CHICAGO — My previous column discussed how to increase gross-profit dollars in cigarettes via inventory management, and how to increase in-store customer counts with digital lottery signs [CSP—Dec. ’19, p. 22]. Let’s now discuss how inventory control can affect the rest of the store.
Category managers realize that narrowing slow sellers is a fundamental part of their job. But I have found this activity is typically done once or twice a year as plan-o-grams are updated. Many vendors or warehouse suppliers are responsible for or aid in the plan-o-gram updates, which is good, but it supports only the once or twice a year narrowing process. I’m a proponent of constant narrowing, both with center-of-the store products and the cold box.
In this case, “constant” refers to every section of the store (basically, the 3- or 4-foot gondola sections), and always knowing which items are the slowest sellers and deleting them on a monthly or bimonthly basis because they take up valuable space and eat at potential profits. If you can receive credit for these items, do so; if not, mark them down to whatever price it takes to sell through the remaining inventory because making up a portion of the cost is preferable to a total write-off.
Let’s take a broader look at the importance of narrowing. Nutritional bars, for example, are popular, and new ones are coming on the market regularly. Routinely narrowing the slow sellers can immediately provide more facings to the faster-selling items to fill in the shelf, but the real benefit is that there will be immediate space for new items without having to overhaul the entire section. This type of pull-and-plug merchandising is also easier for store personnel to execute.
Quick and efficient methods of deleting dead items and adding new ones will always be a quiet profit maker.
This process will accomplish three things: eliminate the cost burden of slow-selling items; increase the spacing for top sellers; and provide open merchandising space for the new items with higher potential. When you consider adding the categories of candy and snacks, to name a few, the potential increase in sales and profits can be considerable. Quick and efficient methods of deleting dead items and adding new ones will always be a quiet profit maker.
Let’s take this process a step further and move to the cold box. Several years ago, in my role with a c-store retailer, I was working to bring our packaged-beverage ordering from a manual process to electronic to make it less labor-intensive and to save money. To test the value of this approach, we had to determine just how out of balance the inventory was in areas such as carbonated soft drinks, energy drinks, isotonics and water. In short, counting all the on-hand product prior to its delivery date over a few weeks and comparing it to the daily unit sales would give us the days of supply of each item counted.
Of course, the resulting information in black and white was a real eye-opener: Most of the top sellers had the lowest days of supply, and the slowest sellers had weeks of extra on-hand inventory. It was obvious that order writers just continued to maintain unnecessary inventory levels out of habit or lack of awareness. Each store carries more than 200 SKUs in the cold box, so imagine the hundreds of dollars sitting in excess inventory. Consider chains that have 10, 20 or 50 stores—that’s thousands of lost dollars. In addition, address this issue and imagine the savings in time and labor when inventory levels equate with the proper days on hand to effectively stay in-stock.
Experienced category managers succeed in being innovative and promotionally savvy to improve sales and profits. However, constant and aggressive inventory narrowing and management across the store is a quiet, not-so-obvious approach to increasing the bottom line. Additionally, for those with electronic ordering/replenishment systems, remember to verify the log rhythms for accuracy to ensure proper inventory management.
Bill Nolan is a partner with the Business Accelerator Team. Contact him at firstname.lastname@example.org.
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