|Retail successentials December 2014: Make your retail life easier by avoiding supply chain pain|
|Written by Bill Nielsen|
|Wednesday, 05 November 2014 11:28 AM EST|
Employ these simple steps for handling product for your store
Are in-bound freight costs killing your store? Do you know how much it costs to cut each purchase order, receive against it and pay the invoice? How much are vendor returns costing in terms of labor to process and the cost to ship the goods back? Have I got your attention yet? If so, it’s time to examine some of the Retail Successentials of managing your supply chain.
Once upon a time, retailers talked about J.I.T. or just-in-time inventory management: Order less product more often. But for many stores, not having the right technology and replenishment logic meant that J.I.T. stood for just-isn’t-there.
There is a fine line between the two. Step too far one way and you’ll find that you cannot sell what you do not have. Wander the other direction and you drive freight costs through the roof. Move too far and you kill your inventory turn and tie up too much stock, which can starve your business of much-needed operating capital.
STEPS TO TAKE
Working toward an optimal supply chain is tedious, but remember the old adage: “Retail is detail.” Since we live on pennies of profit per dollar, remember that this will help you find another penny or two for every dollar of sales.
First, know your costs. You cannot make smart supply-chain decisions until you know how much each option will cost you. On average, in-bound freight costs will run 3-4% of retail. Creating a purchase order may only take 15 minutes of labor, but receiving it can take much longer. Processing the receiving documents and paying the vendor also creates some cost for every purchase order you cut.
With returns to the vendor, outbound freight costs can run as much as 6-8% of the retail value of the goods. The costs of hunting and finding the goods, removing price labels and processing the return are also much higher than the labor to simply receive goods.
Last, but not least, what discount and other purchasing terms—like freight, billing and co-op—does each vendor and distributor offer? Getting an additional 30 days of dating on every purchase order can add as much as 2/10 to your inventory turn, freeing up cash flow and building profits.
Estimate your costs for these functions, as this data will help you make the best possible supply chain decisions.
Next, examine where and how your products are coming in and going out. Break down your shipments by carrier. What percent of your purchase is made directly from the vendor, and what percent is made from each distributor? Be sure you also have a good handle on minimum-order thresholds from each vendor and distributor.
QUESTIONS TO ASK
With this data in hand, begin to develop your supply-chain strategy. Answer these questions:
Where is the best source for me to order each vendor’s product? Ordering directly from the vendor may or may not be the lowest-cost option. Since free freight is worth approximately 4% of retail, consider the terms each vendor offers, and think about saving by ordering from a distributor all at once versus placing multiple smaller orders from a number of vendors. A distributor order will save you money when the vendor offers you less than the 5% more than you can get from the distributor. I say 5% because you can often get free freight worth 4% from the distributor, and by consolidating your order, you certainly reduce the number of invoices you have to process, and you may even qualify for other distributor incentives such as additional dating.
When should I replenish each item? While the answer to that question varies, here are some common practices:
Stock your never-out items deep enough that you have an eight- to 10-week supply. Set your reorder point when you reach a six-week supply.
Stock your remaining core assortment in quantities of one, or two as sales permit. Reorder as soon as you sell one.
Seasonal items are best bought one time only with no replenishment. Many of these items are nonreturnable.
Promotional items should be ordered four weeks before the start of the promotion and be replenished until you are 25% through the promotion. This will help you stay in stock but not have an order arriving late.
How can I best manage returns to vendors? The best return is no return. That’s said, if you are overstocked, the worst thing you can do is keep nonproductive inventory.
Before you pull the trigger on the return, consider moving the item to your sale table. Selling at cost is better than returning it for a loss just to get your cost back. You end up paying freight, spending labor and sometimes incurring a restocking fee. Many vendors will find creative ways to help you sell through the goods rather than return them.
Going through the above process not only keeps your cash flow moving, but also can help your store grow sales and increase profitability. And who doesn’t want that?
Bill Nielsen is a 25-year Christian retail veteran having served in C-level positions with Family Christian Stores, LifeWay Christian Stores and Berean Christian Stores. Nielsen is now president of The Equation Team, a consulting firm that specializes in retail and publishing.