Monday, June 4, 2012

Automated Store Replenishment – Volume XIII

Issues regarding data integrity affect the performance of an Automated Store Replenishment (ASR) system dramatically. With current inaccuracies falling somewhere near 70%, we simply cannot get there from where we are today. Drastic changes in the way we handle sales, replenishment, and audits are necessary. With SKU’s numbering in the tens of thousands, a great deal of cleanup is required first with emphasis on the topic of ‘shrinkage’.

Shrinkage is defined simply as ‘the loss of product,’ whether it be intentional or unintentional. According to the Criminal Prevention Service for Business of Rutgers University School of Criminal Justice, higher than normal shrinkage levels occur in stores with persistent overstocks, sparsely staffed, open for long hours, and high turnover rates. Sound familiar? A major contributor to shrinkage is overstock. It manifests itself in ‘Employee theft’, but employee theft is NOT necessarily the cause. If you leave the keys to your new car dangling in the ignition it is not your fault when the car goes missing; but in this case, the theft could have been prevented.

Cutting down a tree in a forest is not nearly as noticeable as cutting one down in a small park. It doesn’t take an employee long to come to the conclusion that inventory is out of control, and when overstock is not factored into the equation, shrinkage attributed to employee theft ranks 48.5% with shoplifting close behind at 31.7%. However, when all forms of shrinkage are taken into consideration, including unrecorded dollar fluctuations, bookkeeping errors, unrecorded markdowns, transfers, giveaways, damaged goods and simple bookkeeping sloppiness, a substantial amount of inventory loss can be attributed to your inability to handle excess stock.

Having more inventory needed to meet customer service level in order to make the stores look full, is just crazy. Carrying costs alone will trim your margins back enormously. You don’t see carrying cost so you assume it doesn’t exists, just as you don’t factor in electricity, everyday maintenance and lost employee time when you view ‘Computer Expense’  on your Financial Statement. If you knew what it costs to carry excess inventory you might see things in a different light. In fact, you might try to come up with a solution to make stores look full without keeping excess stock on hand. So much overstock exists in retail stores today; it provides excellent opportunities for promotions that will generate cash flow.

Week One: The first step is to clean out your storerooms. If you can, return excess inventory to suppliers. If they won’t take it back, use it to give your customers the impression you have bargains THROUGHOUT your store. Take remaining expired stock to the dumpster. You should be able to accomplish all of this during week one. Do the same thing with your coolers and overflowing displays.

Week Two: Now that you’ve cleaned up your store room, the next step is to clean up your sales floor. Keep no more than two-weeks of saleable merchandise on your shelves and stack the rest neatly in the storeroom. Perishable items like chocolate need to be kept in the coolers. If you sell two of a specific item a week, put only four on your shelves. If you sell less than one each month, consider using it in promotions, but get rid of it. Store the rest to replenish the shelves throughout the week.

Boxes have no place on the sales floor. Readjust your shelving to accommodate the new method. Eliminate the bottom one or two shelves if they are near to the floor. In many cases, you can eliminate some gondolas. Give your customers more room to move around and shop.

More to come…

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