Monday, June 4, 2012
Automated Store Replenishment – Volume XIV
Reducing your inventory and rearranging the shelves accordingly, may give you the opportunity to expand your product lines, but be careful; don’t give your customers more than six choices of a similar product. Items that should be, but can’t be returned to vendors should be marked down and scattered within the category. DoN’t set up a clearance table. Very few people want to buy junk nobody else wants, and it will sit there for a long time gathering dust and creating an unsightly mess. Leave the items where they are, and make a big deal about the discounts. Label the products accordingly, but be careful not to cannibalize like products that are currently producing profits. Fifty-percent of the time, it is best just to get rid of them.
When we try to set up a program for managing replenishment, tracking sales and performing audits, we usually run into a brick wall, because the average retailer sees the problem from where he is at that moment. Naturally in a space of 2,700 square feet, if you have 4,000 items with overstock reaching as high as 1,000 days of a single product, all but tracking sales causes you to consider it an impossibility; and you know what? You would be right! That is what I meant when I said, “You can’t get there from where you are.” Sooner or later, you will be required to face this issue.
One major retailer calculated the cost of transporting goods to the store is only 13% of the total cost of handling stock, but a whopping 48% of the costs are associated with “the replenishment of shelves”. Reasons cited were replenishment frequency, the size of the shelves, the pack size, space available in the backroom and TOO MUCH INVENTORY ALREADY ON THE SALES FLOOR.
The process of rearranging the inventory to excavate a place to insert the new items, and carrying inventory back to the storeroom that will not fit no matter how hard you try must be major factors. Example: You may be able to push more than eight bags of candy onto a peg, but as soon as your back is turned, it usually falls off the peg and ends up on the floor. One manager of a store said recently, “The last shift has the responsibility of putting out every bit of the new inventory by the end of their shift, else the store gets ‘gigged’ ” (whatever that means). Even though it may not be possible, their staff is going to do whatever it takes to make it happen and in the process, they create an unsightly mess.
Cutting back on inventory solves a number of problems, the main one being the increase in your available working capital. If you do it correctly, you will not only see a 40% increase in sales, partially due to your creation of a more hospitable shopping environment, but you will set up your stores for Automated Store Replenishment; which brings us to our next topic—‘Audits’.
Not too long ago, I had a conversation with a large chain that stated, “Your system would not work for us.” When I asked them ‘why’, the answer came back, “We only take inventory once a year.” They were right, our system would not work for them, because in order to reach the level where ASR will benefit you, you and your supplier must know within a reasonable degree of accuracy what you have in your store prior to the next delivery. As I stated earlier, suppliers do not want the responsibility of pushing products to your stores. Except in the case of brand new products when manufacturers need stores to test new products, suppliers want you to send them orders.
The process currently being used in relying on managers to determine what a supplier needs to bring to the store isn’t working. Store managers, terrified they will run out of fast moving items will always order more stock than they need, and this practice alone is costing the retail industry millions of dollars annually. If you were to have the tools to sit down and calculate all of the carrying cost associated with this type of system it would scare you out of your wits.