch is the consumer, the retailer and ultimately, the supplier. According to Marcia Layton Turner's book, K-Marts 10 Deadly Sins, if retailers were to be allowed to receive more of what the customers were buying, less of what they were not, and predict what merchandise mixes were going to be popular in the future, things would be a lot better — not only for the consumer, but the retailer and most beneficial for the supplier.

Go into any convenience store today and you will find 25 percent of the stock is just sitting there like a bag of rocks. If suppliers knew that, they could use that knowledge to put inventory in the stores that would move so it could be replaced with other inventory that would move and create more income for the supplier and the retailer. But, suppliers are so busy unloading their dead inventory into retailers' stores they don't have the time or the inclination to fix it.

Suppose for a moment that a supplier could deliver only the products a retailer could sell until the next delivery cycle and replace inventory that is not selling with merchandise that would sell; he could put just the amount of inventory in his trucks that the retailer needed, he would be more careful about putting new unproven items in the retailers' stores, and he would have a much greater interest in removing slow-moving items that were clogging up the retailers' aisles.

In addition, he would be able to track the inventory from the warehouse to the retail store, reducing driver theft, and produce invoices that would be consistent with what the retailer actually received. As a result, the retailer would make more money and be able to expand and build more stores to accommodate more products from the supplier.

What might have been a godsend for retailers and suppliers in the 1970s has become a horrible problem that is killing retailers and as a result, their suppliers. As more and more retailers go out of business, suppliers will suffer until all they can sell to is Walmart. Lots of luck on that one.

Sunday, July 18, 2010

Analyzing inventory can be a blast!

We all know beer sells better on a hot weekend, don't we? And sticky-buns sell better in the AM, than in the afternoon and evening. Depending on your area, Coca Cola 16 ounce may be the best seller, Marlboro Light 100's — you can't keep enough of those products on the shelf; but, other than the general knowledge that's obvious, do you know that every item in your store has a profile that you can fine tune and manipulate into producing substantial profits you would not receive otherwise? Well why don't you do it? I mean we're all into making big bucks, aren't we?

Well I think I know why. Your suppliers have convinced you it's something you don't need to know, your managers have stated it's too much trouble, and the people working in your stores say, 'I don't have time to worry about it'. So you already assume that it's a bad idea before you even consider it. But if you've been reading, you probably already know how I feel about 'assumptions'.

What you assume about your inventory may be driving you to the poorhouse. If you're like most, you've tried everything the experts have suggested – customer loyalty programs, bought shippers from trade shows, and signed one-sided contracts to get tantalizing rebates. You've got your employees greeting the customers when they enter your stores, keeping your coolers full, cleaning the bathrooms … and on and on.

By now, you've tried every cost cutting scheme to a point where there's nothing left to cut. You already pay your employees just enough to sustain life, and the government says you have to pay them more. It won't be long before you'll be expected to give them basket-to-casket health care. I'll bet that hostile takeover is sounding pretty inviting about now? What retailer hasn't considered passing his nightmare over to somebody else?

Now, what about your image? After all, who can think about image when the light bill needs to be paid, right? The more you cut, the more your image suffers. But I swear, it's the little tiny things your inventory is trying to tell you — that's where the big bucks are. But you can't hear them over the white noise that pulls at you from every direction.

Did you know that some items sell well on Monday through Friday but, sales fall flat over the weekend? Yet they occupy the same shelf space seven days-a-week. Do you know that it might be that an item's price is too low which affects its 'value' in the eyes of your customers and the price screams "Cheap junk"'? Did you know that an item's 'value' may change from month-to-month, season-to-season, day-to-day, and from one hour to the next? Have you wondered why Walmart is having yet another campaign about their insanely successful roll-backs?

Even tiny little things you may not notice can have huge effects on sales. Take rainy days for example. The whole wedding industry , ski resorts, electricians, amusement parks, some restaurants, photographers, postmen, most farmers if they're not in a draught, police, builders, outside painters — by the most part, these guys hate rainy days. But rainy days are a windfall for department stores that sell umbrellas. If I owned a department store, I'd automatically raise all umbrella prices by 15% at the first sign of a dark cloud. "Looks like a storm's coming, Ms. Barkley. Good idea to take advantage of our umbrella SALE!"

The point is, every item in your store deserves individualized attention if you want to raise your profits, because each one is a tiny little machine that either generates profits or sucks money out of your business like a tiny leak that goes undetected until you get the water bill, or worse – the ground caves in beneath your store.

If you have 4,000 items in your store, most of you can't name thirty of them without an invoice. You probably don't know the retail price of anything at this moment, and the money you make or lose on your inventory, if and when it sells?

You wouldn't hire an employee without knowing anything about them, yet you let your suppliers put these little strangers on your shelves every day. Some are there because they have to be someplace, and if your supplier knows you don't care, they'll put them there. Some are there because they look good (customers like that), but they never buy them. Others are there simply because you don't know they're there. And, some are there because they've been there since you first turned on your electricity. Very few of these little strangers produce profits. Almost nothing is priced correctly. The damage they do to your business is insidious and sadly permanent. You will not make up for the money lost yesterday – ever.

You need a tool that sets off an alarm when these little guys aren't paying their way. Some examples are:

  1. If an item has been there for ninety days without selling
  2. If the level of units fall below zero
  3. If the margin is not high enough to produce a reasonable profit
  4. If you have more inventory than you need to last before the next delivery
  5. If you will run out before the next delivery
  6. If the number of units were adjusted during the previous audit
  7. If sales of the item suddenly stopped
  8. If the selling price has remained the same for three months or longer
  9. If the selling occurrences of an item falls below that of other stores
  10. If you received more than you needed on the last delivery or didn't receive enough

These ten indicators, and more, should raise a red flag. Inventory is what generates profits for your business. Why do so many of you think so little of it and know so little about it?

Saturday, July 17, 2010

Stagnation!

There is an old saying that goes something like this: "If an infinite number of monkeys were left with an infinite number of typewriters for an infinite period of time, sooner or later, one of the creatures would type something profound."

While there's much to be said about possibilities when you use the word 'infinite', the life of an industry has a beginning and an end.

Telegraph received a serious deathblow with the invention of the telephone and other than sustaining an ongoing service of generating money orders, the Internet has pretty much shoveled in the last spade-full of dirt on what was once the most revolutionary form of communications the earth had ever known.

It's almost impossible to find vinyl recordings anymore, bookstores are going broke left and right, major television networks are gasping for breath, and retail business closings are reaching epidemic proportions.

Time? We don't have much of it left. Keeping a small business producing a profit, which used to be a fulfilling challenge, has now become a life or death exercise and a struggle for survival.

What happened anyway? The answer is 'time', and the natural progression of evolutionary laws that have been going on for 13.8 Billion years. If your plan is to simply hang around until the money runs out — join the crowd. There's plenty more who feel the same way you do.

How can a 20th Century small business survive against the onslaught of big box retailers, the Internet, imminent hyper-inflation and a blood-thirsty government that's expanding at the speed of the universe times ten?

There's only one answer. You have to change. And you have to change right {deleted expletive} now. Not just once mind you, you have to be willing to change faster than a pass receiver on the gridiron and every bit as often; because, if you stay in the same place for too long, you're likely to be trampled in the stampede to the end-zone.

BUT THERE IS GOOD NEWS

You have not exhausted your battery of artillery just yet. You just don't know where it is. I want to help you find it. Like the skunk said after a furious event of procreation, 'I've enjoyed as much of this as I can stand!' More than ever we need a re-accounting of reality.

The problem most retailers face today is stagnation. You may have built up a powerhouse in the eighties and during the course of expansion you have forgotten what it was like to begin. You've developed a staff of once powerful employees and advisors, who at the onset, provided you with fresh new ideas that grew your business into the motivating force it was.

But people, like inventory, can arrive with an expiration date; and people, like inventory, can rot and infect everyone and everything around them.

I cannot emphasize enough the importance of assumptions. It's not so much the productivity of management that accounts for its value; it's the assumptions held by management that account for whatever results, good or bad, they produce. Assumptions have a tendency to find a home, and once there they tend to root.

Thirty years ago, I lived in the small community of Lufkin, Texas. We had one video rental store located inside a music store in the downtown area. They had a small section of the store dedicated to videos in Beta and VHS format. They even had a few titles on laser disk — now there was somebody's assumption that failed big time.

When the second video store opened up in the community, I assumed it would never last. What town needed more than one video rental establishment? Then there was another, and another, and with the opening of each new establishment, I came to the conclusion that no matter how many video stores opened, people would show up out of the woodwork to patronize them. Who would have imagined, a mere twenty-five years later, video stores would be disappearing faster than they opened during the industry's growth?

Common sense would tell us that video stores should have evolved with the times. But they did not. Blockbuster Video participated in its own demise — a perfect example of snatching defeat out of the jaws of victory if I ever saw one. Blockbuster reached a point of stagnation which created the perfect environment to be blindsided by a company like NetFlix.

Today, with a small amount of inexpensive equipment, brand new movies can be downloaded over the Internet. 'View on demand' has literally destroyed the video rental industry, an industry that a mere thirty years ago was growing faster than lawyers at a train wreck.

But here's an interesting phenomenon. What's happened to the local movie theatre industry? Well let's take a look: The movie theatre industry has a combined annual revenue of $12 Billion and is dominated by three major companies — Regal Entertainment, AMC Entertainment, and Cinemark. These, and some 47 lesser known enterprises, account for about 85 percent of the industry revenue.

The movie theatre industry is labor intensive, with the average worker accounting for about $90,000 in annual income. Ticket sales account for 70% of the industry revenue, food and beverage about 25% and on-screen advertisement about 1%. The remaining 4% or $480 million in revenue is a mystery. But companies like NetFlix that stream up and coming theatrical movie releases to in-home theatre systems are closing in, and the economy is creating the perfect environment for a major change in the way customers satisfy their need for 'entertainment.'

The movie theatre industry has been around for nearly 100 years. So far, they've managed to remain profitable. Not so fast, Leroy! There's a gossamer thread, stretched to the breaking point. All it needs is one more push and 'snap'! They are doomed and I'll tell you why.

An unknown entrepreneur started a business a mere eleven years ago, acquired 13 million customers and had $1.7 Billion in annual revenue in only ten years (1999-2009). His idea of building a company like NetFlix, Inc. wasn't rocket science. It didn't take a chalkboard full of physic's equations or a think-tank filled with Einsteins. It was a simple idea that DVD's could be circulated through the mail for a profit — period.

What the creator of NetFlix did was notice what I call a 'tear', or 'rip' in the movie environment and he went for it. I'm sure that many people in the movie industry probably had the same thought a thousand times, but what made the creator of NetFlix unique is he had nothing to lose. He was able to make a decision without a bunch of lawyers and CPAs giving him horrible advice. The only person he had to convince was himself, and maybe a few investors.

You see the movie people, who may have well thought of the idea long before he did, were eaten up by 'stagnation'. For that bunch, all it took was one accountant to point out the fact that selling movies through the mails or over the Internet would destroy their distribution channels (mainly the local theatres) and that was the end of it. 'Oh, yeah, you're right, Seymour. Let's go get a sandwich at the Brown Derby'. What was originally seen as a dangerous idea became even more dangerous as a result of the idea being ignored.

The lesson here is, no matter how comfortable you are in your assuredness that what you're doing is right, there is someone out there, right this very instant, that has you and your industry in their crosshairs.

In my years of working with convenience store operators I see complacency all the time. 'If it ain't broke, don't fix it' attitudes abound. The truth of the matter is, 'If it ain't broke, you just ain't noticed it yet.'

But, ignoring dangerous ideas aren't limited to marketing plans. They come from all angles to the point that if you have just finished with a grandiose plan, it's already obsolete before the ink dries on the paper.

In business, remaining where you are is suicide. I know … I know, you've heard it before, but how many actually live by that creed?

The convenience store industry hasn't even begun yet. It's about to be reinvented, and when it is, everybody will say, 'Damn … who would have thought …' but by then, it will be too late.

The convenience store industry began with a tear in the environment of the grocery industry. It will end in a rip of something else. Stop listening to the experts and listen to yourself, and most important of all, reevaluate your assumptions.

Remember, assumptions take root and tend to steer us in the old ways. Most of them can be disproven and eliminated. Bad ones are bags of rocks, tied to your neck and will strangle you if you don't get rid of them. Replace the bad ones with new ones and update the others. Then ask yourself this question: 'What do my managers, accountants, lawyers, employees and my customers assume about me?"

Saturday, July 3, 2010

Cigarette Deals

I have often wondered why cigarette manufacturers insist on contracts. So I have been conducting studies to determine the real value of cigarette deals. Below, I have accumulated one month's data from one store to determine if the space allocated for all brands from a single manufacturer is justifiable. My conclusion after several years of study is that most convenience store operators might be better off stocking the brands that will produce profits as opposed to allowing poor sellers to occupy space that could be used by other brands that do produce sales. Having products that produce less than one sale per week doesn't make much sense to me. The contracts operators sign with manufacturers is definitely more to the supplier's advantage than to the retailer.

Brand

Units Sold

$ Sale

MARLB RED HP

313

$1,552.98

MARLB LIGHTS 100 GOLD HP

256

$1,216.32

MARLB LIGHTS MENTHOL GREEN KS HP

148

$722.19

MARLB 100'S RED HP *

148

$678.75

MARLB ULTRALIGHT SILVER HP

81

$401.82

MARLB SPEC BLEND GOLD HP

75

$239.22

MARLBORO 72'S HP

72

$305.67

MARLBORO 72 BOX

70

$296.81

MARLBORO MENTHOL

65

$347.52

MARLB SPEC BLEND RED HP

54

$208.21

MARLB ULTRA LIGHTS 100 SILVER HP

53

$276.93

MARLBORO 72'S GREEN BXFSC

46

$199.35

MARLBORO SMOOTH BLUE HP

35

$173.76

VIRGINIA SLIMS MENTHOL GREEN HP

29

$153.14

MARLBORO BLEND #54 CARTON

29

$152.04

MARLB LIGHTS MENTHOL GREEN 100'S HP

28

$146.61

VA SLIMS SS MENTH GREEN HP

26

$111.91

L&M FILTER FF BOX

26

$92.85

VA SLIMS RED/GOLD HP

25

$135.47

MARLB SPEC BLEND 100'S RED HP

23

$93.03

MARLB BLEND 27 BRONZE HP

22

$119.46

BASIC FF

21

$83.81

MARLB 100'S RED HP

21

$103.17

L&M FF 100'S BOX FSC

21

$74.65

MARLB SPEC BLEND 100 GOLD HP

21

$88.60

MARLB RED SP

20

$119.46

MARLB MEDIUM RED HP

20

$103.17

MARLBORO 72 BLUE BX FSC

16

$44.30

MARLBORO ULTRA LIGHTS 100'S BOX

15

$38.01

L & M LIGHT BOX

13

$48.72

MARLB LIGHTS GOLD SP

12

$59.73

VA SLIM MENTHOL LUXURY UL 120'S HP

12

$58.90

MARLB 100'S GREEN HP

12

$54.30

MARLB 100'S RED SP

12

$54.30

MARLB MILD BLUE MENTHOL HP

12

$65.16

VIRGINIA SLIMS BLUE HP

9

$53.01

VIRGINIA SLIMS 120 LL GOLD HP

8

$35.34

MARLB MILDS 100'S BLUE MENTHOL HP

8

$43.44

L&M LIGHT 100'S BOX

7

$26.88

MARLB LIGHTS 100 GOLD SP

7

$32.58

L&M MENTHOL KING BOX FSC

7

$26.33

L&M MENTHOL 100'S BOX FSC

6

$22.39

L&M ULRA LTS BX

5

$14.76

VIRGINIA SLIMS MENTHOL BOX

5

$23.56

MARLBORO 72 UL BOX

5

$22.15

VA SLIMS LIGHTS GOLD HP

4

$23.56

MARLB VIRG BLEND 100 SILVER HP

3

$16.29

VA SLIM MEN LL 120'S GREEN HP

3

$17.67

BASIC FF BOX

3

$10.16

VA SLIM SS RD HP

3

$17.67

BASIC FF 100 BOX FSC

3

$10.16

BASIC LIGHTS LIGHTS 100

2

$10.16

MARLB SMOOTH BLUE 100 HP

2

$10.86

MARLBORO MILD BOX 100

2

$10.86

MARLBORO MEN SILV KSBXFSC

1

$54.30

B&H 100'S LIGHTS GOLD HP

1

$6.59

BASIC UL BOX 100

1

$5.08

MARLBORO LIGHTS GOLD HP 10

1

$54.30

BASIC MENT GOLD KS BOXFSC

1

$5.08

MARLBORO VIRG BLEND BX FSC

1

$5.43

MARLBORO BLEND #54 100

1

$5.43

Grand Total

1951

$9,184.36

   

Friday, July 2, 2010

Pricing Inconsistencies

If you are old enough to remember the year 1979, you might recall the horrendous period of hyperinflation as prices were going up so fast, Americans were actually hoarding food. Many leading economist believe it will happen again, and soon. It means, in order to stay profitable, you may need to change your retail prices with every shipment of new inventory. How do we accomplish this in the current environment?

Pricing labels will mean nothing. Employees will make hundreds of errors trying to remember prices of different products and your customers will go away mad — some to never return to your stores. If you raise your prices too fast, you will get the reputation of a price-gouger – too slow and you may lose thousands of dollars. Hyperinflation may end the convenience store industry as we know it.

The curse of using price labels is they are almost always wrong. I know there's an argument that customers must know what the retail price of an item is, but using labels creates as much confusion and misunderstandings as it provides a service – cancelling each other out. Often, when we are scanning the inventory in a new store while installing our scanning service, we must go back and forth to find a clerk to give us a price on an item to enter into the system. The comical thing about this is if you asked three clerks what the price of an item is, you will most likely get three different answers. I have seen it start arguments between clerks.

In today's economy, not having control over you pricing is costing you a ton of money by setting up an environment where items are being sold below cost, or of items not being sold at all. Yesterday, a shopper asked me the price of a package of crackers. I found it disheartening that in the same company those crackers were selling for $0.39 in one store and $0.59 in another. Because there were no labels on the display, I gave the lady a price of $0.59. She waved her hand at me and stormed out of the store.

Having different prices in different stores is a good thing – if you are doing it for a particular reason. But you need a reason for doing it.

Electronic price labels can be obtained for as little as $3.50 per unique item. If your stores have 3,000 unique items on the shelf, it requires a one-time investment of $10,500 per store. Depending on your individual situation, this cost may be prohibitive. But, you should consider either using electronic price labels are posting the prices on a spot on the gondola, other than on the item itself. Of course, you have to have a way of updating the labels. We can update price labels via our wireless router automatically. As an alternative, you might consider doing away with price labels entirely. More and more stores appear to be leaving labels off and letting the POS price the item at the counter.

An electronic price book, networked to you POS devices over the Internet will solve these problems giving you the power to be sure you're making a profit on each and every sale. Without it, you won't know until the end of the month. In fact, you never not find out until it's too late.

Network Setup

Since both the back-office PC and the Passport must be on different WANs, we have to get them to work on the same LAN. These are the steps we take to accomplish this.

INTERNET routers have a LAN which has an address of 192.168.1.???, with a subnet mask of 255.255.255.0. The Internet needs to be accessed by the security system, StoreReport.com, Scott's POS Service, the back-office PC (in the store), and anything else that might require an Internet connection to the store. The INTERNET router has wireless enabled for the hand-held scanners to use in receiving and auditing, and for our laptops as we are setting up the store. At this point the DNS will need to be determined at the location.

SATELLITE routers access a private WAN used for credit card processing and have NO Internet access. The SATELLITE routers are in a LAN with an address of 10.5.48.??? with a subnet mask of 255.255.255.192. The SATELLITE routers provide WAN access to the Passport registers and gas pumps in order to process credit cards and a LAN for all the petroleum equipment to function in harmony.

Our first step is to set up the INTERNET router to enable wireless access and forward ports 3389 and 1433 to an IP address of 192.168.1.100 and confirming the WAN IP and DNS server addresses. We then disconnect the INTERNET router from the back-office PC as it will be connected to the GATEWAY router later.

The GATEWAY router provides Internet access to our back-office PC and sits on a LAN with the Passport POS devices in a workgroup named 'PASSPORT'. An IP conflict can crash the POS devices and the pumps. It is better to connect the back-office PC to the SATELLITE router first and let it assign an IP address which is usually 10.5.48.9. Using IPCONFIG on the back-office PC, we can confirm the IP address assigned by the SATELLITE router. Once this is done, we can go to the next step of setting up the GATEWAY router.

SETTING UP THE GATEWAY ROUTER

First we disconnect our back-office PC from the SATELLITE router, connect the GATEWAY router to the back-office PC and enter router setup. The GATEWAY router should be set to use a static IP address of 192.168.1.100 with a subnet mask of 255.255.255.0 and a gateway address of the INTERNET router — usually 192.168.1.254. We use the DNS server address we acquired from the INTERNET router. Depending on the store these addresses would be something like 205.152.132.23 and 205.152.150.23.

The next step is to set up the GATEWAY router LAN IP address to 10.5.48.9 or the address we saw previously with the IPCONFIG step above. We set the subnet mask to 255.255.255.192.

*** IMPORTANT
BE SURE TO DISABLE DHCP ON THE GATEWAY ROUTER so the Passport equipment does not pull and IP address from the wrong router and crash the petroleum equipment.

Next, connect a CAT 5 (Ethernet) cable from the SATELLITE router to the GATEWAY router to allow the SATELLITE router to assign yet another IP address to the back-office PC which will most likely be 10.5.48.10, and can be verified again by using IPCONFIG on the back-office PC.

To insure the POS device and pumps are not affected, it's best to disconnect the CAT 5 going to the SATELLITE router until the set-up is finished.

Go to the TCPIPv4 properties in the back-office PC and give the back-office PC an assigned address of 10.5.48.10 or whatever the address was in the previous IPCONFIG exercise. The subnet mask will be 255.255.255.192 with a GATEWAY address of 10.5.48.9 (or whatever we assigned as the GATEWAY router LAN IP). The DNS server address will also be the same.

Connect the CAT 5 cable from the INTERNET router to the GATEWAY router Internet-in slot. We should now have access to the Internet from the back-office PC.

Forward ports 3389 and 1433 from the GATEWAY router to the IP address of the back-office PC. Connect the CAT 5 cable from the SATELLITE router to an open slop on the GATEWAY router. Set up the network on the back-office PC with a workgroup name of PASSPORT and reboot the back-office PC. We should now have the Passport POSSERVER01 in our workgroup computers.

Programming the Scanners

We use Metrologic MS7120 Orbit scanners because of their small size and superb performance. They can be obtained from various sources starting at $256 to $337 depending on where you buy them. It is very important that you do not skimp on the quality of the scanners because if they don't work properly you've just thrown good money after bad. You will need one for each register.

Before the scanners can be used, they must be programmed. Scanners are easy to program as each one comes with an operating manual. All that's required is that you scan the bar codes in the manual to make the scanner do what you want it to do. The scanners do not need to be connected to the POS to program them. They simply need to be powered on. The process to program the scanners is simple:

1. Enter the Program Mode.

2. Reset to Factory Defaults

3. Recall Standard Defaults

4. Disable Line Feed

5. Parity Even

6. Enable UPC prefix ID

7. Expand UPC E to 12 Digits

8. Exit Program Mode.

If at any time during the process you make a mistake, simply start over.

If the scanner does not beep when you pass an item in front of it, your set-up on the scanner is incorrect. You need to reprogram the scanner.

Scanners then need to be connected to Comm 12 on the back of the Edgeport router, which is connected to the Passport. Looking at the back of the router it will be Port 8 on the upper right side of the device. You will need to use a USB/Serial converter to make the connection. Try to scan an item from your stock. The Passport should chirp "Uh-Oh" and report that the item is not found. If not, recheck your connections and try again. You may need to reboot the Passport in order to get the scanners to work.