Friday, March 4, 2011

Advantages of Cloud Computing– Part V – Reduced Cost

The next time you’re out and about, make a stop at one of your competitor’s stores, go inside and buy something, pay for it, get back to your car and ask yourself, “What exchange occurred during that experience that would encourage me to come back?” Quite honestly, there is nothing we can think of that is more bland, boring or uneventful than buying something in the average convenience store.

Walmart became the giant it is today by forging a business contract with its customers. It goes something like this: “I, the retailer promise to work very hard, every single day, to provide you, the customer, with the products you desire at absolutely the lowest, rock-bottom prices; and you, our valued customers, agree to give us your undying love, loyalty and affection.” You may think we have wandered away from the subject of ’reduced cost’, but eliminating unnecessary costs in the supply chain is what’s behind Walmart’s phenomenal success.

A convenience store is merely a single element in the supply chain. Remember, your customers are part of that chain as well, and if you want to garner their undying love, loyalty and affection you need to convince them that you, at least are trying to pony up to your part of the contract.

The very word ‘convenience’ screams, “Products are on sale here at outrageously high markups, because you neglected to buy them cheaper elsewhere.”  If you’re thinking this is about reducing retail prices throughout the store, you’re missing the point.

Pricing items by category is a major contributor to your inability to make greater profits. It’s a triple-whammy, because the three things that result from this kind of management are: 1) It assumes groups of items within a category have a similar value to the consumer, 2) it prevents you from identifying the 30-40% of items inside categories that are unprofitable and the 15% that are dead, and 3) it prevents you from juggling prices of unique items to give you the appearance of having bargains, and that is what convinces your customers  your prices are too high. Cloud computing is the missing element that will remedy this situation.

I was talking to a convenience store operator last week who was convinced his chosen method of replenishment of items was satisfactory. His point was this: If he tracked his purchases and his sales, that information alone gave him an accurate assessment of what he needed to buy. His mistake was forgetting 40% of vendor invoices are in error, and his calculations did not include turns, prevailing conditions and shrink. It’s an easy trap to fall into, because we’ve been doing it far too long. Okay, so this happens occasionally, but not enough to matter much. Wrong! If you have 20, 30, 100 stores, mistakes such as these can have dire consequences. The subject of cost of product never arose.

If you have 3, 000 unique items in your store, each one of those items is a tiny little machine that generates cash to pay your employees, send your children to college, expand your business and maybe, even propel you into the position of ‘market leader’. As it stands now, of those 3,000 unique items, 60-70% are not working for you.


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