Saturday, June 4, 2011

The Case Against Category Management – SRDC and Suppliers -3

For this article, please refer to

In most cases, SRDC’s connection to suppliers is slightly different due to the fact that most suppliers have their own wholesale distribution systems and data processing capabilities more akin to SRDC’s. Nevertheless, ‘The Cloud’ makes it appear retailers, stores and suppliers coexist in the same virtualized network with appropriate ‘firewalls’ segregating whatever functions and activities that need to be protected as dictated by all parties individually. For example, retailers may want to expose part, but not all of their operations to some suppliers, but not all of them.

The important thing to keep in mind, is regardless of the physical location of the data or the businesses themselves, for all practical purposes, to the individuals using the network, everything seems to be located at a common, centralized location, appearing on devices located in their offices, on their cell phones driving down a freeway, or on an IPOD while waiting to board and airplane on the other side of the world.

Here’s a simple demonstration: Using a web browser like Internet Explorer or FireFox, you may enter: and the POS system for a live store appears to be running on your computer; however, this particular POS is running in a store located in Central Mississippi (Time zone is CST).

The on-going results of this scanning provide suppliers with a powerful tool to allow them to assist you in managing your inventory. For example, the instant an item leaves the store the SRDC removes the item from your inventory and updates an intelligent price book to reflect the number of items left. Information such as ‘average turn rates’ recalculate the number of days left of each product your supplier sells to you. When a supplier picks products to load on his truck, he has the advantage of knowing how many items of a particular product need to be delivered to your store to satisfy customer demand between delivery cycles.

The supplier may benefit in the short term by storing 1,000 days of Orbit Wintergreen chewing gum in your stockroom; but in the long run, the supplier is actually clogging up the supply channel and gobbling up your precious working capital.

In our book, “Turning Convenience Stores Into Cash Generating Monsters,” we talk about a real example of how a disparity in the turn-rates of Ben & Jerry’s New York Chunk and Cherry Garcia ice cream to demonstrate how one supplier continuously stocks a particular store with five days of New York Chunk and 131 days of Cherry Garcia, in which case the store runs out of one product two days prior to each delivery and has enough of the other to satisfy customer service level for over four months. In this instance, the supplier and the retailer both experience a loss of sales. 

The lack of sufficient information regarding the movement of products through the supply channel limits the efficiency of all parties and creates log jams, preventing the normal flow of products, and causing floods of overstock and stock-outs in its wake. When a supplier gains the knowledge of precisely what a store can sell between delivery cycles, they are able to increase not only the profitability of their retailers but their own profitability as well.

By gaining the knowledge of overstock, retailers can begin selling-down their inventories, resulting in an explosion of working capital and better service to their customers. Remember, 40 percent of your stock is not profitable, hurting both retailers and their suppliers, and this is the primary reason net profits hover around 2 percent or less.  

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