Dec

15

Best Practice Marathon

By David McMahon

travel

I’ve just returned from directing four performance groups in the last five weeks.  With my co-facilitator, Wayne McMahon, we traveled over 40,000 miles bringing together some of the best minds in Home Furnishings Retail.  There were over 80 business leaders that attended our three day camps.   The meetings were packed full of sharing best practices, top challenges and solutions, touring operations, comparing key performance indicators, networking, and of course, having fun.  Here is a brief reflection on the meetings of our performance groups:

“The Gladiators” – Bethany Beach, DE, Sept 26-29, 2017

FL4

Our Gladiator performance group has some of the most business motivated retailers I’ve encountered. Its members make up 10 multi-location Ashley HomeStore organizations across the US.  In our 4th meeting since the group’s inception, we visited the Barnes Group in Delmar Delaware.  We started with an operation tour focusing on the ‘million dollar writer’ mindset, leadership team Q&A and Tech Talk.  We conducted a market analysis and did a SWOT review (Strengths, Weaknesses, Opportunities, Threats).  The best practices members shared were exceptional, with my personal favorite being Paige Streiff’s dynamic presentation on maximizing protection sales.  At the final dinner we enjoyed a group meal by the water at Seacrets.

“Kaizen” – Johnstown, NY, Oct 3-6, 2017

Our Kaizen performance group contains great business leaders from a wide geographical area, stretching from Aruba to Alaska and the Atlantic coast to the Pacific.  Kaizen means change for the better.  This group fits within this definition perfectly.  Its members are the first to spot new techniques and implement new tools to drive their businesses. This bunch is not the type that sits and waits for things to happen – they make things happen.  In this meeting we visited long-time member Ruby and Quiri, Inc.’s furniture, mattress, appliance and flooring as well as their new Ashley HomeStore.  They carry probably the broadest range of product categories and vendors of any of the members in all of our groups.  The best practice that sticks out most in my mind was brought about by group member The Austin Couch Potatoes.  They showed us how to transition from traditional media spend to digital, drop the advertising budget and grow traffic and sales volume.  We capped off our 3-day performance meeting at a member’s only restaurant, fittingly called The Eccentric Club.

“TopLine” – Medford, OR, Oct 9-12, 2017reccomendations

Our TopLine performance group is for Sales Managers and GMs.  It is our newest group and has a more operational flair than our owners groups.  TopLine members focus on the execution of strategy.  Here the leaders improve their abilities to build the sales volumes and gross margins of the companies they represent.  In our second meeting of 2017 we visited Garrison’s Furniture and Mattress.  Garrison’s is also a member of our Kaizen group.  The managers toured four retail locations plus the Distribution Center and reviewed selling systems for furniture and mattresses.  We also discussed solutions to top challenges such as finding, training and maintaining quality sales people.  My favorite best practice in this meeting was brought by Bill of Home Trends in central Nebraska. He explained a local business networking program that added benefit incentives to employees of various local companies, leading to increased traffic for his store.  We ended our last dinner at a great local steakhouse and discovered just how many people could fit inside of one hotel courtesy shuttle.  This is turning into a powerful, fun and tight group.

“Visionaries” – Morehead City, NC, Oct 24-27

Our final meeting of the year was with our Visionary performance group.  Visionaries is our longest running group. Its 12 strong company members tend to be the most ‘room design’ focused of our furniture retail groups.  There’s an interesting mix in this group, with most of the businesses being involved in next-generational partnerships and the ratio of male to female talent being about as equal as I’ve ever seen. For this meeting we met at McQueen’s Interiors.  We focused on a single theme: improving the room design process.  This is Dana McQueen’s specialty as well as her designer’s.  We participated in case studies led by the McQueen Team and saw how her designers turned client’s dreams into reality.  The most memorable best practice to me was brought by Laura and Greg Crowley where they unveiled a project that defined exactly what was involved with becoming a top writer in their business culture.  The Visionary group ended another successful meeting at Parrott’s, a wonderful seafood restaurant. Wait – there was one more stop, back at Dana’s Father’s spot, The Promise Land.   Some of the best ideas and networking happen out of the meeting rooms, after hours!

measure

Our performance groups have been successfully operating for many years.  They meet twice per year in a different location for 2.5 days (three evenings).  If you are interested in applying, please send me an email.  We currently have openings for a few members in our TopLine group.  The minimum criteria for acceptance into any of our groups is Commitment – to improving your business, to helping fellow group members improve their, to attending meetings, to adding value, to implementing the value received from others, and to fitting in and enjoying.

David McMahon, CSCP, CMA, EA is VP of consulting and performance group at PROFITsystems, a HighJump Company.  He holds the postgraduate credentials of Certified Supply Chain Professional and Certified Management Accountant.  David directs 4 performance groups, the Kaizen, Visionary, Gladiator, & TopLine groups as well as multiple consulting projects.  He can be reached at david.mcmahon@highjump.com

Category:
Dec

15

Hiring

By Lee Rychel

Some years ago, a client in Alabama was looking for a CFO.  We contacted a recruiter and laid out the job requirements, and they found a gentleman who was superbly qualified living in Florida.  After some discussion he agreed to move to Alabama and take the position.  He worked out very well for this client.  Another time we had a client looking for someone in the Chicago area and found someone in Colorado.  In both cases, there was a true comfort level on the part of the applicant in moving.  One wanted to get out of Florida and the other was actually from Chicago and had been transferred away.

hiring

The point learned was profound.  Seeking qualified applicants from a local pool is often short sighted.  With this highly mobile economy, it is not at all uncommon for folks to be looking at areas far from where they live and work, and this includes smaller markets.  The movement to raise children in smaller towns with the ‘old school’ feel of security and higher quality school districts is often an important factor for applicants with young families.On the other end of the spectrum, there are those who simply wish to leave their current location for somewhere new and exotic.

And don’t forget your customers.  One interior designer I hired years ago was the wife of a heart surgeon.  Did she need to work? Probably not.  But she was an excellent customer and had joked with the staff “I would love working here.”  We had a discussion about her getting some formal training.  She went out and got an associate’s degree in interior design and I did hire her.  She was an excellent designer who also brought a huge number of friends into our store to shop as well.

Hiring Tips, Tricks and Tools 

Using a recruiter will often speed up the hiring process immensely. With good information about the job requirements, recruiters can scour their resources for the right applicants. Not using a recruiter?  You can still advertise across a number of different mediums to put your offering in front of a substantial audience to find the people you’re looking for.  Keep in mind that while effective, this kind of advertising can also lead to an avalanche of applications, so be ready to thin the herd with pointed, open-ended questions right off the bat.

hero-image-18One thing almost every hiring manager has learned is that references are rarely much help.  Previous employers tend to be reluctant to share information due to the unknowns involved with sharing too much and facing any number of unforeseen consequences as a result. This has given birth to a “less is more” mentality among reference, with nine out of 10 answering questions with either vague or watered down responses.

In personal interviews, I’ve found one question to provide much richer insight to an applicant’s goals compared to others. Sitting across from them, I’ll say: “if we were to forget that you’re sitting here in our furniture store right now and I could grant you one wish to be working in your dream job, what would you choose?” I just let them talk, and the answers are frequently a huge surprise. Given this freedom, candidates sell me on themselves – not the role they’re interviewing for – because their answer tells me the kind of job they’re best suited for.  For example, if a sales candidate were to say that they love working alone and getting through their daily tasks without being pestered, this would obviously be a poor fit for a sales role but a perfect fit for an office position. Let the candidate take you through their view of the world and from that you will have a better feel for where and how they could fit into your company.

Good luck in your searches, and don’t be afraid to cast a larger net.

Category:
Oct

12

Another Report?

By Lee Rychel 

In our enthusiasm for our clients’ success, we frequently point them to the 300+ reports available within RETAILvantage. These reports offer tremendous insight into areas such as payables, A/R, sales and inventory, yet I am still amazed at how many don’t take advantage of them.

RETAILvantage Report

Through my nine years spent consulting for PROFITsystems and in my last seven working in Customer Relations, I have worked with clients on a countless number of issues. I’ve often asked them questions like “do you know this information about that specific area?” and their answer would typically be “no, I don’t. How do I find that out?” The ‘how’ has always been through the reports, but for many retailers the idea of plowing through them doesn’t feel as ‘good’ as the ole’ gut feeling about inventory, sales and so many other areas of the business. Without running reports, however, critical information can and will go unnoticed. For example, I used to ask every retailer I spoke to if they carried any receivables, and nearly 100% would answer “no, we have third party financing.” I would then run one report and show them tens of thousands (in one case hundreds of thousands) of dollars that either hadn’t been collected or posted to the correct account. In doing this exercise alone, it would often trigger a ‘what else don’t I know?’ kind of Q&A – and the answer was a lot.

That’s when the real fun would begin.  With a few keystrokes we could sit together and determine the following without ever leaving the owner’s desk:

  • Who owes money
  • Who is selling what, by category
  • Age of inventory
  • Best-sellers
  • Which stores are performing poorly/outstanding
  • Which vendors are making money and which are not
  • How current is the delivery team in getting ‘in-stock’ goods out the door
  • What does the outstanding service backlog look like
  • How much money will be owed in 60, 90 and 120 days based on inbound orders
  • Who are the best customers needing to be kept in touch with
  • Which sales reps are skating the floor, wasting ‘ups’ and cheating the store out of a better result

The list goes on and on. With this information we could often take a store performing at the mediocre level and turn it into a local powerhouse – but not without good information.  Knowledge is power, and you can’t improve what you don’t measure. Through watching the firms that are coming out of the recession and growing versus the ones that are closing or struggling, I see one common denominator. The stores that are growing are doing something different than they were last year, last month: they’re measuring, planning and improving on every area of their business.

Taking the time to learn how to read the reports is one piece, but the other is time management. When I visit a store that’s struggling and see the owner out on the floor with a clipboard writing out price tags – I know we’re in trouble.  Owners and managers need to manage their time in a way that allows them to get in front of these reports and begin to understand where improvements are needed. Busy work, unpacking boxes and pricing the floor are not owner-level activities.  Sure, you may have a small team, but at some point the decision-makers in every company must invest the vast majority of their time in planning and implementation in order to make meaningful changes.

A favorite phrase I’ve used in working with owners and managers is “what are you doing today to grow your business tomorrow?” and it still applies.  It isn’t easy; it won’t happen until you do something different, and doing something different means change. If you have been using the software for any length of time, then you have everything you need at your fingertips. Focus on an area, learn how to read the reports related to that area, fix what isn’t working and lean on what is. Rinse and repeat.

Have a great fall selling season and we look forward to your support calls asking “how can I find out. . . .”

Oct

12

Tips from the Field: Critical Components of an Optimal Distribution Center

By David McMahon

Distribution

 

It is my goal to share with you observations, practices or thoughts that come from being out there on the road working with retailers to improve their organizations. Today, I’ll give you a few tidbits that are fresh in my mind after working with a five-store, one-warehouse operation that grew from five to 25 million in volume.

I was having a conversation with this particular store’s owner about what it really takes to operate a great distribution center (DC).  We agreed that a good operations manager was important, but both felt that something even more critical than that was running the proper physical facilities with the proper retail management systems and processes.

Many times over the years I’ve received complaints with regards to warehousing: too many customer service issues, slow picking, delayed delivery of merchandise, inaccurate inventory, too much returned merchandise, trouble finding stock, employee turnover, theft, too much movement between stores, not having space, ineffective management, exceptional expenses – you name it. From my experience, the majority of these problems come from the combination of having inadequate facilities for the sales volume and poor systems and processes.

My client and I both agreed that an average warehouse manager could outperform a top manager every time if equipped with a better stage to perform their daily acts.  Even if a top manager had top processes, they would lose to the average manager with a better facility because of something called “throughput”. To put it simply, “throughput” is the idea that a facility can get more merchandise in and out faster, and in better condition, if its resources can “flow” it better. Poor facilities and inefficient systems and processes are what cause the enemy of all production: Bottlenecking.

Imagine a DC as a funnel underneath a water tap.  If you have the tap on slow, the water gets through the funnel effectively and without issue. Once you increase the speed at which the tap releases water, however, the funnel can’t process it through quickly enough causing build-up and eventually overflow. Now imagine keeping the tap on the same high speed, but adjusting the funnel to be wider and with larger filtration holes. What happens? The water goes back to flowing through effectively and without issue. This is an analogy for what happens with warehousing and distribution. The back-end logistics are the funnel, determining how much top-end volume (or water from the tap) an organization can handle before diminishing returns.

With this in mind, I summarized seven critical factors that, together, can trump a top manager:

  • Having the proper dock height for receiving and delivery trucks
  • Having adequate space for holding merchandise upon receiving freight
  • Having proper storage/racking (a place to put merchandise without moving it again until delivery, pickup or transfer to the store)
  • Ensuring there is a “signal” for moving merchandise only once; aka Kanban approach
  • Having adequate space for staging merchandise for distribution
  • The ability to keep reverse logistics (merchandise coming back into facility other than new freight received) to a minimum
  • Ensuring everyone executes the right systems, processes and equipment for the individual business situation

Whatever your current situation, it’s worth it to consider where you’d like your volume to go in the future when looking at your facilities, and whether your current systems and processes enable you to operate as efficiently and effectively as possible.

David McMahon, CSCP, CMA, EA is VP of consulting and performance group at PROFITsystems, a HighJump Company.  He holds professional certifications as a Certified Supply Chain Professional and is a Certified Management Accountant. David directs four performance groups (the Kaizen, Visionary, Gladiator and TopLine groups) and multiple consulting projects.  He can be reached at david.mcmahon@highjump.com.  

Oct

12

Home Furnishings Retail: What Owners are Up Against and How to Overcome Key Challenges

This year at Las Vegas Market, industry expert and consultant David McMahon, held a seminar on retail challenges and solutions in the home furnishings industry. The goal was to conduct the seminar in an open-forum fashion, letting those in attendance share their biggest hurdles and discussing potential solutions for each with the group.

PROFITsystems performance groups meet to increase profitability

 

Below are the three issues cited most frequently by seminar attendees, followed by David’s response and proposed solution to each.

Warehouse management, inventory management and strategies to keep best-sellers in stock 

In response to this challenge, David began by explaining what he felt was the key to managing inventory as effectively as possible: the 80/20 rule. “In order to manage inventory more effectively, you really need to know which parts are producing for you so you know where you need to be spending your time,” David said. The 80/20 rule states that, typically, 80 percent of your profitability or margin comes from just 20 percent of your items. If retailers are able to determine this 20 percent portion of their inventory that’s contributing most to their bottom line, they’ll know which items need to be ordered often, displayed well and stocked appropriately to be as profitable as possible.

David highlighted the importance of also having a systematic routine for the way retailers dealt with the portion of their inventory that wasn’t producing – their dogs. “The only way to buy new inventory as fast as possible is by identifying your slow-moving items and getting rid of them so you can make better purchases at market,” he said. “With inventory management, the systems define the outcomes. If you want to manage your inventory more profitably, you need a good system to handle reporting for best-sellers, and an equally good system to handle the markdowns for your dogs,” David added.

Pricing

When asked about how to manage pricing, David said: “Pricing is tricky. You don’t want to be known as the guy with the highest prices and you don’t want to be known as the cheap, discount store either. I’m a believer that you should be pricing higher on what’s working and a believer in high-low pricing. When an item is working, you should test the ceiling on its price. When an item is not selling as well, that’s when you mark down.”

“Some things are more expensive, some are average and some are cheap. The issue is most every retailer uses the cost-up approach, where all of the margins are the same. Say everything in your store is marked at 50 percent margin or 100 percent markup; that doesn’t work because you have some things underpriced and some things overpriced. You need to take a detailed view and price high with some things and low with others,” David added.

David wrapped up the pricing discussion by reminding listeners that it’s not only about price and GMROI plays a very important role. “If you’re turning items really quickly you could be making more margin dollars or GMROI (Gross Margin Return on Investment). Therefore, that needs to be looked at too: not just how you price an item, but how many you carry and how quickly it turns,” he explained.

Managing store traffic and staffing appropriately

David responded to this ever-common issue in the industry without mincing word. “You have to know your traffic, period,” he said. He continued to explain retail traffic counting, and how investing in a traffic counting system is a great way to be sure of your traffic volume and determine things like when it peaks versus when it’s slow, as well as average weekend traffic.

“The number one issue of sales floors that underperform is not having enough people staffed at the right time, and the number one way to fix that problem is by figuring out your traffic patterns and getting enough people on the floor to match them,” David concluded.

While there are countless challenges in home goods retailing that could be picked a part and put back together again, inventory management, pricing, and store traffic topped the list for this particular set of retailers. Hopefully this shed some light on how to meet these specific issues head-on with advice from an expert consultant who’s successfully dealt with them before.

To learn about more top challenges in home goods retail and their potential solutions, read the results of David’s two-year study aimed at figuring them out here.  

Aug

2

Six New Home Goods Retailers Select RETAILvantage and Join the PROFITsystems Family!

PROFITsystems is so excited to announce six new additions to our family of home goods retailers! Read on to hear about their stores and why they selected RETAILvantage as their retail management system.

PROFITsystems new home goods retail client

McKay’s Furniture  

McKay’s Furniture of North Kingstown, Rhode Island came to PROFITsystems concerned with the accuracy of their inventory data and quality of their current CRM. In order togrow, they knew they needed a system that addressed these concerns and worked to facilitate their success rather than hinder it. Thanks to the robust suite of features provided by RETAILvantage in the areas of inventory management, reporting and CRM, McKay’s felt compelled to make the switch. We’re so excited to help them reach their goals and look forward to the many successful years to come!

PROFITsystems new home goods retail client

Furniture Palace

Furniture Palace, located on the island of Curaçao, was in need of a new retail management system to support their growing business needs. The owners were thorough in their search for a new solution and very selective as they narrowed down their options. They knew they would become stagnant without the features and capabilities required for continued growth and prosperity, and that’s why Furniture Palace chose RETAILvantage. We are so excited they put their trust in PROFITsystems, and can’t wait to show them why they made the right decision!

PROFITsystems new home goods retail client

Sleep Etc.

Sleep Etc. of Norwalk, CT took their time shopping for a new retail management system and looked at many different providers throughout the process. As a two-store mattress operation with a high volume of custom orders, the decision makers at Sleep Etc. quickly saw how equipped RETAILvantage was to handle their specific set of needs. Ultimately, the unparalleled features and capabilities of our software coupled with our quick response times and transparency throughout the decision making process resulted in Sleep Etc. choosing PROFITsystems as the best fit for their store. Welcome to the family!

PROFITsystems home goods retail client

DeMeyer Furniture

From facing constant errors in their accounting system to their increasingly strained ability to track inventory, the owners of DeMeyer Furniture were realizing their current system was no longer sufficient. Based in Meridian, Idaho, DeMeyer set out to look for a more robust solution able to keep pace with the company’s growth and handle their expanding needs. After looking at various systems, they determined the best partner for their continued success was PROFITsystems. We’re so excited to have added them to the PROFITsystems family and look forward to facilitating their growth for years to come!

PROFITsystems new home goods retail client

Jenner’s Home Furnishings

Jenner’s Home Furnishings of Fort Mohave, Arizona was working to quickly grow their company and looking for a solution that would allow them to seamlessly integrate additional store locations. They decided RETAILvantage fit the various needs of their expanding operation, and we couldn’t be more excited to have them.

PROFITsystems new home goods retail client

Furniture Superstore

Like many other retailers that switch to RETAILvantage, Furniture Superstore of Albuquerque, New Mexico, was growing at a faster rate than their current system could seemingly handle. At the recommendation of Virginia Home Furnishings, another PROFITsystems customer, they contacted us for assistance. The owners of Furniture Superstore fell in love with RETAILvantage after several extended demonstrations, and with ease of use and overall commitment of our company to their success, they were sold.

Cheers to our newest additions and the exciting years ahead! We look forward to working with these fantastic retailers to increase their profitability!

Aug

2

TopLine Performance Group Inaugural Meeting: A Recap

PROFITsystems performance groups meet to increase profitability

 

Last month, 20 retail sales professionals met in Peoria, Illinois, with a focus on improving sales volume. The inaugural TopLine Performance Group meeting went off without a hitch, and I am pleased to report that all who attended left equipped with the tips and best practices necessary for improvement.

The meeting began with a tour of Sherman’s Furniture, Electronics, and Appliance operations, where Sherman’s store managers did a great job of showing the group how they manage such a high-paced sales floor while still delivering excellent customer service.

Performance group members participated in best-practice discussions covering a wide range of topics, each giving and receiving actionable tips for marked improvement.  Some of the practices shared included techniques to improve customer tracking, and tips on how to increase average bedding sales, close rates and store traffic. Members also compared key sales performance indicators, digging deeper into how certain members achieved exceptional results while offering advice to those who did not.

Each group member was also asked to bring their most pressing sales management challenge to the meeting for discussion. With the combined experience of the retailers in the room, the power of the advice shared was astronomical. Each member received top-tier recommendations from peers on how to best solve their particular challenge, and all ended the discussion equipped to then conquer that challenge thanks to the wide range of insights shared from so many varying perspectives.

Finally, each member presented goals for improvement that they planned to work towards once the meeting adjourned. This made every retailer in attendance accountable to both their TopLine Performance Group peers and to their own businesses. In the next meeting at Garrison’s Furniture and Mattress in Medford, Oregon, members will be asked to report on their progress and discuss where they are in achieving these goals.

To learn more about the performance groups we run and inquire about getting involved, please contact me at david.mcmahon@highjump.comIf you’re still on the fence about joining, here are some comments from current group members to encourage you to take the leap:

“Amazing experience. The group knowledge is overwhelming; can’t wait to do it again!”

-          Joe Alvarado

 “It was great. I have a lot of takeaways, met a lot of great people and had fun!”

-          Chris Baca

“The group participation was great. This helped in getting new ideas and feedback for our business plans.”

-          Brad Lutz

“It’s so informative to hear perspectives from other businesses.  There are so many great ideas and we love the format that David McMahon and Wayne McMahon put together.  We are very glad they came up with this group meeting for sales managers.”

-          Tony Hnilicka

“Everything was well put together and the information was shared freely.  I enjoyed it and learned a tremendous amount.”

-          Jason Honeycutt

“I’d say that compared to an owner’s group meeting, we got more improvement ideas that were more specific and concrete.  This was more operational stuff, and that makes sense as we all had our managers there who are in the thick of the day-to-day work.  We’ll be sending our sales manager to the Topline performance group meetings and I’ll continue to attend the owner’s meetings.  Both incredibly valuable, in slightly different ways.”

-          Paul Sherman

David McMahon, CSCP, CMA, EA is VP of consulting and performance group at PROFITsystems, a HighJump Company. He holds professional certifications as a Certified Supply Chain Professional and is a Certified Management Accountant. David directs four performance groups (the Kaizen, Visionary, Gladiator and TopLine groups) and multiple consulting projects.  He can be reached at david.mcmahon@highjump.com.  

Category:
Jul

13

Sylvan Furniture Chooses PROFITsystems’ Retail Management System!

Sylvan logo 2

PROFITsystems is excited to announce that Sylvan Furniture recently selected RETAILvantage as its retail management system! 

As a rapidly growing full-line bedding and Mattress 1st store, Sylvan Furniture decided it was time to take a more critical look at the software supporting its business. The company needed a system that could provide more visibility into, and control over, their vast inventory, and realized its current system could no longer meet the growing needs of its operation. As Sylvan’s began looking for a new provider, it narrowed its search to focus only on those companies which could provide the exhaustive inventory reporting, extensive financial data and integrated accounting tools it wanted.

With multiple solutions to choose from, Sylvan Furniture turned to members of its performance group for trusted guidance. “We get a lot out of our performance group. Being on the system they all use and love will make it easier for us to share data, benchmark our business, and share ideas,” said Karen Shaul, Sylvan Furniture store owner.

“We’re excited to be able to access inventory and financial reporting in a timely manner. Inventory control has been an issue for us, and we’re very excited to take advantage of features such as auto-markdown and the bestsellers report to become more efficient in how we discount and buy inventory,” Sylvan Mattress General Manager Rachel Rinard said. “We also love that your system integrates with Dispatch Track and DoorCounts as we use both of those services.”

“Our strong commitment to helping full-line independent retailers achieve higher profitability, matched with Sylvan Furniture’s 70-plus years in the industry serving the local community, makes this a perfect partnership,” said PROFITsystems General Manager Joanne Gulnac. “It’s exciting to work with such a progressive retailer and we are thrilled to have Sylvan’s join the PROFITsystems family!”

 

May

31

Purchase Advice vs. Auto Inventory Replenishment

By Lee Rychel

Purchase advice how to restock inventory

Since the beginning of time, merchants have struggled with knowing how to keep best-sellers in stock while minimizing the amount of slow-movers on the floor. These issues are directly related and are often addressed with a Min/Max model. This model (also called Par Stock) is used by retailers in an effort to constantly maintain the healthy levels of inventory they think they need.

The main challenge with the Min/Max approach is that it’s often more subjective than objective.  It’s nearly impossible to accurately track the rate of sale for hundreds of items manually. We get too excited about an item that sold quickly, overbuy as a result, and then end up over-stocked once that item loses popularity

As a traveling consultant who has worked with more than 150 retailers, I’ve seen dozens of iterations of spreadsheets and software aimed at helping buyers control hundreds of inventory items. Each instance was a massive undertaking and still fraught with a healthy dose of subjectivity. Additionally, these systems only tracked the top performers- but what about the 80% of the inventory that is NOT performing?  How long do you keep those dogs around before making the decision to move them off the floor?  Moving them out of stock means freeing up money for new intros, but we typically wait too long to make that call.

One of the greatest developments in building out the PROFITsystems retail management system was the development of the Purchase Advice Report.  This tool works together with our software’s Calculate Ranking routine to give the buyer a truly accurate look at what’s really happening within their inventory.  The work the software does to give a sound recommendation far surpasses the information provided by a spreadsheet. The calculations factor in a number of things that are important when making a recommendation, including:

  • Rate of Sale (trends)

- How many items were sold during each of the last six months, weighting the most recent period more heavily

- Biannual trend comparisons

- Last six months vs. last 12 months, with the ability to identify new items that take off immediately

- Information on down-trending items

  • Lead Time (how long it takes for items to come in)

- By using the invoice date and the receiving date, and averaging the last six receivings, you have a very accurate picture of the amount of time it actually takes for items to come in

  • Item profitability

- Using the GMROI for each item, you can determine if an item is profitable and worth stocking

  • Item Popularity

- The Calculate Ranking routine scores your inventory and displays all your information on one report so you can readily see if which items are best-sellers

  • Location Information

- Determine whether an item is on the floor, damaged or nailed down using this report

  • Stock Levels

- Use the Purchase Advice Report to track how many days an item is in or out of stock, and paint a more accurate picture of its true rate of sale

- The Purchase Advice Report looks at all inventory, taking into account reserved from stock, on-order items, and open PO (purchase order) quantities, including available inbound stock and reserved items on those open POs

  • Recommended Order Quantity

- This is the core of the Purchase Advice Report algorithm result. Based on all of the variables noted above the system makes a recommendation to buy or not to buy.

  • Overbought Stock

- The Purchase Advice Report not only gives buying recommendations, but it also displays items with negative buy recommendations, which typically mean you’re overstocked.

  • Creating the PO

- Running the report can also create the PO for the buyer to review, avoiding manually entering those items onto a stock PO.

Ever wonder how some businesses grow and stay healthy while other similar businesses struggle? Let’s take a look at how implementing these tools would impact two very typical stores.

Retailer A:

  • A $2M business with 2.5 turns of inventory at a 45% Gross Margin (GM) will typically have $440,000 of inventory on hand.
  • A $2M business with 4 turns of inventory at a 45% GM will typically have $275,000 of inventory on hand.

For the $2M business, we can free up over $165,000 of cash for every year we are able to sustain 4 turns.

Retailer B:

  • A $8M business with 2.5 turns of inventory at a 45% GM will typically have $1,760,000 of inventory
  • A $8M business with 4 turns of inventory at a 45% GM will typically have $1,100,000 of inventory on hand.

For the $8M business, we can free up over $660,000 of cash for every year are able to sustain 4 turns.

These results will occur with no increase in advertising, and at the same level of sales- and it gets better.  Reducing those dogs and keeping the winners in stock has another benefit: old inventory typically costs 30% of COGS to manage, move, wrestle, repair and fuss with before it’s sold.

In our first example above, let’s take 30% cost against half of that inventory, that’s likely not performing ($220,000).  This means there is potentially another $66,000 leaking out of your checkbook every year.  These costs and lost cash flow don’t show up on the P&L, however they do truly exist by simply buying smarter, the benefits are incredible.

For members of our performance groups, reviewing the Purchase Advice Report regularly is as important as knowing how much cash they have in the bank.  Clients who live by the Purchase Advice Report have inventory levels that make sense, as well as a much higher level of best-sellers in stock than retailers who are trying to do this by hand. Their GMROI is higher and their cash flow is much stronger, and many of our clients see major increases in turns and profitability. By only increasing the amount of turns in the average furniture store, many will see a dramatic impact on the financial health of their business.

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