Monday, May 28, 2012

Automated Store Replenishment – Volume X

Typically, grocery stores require the person in charge of inventory to order-up to the amount printed on a shelf tag. This may be a store employee or a supplier’s representative. Oftentimes, retailers do not receive what they order; instead, they receive something else they did not order and they have to go and find a place to put it, or it simply stacks up in the storeroom until the store manager throws a fit and delegates the responsibility to someone. Unordered inventory is a large contributor to carrying costs and clutter in the store.     

In the majority of stores, the fallback solution is to assume the supplier will not allow us to run out of anything, as in the case of rack jobbers (sometimes referred to Direct Store Delivery) who are the front-line troops in the ‘Inventory War’. I cringe when observing these people operate, as they determine the numbers of bags of peanuts and cracker sandwiches the store needs through a well thought out exercise of using the ‘push and shove’ method of inventory replenishment. Their philosophy seems to be, “If there’s space, the store definitely needs it.”

We have come a long way using computers for bookkeeping and reducing costs, while for the majority, forecasting and serious analysis are not even a consideration.

There are three basic prerequisites for creating an ASR environment: Bar coding at the retail level, a device that recognizes the bar code (POS), and some form of electronic communications with the supplier. With these prerequisites in place, a basic level of ASR is possible.

We advise customers to avoid buying products that are not identified by an eight or twelve digit barcode. However, we are seeing more and more European bar codes entering the market. Mostly, these products are coming from Asian markets and their mere presence cheapens the overall quality of merchandise in the stores. Larger vendors rely on electronic data interchange (EDI) to transfer data to and from trading partners; however, as we move to an environment of Cloud Computing, it is only natural to expect at some point, EDI will give way to total integration. The technology is here to support integration today, and by the end of this year, I believe we will have removed most of the roadblocks that have stood in the way of integration in the past.

At this time, most of your suppliers are not interested in your data. They ARE interested in your ability to tell them, with some degree of accuracy, how much to bring to your store on the next delivery. We provide a service where suppliers can peer into a store seconds before the items are to be picked and create their shipments accordingly. We are currently working with a customer in California who does business with one of the nation’s largest grocery suppliers to do just that. This is a new environment for both of them, but so far, the results are proving to be well worth the effort.

Keeping in mind, the three prerequisites identified above, one more element is required to be successful with ASR, and that missing element is an on-going perpetual inventory system that is continuously maintained with the highest degree of accuracy—the higher the accuracy, the greater the value of the system.

In most of the studies I have read, the effectiveness of preventing Out-Of-Stocks (OOS) has been ambiguous; however, if done properly, we have found OOS is the easiest problem to solve. The majority of OOS problems are all but eliminated by comparing actual store levels with inventory turns. A backup is provided for monitoring these turns, and if they should unexpectedly stop, or the disposition of a product falls to or below zero, the store manager is instructed to do an immediate audit of that particular item. Most of the time the problem is traced back to failure to replenish the inventory from the stock room.  

Automated Store Replenishment – Volume IX

Experts in the field of Supply Chain Management (SCM) like to claim that creating an Automated Store Replenishment (ASR) system without the use of computers is impossible. However, this is not true. People can do anything a computer can do; you only need the space and time in which to do it.

The process itself is not beyond the capabilities of the human mind. I visit single-store operators all the time who do a fairly good job of it. There are exceptions however. I gave a copy of my first book on inventory control to a retailer up the road three years ago, and I’ll bet you he has asked me for my phone number twenty times since I gave him that book. He is a procrastinator. He knows he needs to do it, but he hasn’t found the time.

We start with the objective of having the right amount of inventory in the right place at the precise moment the customer is ready to buy. We make it profitable by limiting the amount of inventory to being no more than is required to meet customer service levels, and limit Out Of Stocks (OOS) by building a little ‘safety stock’ into the equation.

For example, our ASR keeps a running calculation of inventory movement over and infinite period of time, and from that table we have access to an infinite array of sampling periods—yesterday, during the past week, the past two weeks, past month, past year; and we have the ability to analyze spikes during seasons and holidays. From that, we can come pretty close to getting an accurate estimate of how many items the store will sell before the next delivery cycle occurs.  

This is a lot of fun: Change the last twelve digits to any UPC code. (Observe upper/lower case). If this store sells it, you can view its ninety-day history. Move your cursor over the graph to get precise figures. The last sale occurred today at 9:01.47.88 AM, the average turn rate on this particular bar of candy is 4.0537, the current retail price is $1.09, the moving-average cost is $0.5778. The next sale of this item will produce EXACTLY $0.5122 in gross profit; and at this precise moment in time (May 27, 2012 at 10:39 CST), they have 125 bars in the store, enough to last for thirty days. They get two deliveries a week—Tuesdays and Fridays. They sold 34 during the last seven days, 74 during the last 2 weeks, 108 during the last 21 days, 140, during the past month and 252 during the past two months. You tell me how many they need to order. Simple, right?

Most current methods used rely on past purchases to estimate current needs. For example, “We received 24 of these last week, so we will probably need to order 24 next week.” And, they rely on the store manager to tell them when the shelf is overflowing.

I will never forget the time I was auditing the first store to implement our Cloud scanning service back in the spring of 2004. During a three-month period, everything I thought I knew about controlling inventory in a retail environment was turned completely inside out.

While I was counting the Orbit Wintergreen chewing gum, Kim, the store manager, told me to look under the cigarette display where I would find more. There, I discovered a sufficient amount of that product to last the store for 1,100 days, and they received a new box every week. Further, Kim said she had repeatedly requested the vendor stop sending her more of that particular product. She finally gave up and just started cramming them under the cigarette display.

As the years have gone by, I would testify under oath, ‘this is NOT an anomaly’. In almost every store I have visited, I have found vast quantities of inventory crammed into every nook and cranny, to the point that every store has at least twice the inventory it needs, if you just go out and look for it. This led to our belief that a twenty-store operator has enough stock on hand to supply forty stores, half their size.

Automated Store Replenishment – Volume VIII

Studies have shown a reduction in storewide inventory of 25% delivers 2-3 percentage points better levels of service. Using these figures as a yardstick, one could extrapolate a 70% reduction in inventory might result in 8-9 percentage points increase.

In addition, several years ago, a major beer distributor did a controlled study that proved, reducing inventory levels to a 1.5 delivery cycle increased sales by 40%, mainly because it reduced the clutter in the stores. The conclusion drawn from this results in a triangle, with ‘customer service’ on one side, ‘increased sales’ on another, and ‘reductions in inventory’ on the third. We could state the obvious that under certain conditions, ‘reductions in inventory’ are directly proportional to both ‘sales’ and ‘customer satisfaction’. But what are those certain conditions?

I was able to identify a few dozen without trying very hard. It only makes sense that we don’t need to buy more inventory than we can sell, except in the case where we can make a special deal on something, or receive a insider’s tip that sales on the item are going to explode, or a severe shortage is just around the corner.

Holding an item’s volume to 1.5 delivery cycles means that if you sell five units during a delivery cycle, the correct amount of inventory to have at the beginning of each cycle (taking into account seasons and holidays) is 5 units, plus 50% more (rounded up to the integer) for safety stock. In this case, (5 * 1.5) =  8 units. The last time I heard, convenience store inventory was moving at an overall rate of only 0.22 times per day, and this low figure is indicative of the fact that 70% of your inventory is either dead, or moving so slowly it brings down the overall movement rate to unacceptable levels.

“But I can only order this product in units of thirty-six?” Then the best option is to keep the excess inventory stacked neatly in the storeroom. It will take up much less space because you can stack boxes more efficiently, organized by the sections on the sales floor. When the sales floor level reaches a predetermined level, the computer alerts the person in charge of the section to impress the level on the floor back up to eight, and when the overall quantity reaches eight, ten, twelve (whatever), the system orders another box of thirty-six.

Can it be done? Absolutely! But a system like this will not work in an environment where the sales floors and storerooms are packed with excess stock. In addition, you will need to manage an integrated inter-organizational relationship with suppliers and trading partners with risks and rewards shared by everyone involved in the supply chain.

When your managers attend trade shows and are persuaded by manufacturers to buy more product than they can possible cram into their stores, it creates a log-jam in the supply chain that is impossible to manage and oftentimes abused. The manufacturer may perceive this as an advantage, however all he is really doing is sacrificing a sustained and efficient movement of products for a temporary spike in sales. 

This is the kind of push-based system that is doomed to failure. Once this kind of relationship is established, it is almost impossible to break. Eventually, the retailer goes out of business and the supplier loses the sales channel completely. Suppliers, forecasting future sales based on these kinds of relationships, are playing with fire.

Push-based systems may be convenient, but they are also deadly, while a pull-based system is impossible for the human mind to manage. So how do we get there for where we are today?

Automated Store Replenishment – Volume VII

The line between ‘choice’ and ‘confusion’ is a thin one. So how much choice is enough? Psychologists have conducted studies that have proven, at some point when confronted with more than six choices of similar items, shoppers’ minds tend to enter a state of confusion and doubt; even guilt that they might make the wrong decision. Did you know that you are doing your customers a service by holding their choices down to a mentally, manageable number? 

Have you ever installed a new version of Windows only to be confronted with a large list of choices during the process? “Do you want the typical install, the compact install, or the customized install?” Some developer at Microsoft foresaw the confusion factor when he displayed a dialogue box that said, “Windows will now format your hard disk. OK?” No confusion there. Why do they bother to ask? I don’t care how long you wait, you will never find the ‘Hell No’ button on that screen, because it doesn’t exists.

The idea that people want choices in EVERYTHING they do is ridiculous. Customers might hate to be sold, but they LOVE to buy. If you make it too difficult, they’ll just go elsewhere. My wife will spend three hours trying on shoes in a department store, but in a convenience store, she could run down Usain Bolt heading for the exit.

The smaller the store, the less confusion there should be. There are no shopping carts in convenience stores, and you know why? Because nobody SHOPS there. They don’t need salespeople, information booths, lounge chairs or rewards cards. If you want to compete with grocery stores, go and find a larger building. The whole point of ‘convenience’ is to get in and get out as fast as you can. If your customer has a full bladder, getting in may take precedence, but getting out is always the same. It is a culture you will not be able to change no matter how hard you try. So, if you want to adapt, keep it simple. Any item that moves less than one-turn-per-month isn’t worth the investment, or the carrying cost. From the get-go, you will free up a minimum of 70% of NON-PRODUCTIVE sales space.

So what do you do with all that empty real estate? Widen your aisles, get the inventory off the bottom shelf where all the dirt lives and then, explore adding small amounts of other kinds of items you think will sell and make you a profit. Open a post office. With local post offices soon cutting their hours down to four-hours-per-day, the USPS will be happy to talk to you about becoming a ‘Contract Postal Unit’, or an ‘Approved Shipper.’ Put in a coffee bar, a roller grill—use your imagination. Experiment with different things. The extra space provides a great opportunity to display seasonal items, because you can keep them all in a group and replace them quickly.

Set up a small cosmetics display and see what happens. If your store is in an affluent neighborhood, create a small cheese and wine display. The idea here is to always keep a little corner of your store available for experimenting.

Perry Marshall, author of the “Ultimate Guide To Google AdWords” describes a technique called ‘Split-Testing’. That is where you run two Internet ads for the same product and see which one is getting the most hits. It is the real secret to mastering Internet advertising. You can do the same thing with products. If you are monitoring turns, you can swap products of a similar kind and monitor which ones sell the best AND produce the greater profit.

In short, 70% of your inventory needs to be fired, because it is not making you any money, and when your advisors try to convince you, you need too much inventory to show full shelves, it is the wrong solution to the correct problem.

Automated Store Replenishment – Volume VI

Never losing sight of the tendency for most retailers to place having a ‘full store,’ as their primary consideration, we can still consider other non-conflicting alternatives. We could re-section the gondolas to hold the proper amount of inventory and still make it look full, but as it is now, your space requirements for candy and gum are the size of the box the product comes in.

Recently, my wife and I had dinner with her boss, a division manager of a US government facility, and she related an experience she had as a part-time worker for a retailer while studying for her PhD. Every day, when she arrived for work, her job was to clean up the shelves and replenish every item that had been sold with replacement items from the storeroom. Her boss knew something most retailers will never learn. By delegating the responsibility to an employee, he solved the problem of overstock on his shelves and kept the store having the appearance of being full.

I have always advocated assigning sections of the store to different employees and teaching them how to become ‘inventory control specialists.’ Most operators I propose this idea to are incredulous. So I turned it into a research project. I discovered a large amount of their employees’ time was consumed gossiping about boyfriends/girlfriends, husbands/wives, kids and pets, NASCAR races, how much they hate their boss, and their DEAD-IN jobs. Is this the kind of employee you want working for you? Operators will not delegate responsibilities to employees, because from the get-go, they consider them being as dumb as a box of rocks and unable to be trusted with responsibilities.  

I hear it all the time, especially from supervisors while making themselves look superior, relating their ‘expert observations’ back to upper-management. They tell you, “Oh, my job is so important because those people out there are STUPID!” This presumed characterization of store employees is most likely the main reason you are going broke. If you hire stupid, you get stupid. Whom do you expect to motivate with an attitude like this in place?

Do you want to effortlessly turn your retail store around in a heartbeat? In order to motivate, you must do what? DELEGATE! When you hire a new employee, the first thing you should ask them is, “What do you expect to get from your employment with our company?” Then explain to them that your company is different from other retailers because your company not only expects excellence from them, you expect to contribute to their future by training them to become ‘Inventory Control Specialists’, not just clerks in a dead-end job; a title like that sounds much better than having been ‘a cashier at a retail store’.

If you are laughing at what I just said, you are part of your problem. Believe me, your employees will become exactly what you expect them to become. Then when they haul them off to jail for stealing, I’ll bet you’ll take great pride in telling everyone, “See, I told you so.”

I often relate an experience I had in 1981 with a retailer who regular summoned his employees to the office and forced them to take a polygraph. Simply due to the severity of the ordeal, you would see them exiting the building in tears. If they failed his test they were fired immediately. If they passed, he would fire them in ninety days anyway, because according to him, “all employees started stealing after being on the job more than three months.” The government put a stop to that kind of activity and he got out of the retail business entirely.

The situation has gotten so bad that even valuable, intelligent, loyal and hard-working store managers have a turnover rate that’s unacceptable. Your employees are your most valuable asset. Learn how to treat them with respect and you will get respect back. The bottom line? You will never get Automated Store Replenishment to work if you are not willing to change.

Automated Store Replenishment – Volume V

Now, some of you still reading this are thinking, “This guy doesn’t know what he is talking about.” Well that may appear to be true, because I am thinking outside the box, and anyone who dares to think outside the box is definitely suspect. One thing three decades of experience in this industry has taught me—thinking for myself is immensely more rewarding than subscribing to some general opinion that seems to prevail as everything around me is changing. Struggling retailers moving slowly down the slippery slope toward bankruptcy are low hanging fruit, and they are likely to fall for most anything if it gives them hope. The easy way out is to follow the leader, hence the 1970s belief, “Nobody ever got fired for buying IBM”.

There are still several unknowns that need to be solved before the topic of ASR is settled, and waiting around to see if someone ‘smarter than you’ can figure it all out, is a poor excuse for not taking the action to improve your lot. Else, you will be right back to where you are today, doing what everybody else is doing.

You may be one that thinks, ‘everything is fine the way it is’. Believe me, a 2% ROI is not a sign of prosperity, and I think you can do better than that, a whole lot better. As it stands, there is no conceptual framework that makes the adoption of ASR possible, and it suggests to me that we may not be able to get there from where we are today. In other words, the status quo is preventing us from succeeding.

The main purpose of ASR is to prevent out-of-stocks while at the same time, lowering the overall levels of inventory. So there is dichotomy of sorts to be dealt with. In an industry where a condition of overstock is common for the prevention of out of stocks, cultural differences get in the way. For example, to justify overstock, we are often told shelves that are NOT full create a poor store appearance. There is a lot to be said in defense of that statement, but I have found nowhere it is stated that it has to be stacks of the same stuff.

With the general opinion in most operations being to err on the side of overstock, it has led us to a situation where it has gotten WAY out of hand. For example, if analysis shows you are selling four items per month on one particular brand (not uncommon), and you get two deliveries per week, common sense tells us we do not need a box of 36 on the shelf, but we may not have a choice. I was talking to a store supervisor this morning and she said, “If we have an item that only sells once a month, it needs to be replaced with something else that will sell”. However will the V/P of store operations allow that? Probably not! That’s why we rely on a re-order trigger. We can set the trigger to whatever we want based upon the desires of the person running the stores. If we have an item that comes in a box of thirty-six, we can set the trigger to eighteen so when it reaches half a box the system will automatically re-order another box.

There are alternatives to making the store appear to be full, and one of them is to remove gondolas and widen the aisles. However, convincing most operators is fighting a losing battle. They won’t listen to anybody. They think they’re smarter than everyone else. Examining the problem closer, often you find their primary concern lies with all the kick-backs and perks they get from their suppliers and they’re likely to switch suppliers in a heartbeat if they misses out on a big screen TV or a trip to Kauai.

Automated Store Replenishment – Volume IV

Automated Store Replenishment (ASR) is by its own definition “an environment in which a computer is responsible for ordering and maintaining the proper levels of inventory within an organization involved in the process of handling goods for its own use, or for resale to a third party.”

In a retail environment, the goal of ASR is to literally REPLACE manual ordering, specifically the ‘order clerk’ at store level. Ref. “The Art and Science of Computer Assisted Ordering” – Barbara V Anderson.

Empirical research over the past eight years has proven, “not only is the process of manual ordering time-consuming, the value of continuing with such a program is inferior to employing a more sophisticated approach, mainly utilizing mathematical processes alone”.

But didn’t you just say, “Experts tend to agree that a purely mathematical approach to inventory management is impractical?”

Yes I did. However, errors in ASR are rare, IF you adhere to three, basic principles: These principles involve a strictly defined system for ‘purchasing’, another for ‘sales’, and the most important of all, a means to provide continuous ‘audits’ of inventory in the stores. Of the three, the most neglected of these is by far the process involving ‘continuous audits’.

Over the years, retailers strived to lessen the cost of these processes and done almost nothing toward improving their value. To further understand the knowledge you have gained so far, let’s expand upon these principles, and examine each of these as individual processes with the forthcoming understanding that in the end, they will form a ‘tripod of stability’ within your organization.

Forming what experts refer to as ‘Managed Supplier Partnerships’ with vendors, was not exactly a slam-dunk for Walmart. In Marcia Layton Turner’s excellent book, “Kmart’s 10 Deadly Sins”, she characterizes Kmart’s 2001, failed attempt to become the lowest priced retailer when she writes, “When Kmart decided to lower its prices, it did so without even consulting its suppliers to get their feedback on its grand scheme or to ask for support”. She goes on to say, suppliers would have been more than willing to support Kmart’s plans, IF they had been asked.

Walmart, on the other hand, upon hearing of Kmart’s grand plan, immediately consulted with their suppliers about lowering prices of products sold to Walmart with assurances of volume increases, meaning more profit for all. By doing so, Walmart formed a Managed Supplier Partnership with its vendors, a move that Kmart discounted as ‘unnecessary’.

During the past eight years, we have been working closely with a customer’s primary supplier in an attempt to, not so much lower his purchase prices, but to increase the level of integration between this particular supplier and its retailers. One thing we learned quickly is every supplier has different ways of communicating with their retailers, and the way they do this is more or less defined by the back office software the retailer is using. However, keeping in mind the “tripod of stability” I mentioned earlier, virtually none of these software providers have developed systems that have successfully integrated all three. This is by no means a criticism of their software; it is simply a statement of fact, based upon their abilities to operate within the limits of their current technology.

More than anything else, technological issues stand in the way of successful Managed Supplier Relationships. Go to
 to read a four-page article on how to build a supplier partnership and you will better understand why the size of the retailer and its technology play an important role in its success or failure.

More to come…..

Automated Store Replenishment – Volume III

Supply Chain Management (SCM) is a move from push-based systems to pull-based systems with the process beginning with the consumer. SCM will never work for retail store operators until they fully understand the following:
Managing inventory from the middle of the supply chain is like taking a position between two competitors in a rope-pulling contest; you will not be able to properly assist either team, but the effect of just being there makes the outcome ambiguous. Or put another way: The best way to deal with a speeding locomotive is to get the hell out of the way.

I have often suggested a retailer is nothing more than a conduit for suppliers’ and manufacturers’ inventory. Imagine a pipeline that runs from the manufacturer, through a supplier, to the retailer’s sales floor and into the hands of their consumers. Imagine that pipe is filled from one end to the other with ping-pong balls (inventory). When a consumer plucks one from the end of the pipe, a worker in the manufacturer’s plant puts another one in the other end. In a perfect world, all the operator needs to do is monitor the process so nothing gets stuck. This was the notion that made Henry Ford the father of the modern automobile assembly plant.

Ford was a man of remarkable vision. Did he think of himself as being an expert? Absolutely not! He would be the first to respond, “Hell no!” In fact, Mr. Ford once said, “As soon as a man reaches the ‘expert state of mind’, a great many things become impossible.” This is where I get my courage as I go about telling you what to do. It’s another way of saying: “Thinking in the box keeps us ricocheting from one side of the box to the other. It is only through thinking outside of the box, can we hope to make any progress at all.”

The primary reason many convenience store operators fail today is not the economy or the price of gasoline; or is it the constraints of crushing regulations and excessive taxes. It’s because they rely on so-call experts to send them on their next journey. Not only will they NOT find the keys to getting out of the box, they expect them to magically appear and transport them to a perfect world. Albert Einstein said, “The definition of insanity is doing the same thing over and over again and expecting different results”.

When operators made the decision to turn their inventory management over to their supplier, they put the first nail in their coffin, and now there are only two things that will keep the lid from shamming shut for good. They must 1) learn how to manage their own inventory, or 2) form ‘Managed Supplier Partnerships’ with their vendors the way Walmart does. The former is likely too expensive for most small to medium-sized businesses, but the latter takes fewer resources and has limitless possibilities.

When I entered into the business of providing computers and software for the convenience store industry back in 1978, I learned one lesson fast. There are no rules for managing inventory replenishment between retailers and suppliers. Some suppliers employ pre-salesmen, some don’t. DSD jobbers are in the position to know what’s in the store, but they get paid by what they cram on the shelves with little concern as to whether it will still be there on their next visit. Many expect the store to know what it needs to order, other’s see orders as unnecessary meddling. Not by design, but from absolute necessity, the general belief is to err on the side of overstock.

While it’s a fact that SOME suppliers will warehouse inventory in stores to sweeten their financials, most suppliers are terrified you’ll run out of Marlboro Lights and switch to another vendor. Suppliers operate the way they do out of fear of losing you as a customer, because you have no idea what’s in your store today, much less what the turn rates are. Turns are no less important than margins, for margins without turns is zero.

More to come………

Automated Store Replenishment – Volume II

Theoretical Sources of Out-Of-Stocks

In my book, “Retail is Detail,” I quoted a conversation in which Dee Biggs, Director of Customer Logistics at Welch Foods was present. Mr. Biggs said, “The industry needs some type of third-party company that identifies out-of-stocks with the aid of the retailer, and then finds solutions to get the item back in stock … Currently, the stores don’t have enough people to do this effectively… There needs to be a new entity that focuses on helping to resolve these issues at the store. The key issue is RETAILERS DO NOT HAVE ACCURATE PERPETUAL INVENTORY SYSTEMS, so store ordering can be difficult and lead to ordering the wrong items.”

The keyword here is “Accurate”. Accuracy is far from being an absolute, and accuracy, with regards to units of inventory, is affected by the range of time-periods between counts, with its value increased with the frequency at which the samples are taken.

 The ‘value’ of accuracy, when viewed in a graph, with the peak of the curve representing the epitome of accuracy, is directly proportional to the frequency and the quality of the counts. At some point in the far, distant future, radio frequency identification (RFID) will make it possible for a computer to scan the entire store in one-second intervals and count the number of items with the highest degree of accuracy imaginable. However, until that time has come, the best we can do is try to lessen the time-period with the tools at hand in the best way we can.     

The Mathematical Approach

Experts tend to agree that a purely mathematical approach to inventory management is impractical. Many factors, such as Logistics and Operations Management cannot easily be included in algorithms. For example: On average, out-of-stock situations for all retailers have lessened from 1960s levels of 12.2% to more recent levels of between 7-10%. Why? No doubt, we are required to give technology much of the credit for the improvements in out-of-stocks. Prior to the early 70s, electric adding machines and paper Gannt charts were the analysis tools of the day, so it only stands to reason, as technology evolved, so did the decline in out-of-stock situations. Other factors such as changes in management techniques and new ideas, which could not have occurred in a more primitive environment, have had its effect on practically everything we do. 

The topic of Supply Chain Management (SCM) is receiving a great deal of press these days and addresses not only inventory levels, but also departments within organizations and relationships with customers and suppliers both inside and outside the enterprise. The idea that a product should magically appear on the shelf the instant a consumer reaches for it is pure folly. A supply chain does not work this way. There are now, and always will be hiccups and delays both up and down the line.

Everyone agrees an attractive, full shelf draws the attention of the consumer making a purchase more probable, but it plays havoc on the efficiency of the supply chain. The age-old argument that the advantages of overstock override the cost of carrying excess inventory will come to an end as the enormous value of having the right amount of stock proves otherwise. Sometimes ‘foolish’ management decisions are in the eyes of the beholder. However, problems such as this should and must be resolved. Can we have the best of both worlds? You bet! And as we move farther into this discussion I will show you how.

Automated Store Replenishment - Volume I

Over the past eight years, we have been involved in a series of exercises involving thirty-two convenience stores in three, different companies operating in separate states—Mississippi, Texas and California. The purpose of this project was to investigate the feasibility of creating an “Automated Store Replenishment System” for our convenience store customers.

In the initial years, we were pretty much on our own. However, a little over a year ago, we entered into an agreement with a major grocery supplier who immediately recognized the potential of participating in such an experiment, and for some time now they have been able to furnish us with ‘nearly’ flawless, electronically delivered purchase invoices which have allowed us to maintain inventory efficiently down to the item level. In a recent meeting, they have assured us the remaining errors will be resolved within ninety days or less.

Since something of this magnitude had never been done before, due to the complexity of these exercises, stores were brought on-line one at a time, affording us the opportunity of learning as we progressed.

Where we are today

As of today, over 96 months into the project, preliminary research has proven to us that 78% of the stores we have brought onto our cloud have seen an overall increase in grocery profits of 2.4%, with several exceeding 5%. In the stores that are still waiting to be brought on-line, grocery profits have increased by 1.8%, indicating a net increase in grocery profits of all stores using the system of 0.6%. We attribute this mainly to our being able to alert store managers the instant suppliers’ prices have increased and well in advance of the time inventory is ultimately, sold to the consumer.

Now, 0.6% may not seem like a lot to shout about, but if you put this into prospective, the results are impressive. In 2007, the project was put on hold for nearly two years, mainly for the rewriting of code. This was also during the time when Gilbarco converted GSite to Passport. Five of the stores being studied were brought on-line in January 2012, most were brought on line during 2011, and very few were on line at the beginning. So, we expect to see a more impressive rise in net profits as the year progresses.

After all expenses were removed from this particular operation’s 2011 P&Ls, their overall profits were 0.43% of sales (the low figure attributed mainly to the sharp rise in gasoline sales dollars), and during the first quarter of 2012, a jump from 0.43% to 1.03% (0.43% plus 0.6%) is a real increase in profits of 240%.

Now that we are able to control inventories at the item level (not only for fast movers, but for every item in the store), we are able to move to the final step: The AUTOMATED PROCESS OF STORE REPLENISHMENT. Recently another supplier has shown an interest in joining in and I will report our progress with that as things develop.

We have also been able to ascertain, recognizing the level where we are at this moment in time, due to the mistakes and errors being made by the manual ordering processes, the possibility of turning the ordering over to the computer seems even more practical than ever.

A great deal of research has gone into this study, and we have been able to acquire a lot of information from European retailers who have been making progress in this area almost as long as we have been running our experiments. Soon, I will release some details on their progress and how their study correlates to ours. More to come…..

Tuesday, May 22, 2012

Critical Success Factors In Buying and Running a Store #5

Professor Hoch’s fourth critical success factor is ‘Service’. This is the most difficult topic to write about because from our experience in this industry, ‘service’ went the way of the old gasoline station. At the same time, it is likely the most important topic in our list, because we are so deficient in it. Service is the process of gathering resources, skill and ingenuity, and experience, and benefiting our customers through unnecessary deeds. Service does not relate to inventory or the sale of inventory, and it is NOT giving away free stuff. The best kind of customer service is the kind where no money changes hands, but its value in simply incalculable. 

So, what is it our industry does to service its customers? Providing services when asked is one thing. Most of us do that. Providing services when NOT asked is something else, and this is what we are going to discuss now.  

In a job description I picked up recently, here is one employer’s characterization of service: “Retail clerks must be personable and EXUDE customer service;” yet another, “Retail Sales Clerks should be KNOWN for exemplary Customer Service;” and finally, a letter from one jobseekers says it best: (The capitalization is mine, not the applicant’s.)

“In today's customer service oriented society, timely, friendly, proactive service is sought to enhance future business growth. 
Customer loyalty  is always impacted when you employ the right service 
professional to  represent you when assisting your valued customers.

“My long term experience in the service industry has taught me how to meet and exceed each customer's expectations with service that sells. I have assisted all types of customers in all types of settings. I realize that acquiring and maintaining loyal repeat business as well as spreading the word of your business through these loyal patrons is of the utmost importance in every company. Positioning a company for better exposure and greater marketability is a task that I have performed with success many times.” Boy, would I like to get my hands on this individual! I’ve read that resume over and over and I have to admit, sadly, I too am lacking in many customer service skills.  

Bad service is commonplace. It’s much easier to find examples of bad service, because bad service is everywhere. Service is an intangible—good and bad. You cannot hold it, touch it, or taste it. Good service cannot be bought and put under the Christmas tree. Service, good or bad, is an attitude, and everybody has one and the majority of the time it stinks. The idea of ‘good service’ must be planted in a person’s mind to the point where it shows itself automatically whenever it is required. Good service is a creed, a persona, a way-of-life.  

Employees should be hired for it and rewarded accordingly. Employees should receive praise for ‘doing right by the customer’ instead of being penalized for costing the company money.

Please feel free to join in the conversation. I’m sure the things you do (or have done) to practice good customer service will be of value to everyone. I know I will learn from it.