OAK BROOK, Ill. -- Though not as prevalent with c-stores as with other channels, item-level inventory in convenience retail may be gaining momentum, as threats to core categories of cigarettes and fuel begin to mount.
Recent interviews with technology providers revealed growing interest in the accounting and inventory management method, especially as the desire to better track merchandise flow, promotions and market-basket purchases increases.
[For more on culture challenges and other issues regarding item-level inventory, watch for the January 2012 issue of CSP magazine.]
"Many of our c-store customers have had item-level capability with our solution for a number of years," said Ann Marie O'Connor, industry director for retail at RedPrairie, Alpharetta, Ga. "But they're now getting to a point where they want to use this capability for a more precise measure of profitability and to drill down to the item level."
"As profits continue to be squeezed in core categories of fuel and cigarettes, retailers want to ensure they're stocking and selling products that are more profitable," said David Tucker, senior director of sales for petroleum and convenience at RedPrairie.
Another provider, Temple, Texas-based PDI said its customer base is at 5% to 10% for "true" item inventory (use for both physical inventory tracking and home-office accounting). A large percentage of customers, nearing 50%, have site-level item inventory for key categories, but do not use the data all the way through the system. PDI calls that "operational item inventory."
Most of the industry values and tracks inventory at retail cost, or the price that customers pay at the store. Under that accounting method, retailers track what comes into the store by category department, noting like items in bulk vs. differentiating a two-liter bottle of Diet Coke from a two-liter Diet Pepsi.
The challenges in switching from retail-cost accounting to item-level inventory come with understanding the necessary technology, getting buy-in from top executives, justifying cost and the discipline, or some call it "culture," necessary to maintain the processes.
But the benefits to item-level are numerous, said O'Connor and Tucker. Here are a few:
- Market-basket analysis. Knowing what's selling down to size, measurement and flavor, and moreover, what's selling with what. This data helps determine product mix, placement and promotions.
- Rebate management. Allowing managers to maximize rebates by tracking actual sales vs. what the store purchases.
- Promotion effectiveness. Creating metrics to determine how well a promotion did.
- Improved accounting. The shift from retail-cost to item-level means a more accurate account of inventory value.
To incorporate item-level, the technology needed includes scan-capable point-of-sale (POS) registers, backoffice, pricebook, computer-assisted ordering software and handheld scanners for incoming merchandise, said Melissa Hadley, retail solutions manager, The Pinnacle Corp., Arlington, Texas.
The data must flow through the system, from the pricebook where the data originates, to the POS, to the backoffice where managers input items received and then track and adjust the numbers, Hadley told CSP Daily News. All the data then must flow back up to the corporate office for reporting and analyzing.
Like Love's Travel Stops & Country Stores, Oklahoma City, and Flash Foods, Waycross, Ga., many retailers take a crawl-walk-run approach and start with high-turn categories like cigarettes. And in the end, it's not a once-size-fits-all solution. Greg Gilkerson, president of PDI, told CSP Daily News that many of his customers have even scaled back to quarterly audits on the whole store, holding to weekly counts on high-loss, high-dollar inventory and sometimes even daily counts for cigarettes. "If you want … to get the right item back on shelf or cut your exposure to loss, you tend to count [that item] more," he said.
"I've come to believe not all out-of-stocks are alike," said Phil Settle, director of marketing for Flash Foods. "Running out of ketchup--that you sell three bottles of every month--is not like running out of Marlboros."
Software solutions can aid in the process, providing "alerts" or e-mails when numbers begin to fall out of set parameters. Uri Bettesh, head of merchandising products, Retalix, Plano, Texas, said such features allow retailers to weed through data and prioritize their efforts.
Some software features also aid in the process. Bettesh said such options include sample counting. This feature guides managers through partial counts of certain items, allowing the software to extrapolate the final number. Another option is the ability to "forgive" for missing data. If a manager doesn't fill in a report on time, the previous numbers can slide in as a temporary measure and maintains the ordering cycle.
In summarizing what it takes to successfully deploy item-level inventory, Gilkerson offered the following thoughts and pointers:
Data Entry
- It has to be accurate and timely, with no "short-cuts." Electronic vendor invoice integration can greatly help; a must for your wholesaler.
- Pricebook accuracy is also key, with timely, accurate updates.
- The ability to accrue rebate programs into the product cost (essential for tobacco).
Store-level Operations
- Emphasis on discipline. It really must be company culture. Counts; register use; no "open" keys; invoice entry; and using of tools to streamline work, reduce labor, ensure accuracy. No compromises or shortcuts.
Data Analysis
- Loads of data, augmented with transaction-log use. Item sales and turn analysis, better and faster plan-o-gram decisions, and cashier analysis.
- Retailers are still challenged to have the time and analytical skills available to use it to the fullest extent possible.
- Stores' "negative" or "zero" values that pop up because of missed data-entry deadlines affect merchandise ordering.
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