Sunday, September 26, 2010

The Future of Retailing

The necessity for better inventory control in retail operations is a given. We cannot continue to shove $60,000 worth of inventory in a convenience store and wait till the end of the month to see if it has produced a profit, and we have come to a standstill given the current environment. We need to know what's in our stores, how long it will last, and whether or not an item is profitable. We also need to explore frequent price changes to give customers the impression they are receiving a bargain, reduce shrink and expand product lines within the same selling space.

The next question is, "What avenues do we explore?"

I see three possible scenarios. That is not to suggest there may not be others. I invite you to join in and help me out here:

  1. Follow the Walmart model and develop proprietary, closed-loop systems.

    This will require an enormous upfront investment and maintenance expense involving a rather large IT staff and hardware that retailers do not have at this time. It's not to suggest it's impossible, but technology has to get a whole lot cheaper to make it worth the investment.

  2. Follow the 7-11 model and hire a third party to manage your network and provide the software for you.

    Much more economical than the first option, because the costs can be shared by many thousands of companies. The downside is, it forces you to rely on a third party who controls the cost of the system. Also, the only advantage to the third party is the money you pay them for the subscription service. However, contracts can be negotiated for several years in advance. 7-11 recently renewed its contract with HP Enterprise Services until the year 2012. 7-11 could have adopted the Walmart model, but obviously they felt the cost savings were worth the risk. We have a customer now who is running in a similar model we created with their help.

  3. Convince your suppliers it is in their best interests to provide these services for you.

    I have to say that in the end, I believe this to be the best alternative. My reason is this: Suppliers will profit equally if such a system were offered. I spoke with Nabisco two months before they were acquired by Phillip Morris and they indicated they would be amenable to such a relationship, citing their studies showed them if their drivers were to have knowledge of what products to load on their trucks before leaving the warehouse, it would save them millions of dollars annually.

    A supplier who comes up with a good plan to help manage their customer's inventory on a per item basis would gain an advantage that would be hard to equal, and I predict that someday retailers will choose suppliers according to the services they offer. The benefits would be mutual, with the supplier coming out slightly ahead. It would also be much more economical to implement because suppliers already possess the hardware necessary to do it quickly.

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