Wednesday, April 27, 2011

The Case Against Category Management – CM vs. Item Level Control -2

Other advantages of Item Level Control:

1)     The date of the last time you received an item in your store is crucial to determining how long it’s been sitting on your shelves. If an item has sat there for a month without turning, something’s wrong.

2)     The date of the last time a product sold is crucial, because if it suddenly stops moving, it could be something easily corrected that might get it moving again. Maybe it’s been camouflaged by a rack jobber on a previous delivery; it’s a seasonal product and Halloween is over; there are 500 more in the stockroom feeding the mice. Maybe you’re OUT.

3)     As it stand, the profit on the sale of a single item is a complete mystery. How do you know whether you’re making any money from the sales of that product or not? Has the supplier’s price increased and the manager forgot to change the retail; maybe he’s misplaced the label gun; maybe he was asleep when the order arrived; maybe your supplier shorted you a dozen and you paid for items you never got.

4)     How many days do you have left of a product before you’ll be out-of-stock? In most convenience stores today, out-of-stocks occur on fast moving items constantly and you have enough slow moving items on hand to supply customers for the next six months; a terrible waste of operating capital that could be put to better use.

5)     The turnover rate (how many times on average, a product is moving each day) is unknown to most operators. Not only does it serve to calculate days left, it can also be used to adjust retail prices to affect turns and maximize profits. Who manages profits in your company?

6)     The knowledge of how the presence of one item affects items around it is critical, especially when it is cannibalizing a more profitable item or it’s a companion item and its absence or presence  determines whether another product sells or not.

7)     Theft analysis by category on a monthly basis pales in comparison to being able to see theft on items by shift, allowing you to put an end to employee grazing before it bankrupts your company. If employees sense you don’t care about items, it makes stealing them easy.

8)     Experimenting on pricing in real time is only possible if you get up-to-the-minute updates on sales and profits by item. Every item has its ‘sweet spot’, the time when it starts making you money, and every product is unique. Similar items within a category may be vastly different as customers access their value. 

All the above and much more is available in an item-level inventory control system. A convenience store operator is hard pressed to put together a demographic model of his customer base and their buying habits, because there’s too much overview information and practically none that is specific to an item, a store, or its particular neighborhood. 

The CEO of Walmart said, “Retail is detail.” We will take that a step further and say, “Detail is that insignificant can of tuna that’s been occupying space in your store since 2009.” You know the one. The side is bent, the lid has a quarter-inch of dust on it, and your customers side-step it like it was a roadside bomb.

One-third or more of the products in your stores are unprofitable by any measure, and 20 to 30 percent of your inventory is working like the devil to make up for the losses. Do you know which ones are which?


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