Wednesday, March 30, 2011

Advantages of Cloud Computing– Part XXIV – Flexibility III

Regardless of the pros and cons we hear about cloud computing, the advantage of having the flexibility to collaborate with trading partners and service companies in real-time, solves so many problems, anything bad you might say about it pales in comparison. It’s as simple as comparing writing letters back and forth with working in the same cubicle with our desks shoved up against each other. Following close behind collaboration, are immediate software fixes, unlimited storage, infinite expansion, convenient access, and much, much lower costs.

In our book, “Turning Convenience Stores Into Cash Generating Monsters,” Jim and I discuss the ability to experiment, and why it’s become a lost art in retail. You should already know a little about experimentation. Your suppliers are using your stores (at your expense) to test the viability of new products right this very minute. I often wonder how much of a store’s profits are lost because some manufacturer wanted to know if a new line of peanuts or a new flavor of beef jerky would catch on in your market.

Experimentation in stores can be good, but it can also be very bad. The whole idea of experimentation is to monitor something to watch its performance. At the supplier level, they are only interested in how many new items they can put in your stores. They could care less whether it cost you money or makes you money. Experimental products often sit on stores’ shelves for years before someone throws them out. The funny thing is, you paid for those products out of your profits. It cost the manufacturer nothing – thank you very much.

The entire culture of merchandising has been designed to make your supplier’s wealthy. Take the cigarette category for example. How many packs of dead cigarettes do you allow in your stores to get a deal on contracts? The money lost to new, unproven products is to say the least, enormous.  General Mills alone introduced 300 new products in 2009. That’s twenty-five new products each and every week. Coca Cola lists twenty-nine products that start with the letter ‘A’, and forty-one that start with ‘B’. In fact, the only two letters of the alphabet they’ve missed so far are ‘X’ and ‘Z’. 

Hidden within categories are, on average, approximately 2,000 products that are not making you money, and the other 900 or so are carrying the load for the whole store. That’s around $42,000 (at cost) of non-profit producing or marginal stock. One-hundred stores? $4.2 million. 70% of each store needs help. 300 to 400 products are simply dead. They would make you more money if they were buried in your back yard, because they are occupying space where profitable items could be placed.

When did this start? It’s always been this way. It’s just getting worse, much worse. That’s why we see so many stores in bankruptcy. That’s why we now see 73% of the market owned by operators with ten stores or less. That’s why I found an Indian guy sleeping on the floor of a store while his wife ran the cash register. I can promise you that fellow knows exactly what’s in his store and how much money each item is making him, because he pays attention to his stock. He buys only what he needs, and only what will sell at a profit. He’s not smarter than we are, he’s just hungrier.

We native-born Americans have become somewhat lazy in our ways. We allow others, who we trust, to make our decisions for us, and they have learned how to take advantage of that inherent weakness. Properly integrating our stores into common networks, making our suppliers become partners in the selling process, and increasing customer satisfaction, is why cloud computing is taking off – Google ‘Cloud Computing’ today and you’ll get 35.3 million hits, and the number is growing. The smart guys saw what it did for Walmart. Now, you should learn what it will do for you.

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