Monday, June 4, 2012

Automated Store Replenishment – Volume XV

Holding the data at local stores for a time and then shipping it to the office periodically is a common practice fraught with errors and inconsistencies resulting in decisions being made from untimely and oftentimes inaccurate data. Going through an audit at the store leaves you with the decision of “Where do I insert the results into the sales cycle.” Retailers have even resorted to closing the stores for a day (or longer) to get accurate counts.

A simple way of describing an Enterprise Resource Planning system (ERP) is, “A single point of entry for each and every action occurring in a business, in which the action itself makes its way across the entire enterprise without manual intervention”. The internal operation of the ERP is composed of processes within an integrated software application, forever evolving to accommodate changes inside and outside of the enterprise.

An enterprise in made up of multiple departments. Each one performing operations critical for the success of the enterprise. 1) A General Ledger for tracking the financial health of a business, 2)  Accounts Receivable for billing customers, 3) Accounts Payable for the tracking and payment of invoices, 4) Purchases and Sales, 5) Human Resources, 6) Payroll, 7) Taxes, 8) Inventory disposition, etc.

Prior to computers, it was a common practice to keep departments separated by classifications, with the results of the work transferred to other departments in batches. For example, it was only possible to produce a Financial Statement for the business after the Accounts Receivable department told the Finance department how much money was owed to the company, and Accounts Receivable had to wait until the Sales Department finished its work to know how much to bill each customer. Transactions from multiple departments usually arrived to other departments with the unnecessary detailed removed. For example, the Financial Department had no need of knowing how many widgets the company sold; they simply wanted the total amount of sales to book into the Financial Statement. 

As computers became more capable and less expensive, systems began to evolve naturally toward ERP simply because it was more convenient, and not necessarily, that it lowered cost. In my experiences (in the early 80s), I can remember knock-down, drag-out arguments as to why integrating retail stores owned by wholesale operators into a common system was considered impossible. In one particular situation in 1984, I remember an incident in which I refused to sell my system to a jobber if he did not allow me to integrate their stores. Eventually they gave in and thanked me for it later.  
The cycle of inventory in a store consists of replenishment, sales, and audits; but in order to be accurate, these actions must be done in the order in which they occur. 10-15% of your inventory (the fast movers) must be accounted for each day with the rest accounted for during the month. Most retailers would put all cigarettes in that category, but not all cigarettes are high-risk items. Most are there simply because your contract demands it.

‘Perpetual Inventory’ is a term used to describe the continuous real-time tracking of quantities of product. This includes receiving, replenishment, picking, order tracking, inventory movement and most important of all, ‘frequent store audits.’ The inability of retailers to track accurate numbers of items in their store(s) prevents them from benefiting from Automated Store Replenishment (ASR) at its most rudimentary level. If you don’t know the exact number of everything you have on your shelves, you have no way of knowing whether your stores are profitable or unprofitable, whether you have entered a period of Out-Of-Stocks (OOS), whether you have selected the correct price, the correct positioning, or you are overstocked with merchandise you will not sell. You have no way of knowing what was stolen or when the theft occurred.

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