Monday, May 28, 2012

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…..

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