Tuesday, June 12, 2012

Automated Store Replenishment – Volume XIX

AUDITS - Category Management is a practice that can be used in association with, but not in lieu of item-level TRACKING. Auditing inventory by item is far less complicated than calculating inventory by value. Either way, auditors still have to count the items. When adding inventory values instead of items, auditors must enter the retail prices and perform a manual calculation. When taking inventory by item using a handheld scanner, or even a simple iPhone, iPad, or Android device such as a cell phone, an auditor simply aims it at the barcode on the product label and enters the count of items on the shelf.

In a perpetual item-level inventory system, the retail values are of no use while auditing. The total retail values by category do not tell you how many items you have on your shelf; nor do they tell you what items are missing. The knowledge that groceries are $3,563 short only serves to make life miserable for you and everyone else involved. The error might be the result of the time-of-day when the audit is taken, by items hidden in the stock room, or simply because of mistakes made by an auditor, which will not be settled during the next count for the same reasons.

When inventory costs and their associated ‘suggested retail prices’ increase, if the retail prices of the incoming inventory do not match the labels on the products, errors in pricing show up on your P&L’s as shrinkage. Not keeping track of inventory items is costing you a fortune in more ways than you can imagine. Having outside auditors come in is an option, but an unnecessary one. You can do this by yourself and save that expense to invest in something profitable.

I have experienced retailers and their managers laugh out loud when I suggested their employees could audit their stores. It has always been a mystery to me as to why retailers consider it bad practice to allow personnel to know what they have on their shelves, yet they expect them to order it when they are out. The idea that store employees can cover up shortages is only true if you lack a system that prevents it. A good system makes it impossible to cheat.

Stating that store personnel do not have the time to audit is another invalid assumption. Believing there is too much inventory to count is only partly true if you persist in keeping overstock, and even with overstock, our experience tells us it can still be done—it just takes more time. If you only knew the amount of working capital you have tied up in overstock, it would make you ill.

Last summer, I was in a client’s storeroom where I discovered cases of soda stacked to the ceiling. The size of his sales floor was only 700 square feet. I asked the owner, Doug why he had so much inventory, and he replied, “It’s the only way the vendor would give me a decent price.” Did he honestly believe he was saving money? Overstock is a game some suppliers play with retailers who do not take the time to manage their stock.

Here are the steps to accomplish audits without investing in a specialized computer system:  
  1. Using a spreadsheet, you can calculate your turn-rates from data coming from your POS.
  2. Taking into consideration pack sizes, seasons and holidays, reduce your stock to no more than three delivery cycles, with your goal being no more than two delivery cycles. Example: If your turn rate is .1799 per day, and you have two delivery cycles per week, you should order no more than (.1799*11). In this case, the number would be 2 (rounded up to the next integer). If the pack size is 36, then you would need one pack every (36/2) = 18 weeks. Without having a computer to control the numbers, there may be a steady increase in stock. You can compensate for this by skipping an order occasionally. Doing this will help you to.
  3. Reorganize your store. Do not scatter items. Put all of the same items together.  The extra sales you think you are getting by scattering stock is not worth the extra cost of controlling it.

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