Putting Inventory to Work to Boost Profits
CHICAGO — Shrink management is a key aspect of maximizing a convenience store's profitability. By minimizing shrink, retailers can increase profits while keeping cash flow, supplier relationships and customer satisfaction stable.
This is easier said than done, but technology can make the process easier, according to a recent webinar, "Shrink & Profit: How to Make Your Inventory Work Harder for You," hosted by Convenience Store News and sponsored by Petrosoft, a provider of end-to-end backoffice solutions for c-stores and gas stations.
When shrink isn't kept low, it requires stores to buy more products to replace what is missing, which can push gross profit margin ranges down over time. There are lots of different reasons shrink happens, and "many different buckets you can throw reasons into," said presenter Petrosoft's Shawn Backo, director of enterprise programs.
The three main buckets are:
- Customer theft
- Vendor theft
- Employee theft
Everyone thinks of customer theft when they think of shrink, but vendor theft can be both a serious problem and unintentional. Units and cases could be incorrectly listed, with quantities misrepresented. If retailers don't pay careful attention to inventory, this could be a large source of shrink.
Employee theft is a bucket that no one wants to think of, according to Backo. This type of shrink can be "very, very hard to spot at times because it's internal," he said. "If it's not taken care of, it can really snowball out of control."
The good news is that operators can leverage technology to mitigate these difficulties and prevent losses. Loss prevention analytics can identify customer theft as well as employee theft while also alerting store managers to overarching trends such as transaction counts and times of day when transactions are highest in order to deploy the correct amount of staff. This means cameras should be placed both in front of and behind the counter and automatically record high-risk transactions.
Technology can also be used to solve the primary difficulty of vendor theft/supply chain mismanagement: how do you know the supplier company is being truthful? Tracking costs and verifying invoices are the "very important steps" to achieve this, Bracko said.
Bracko pointed to the challenges presented by negotiated cost. For example, a large soda vendor wants to run a promotion that includes a 50-cent unit discount. Savvy retailers will ask for a break on their cost in return. The trick is comparing the negotiated cost to the cost on invoice. Technology can make these comparisons, verify the true amount being charged and reconcile it with the vendor, a process that is more prone to error when done manually.
Offerings like Petrosoft's CStoreOffice and its accompanying mobile app offer pricebook management that keeps prices up to date after vendor negotiations. This saved time can be better spent on the sales floor to prevent shrink or even working with vendors to negotiate deals for better prices, according to the company.
Operators can also reduce user error and fraud by making use of Petrosoft's data processing services, which utilizes a proprietary method to provide near-perfect accuracy and a 24-hour turnaround time, Blacko said.
ACCURACY IN AUDITING
Blacko also recommends taking a carefully organized approach to the inventory audits that are necessary to manage shrink. Audits are more effective when scheduled at specific intervals, such as every one, three or six months. More than one person must count inventory, as it is a tedious task and individuals are prone to making mistakes.
It is also "imperative" that stores refrain from stocking shelves during an audit because it can lead to miscounting and mistakes, he added.
"It can cause for duplicate counting," Blacko said. "People forget. You don't want to do that."
Inventory can do more than identify item shortages. It can also highlight massive overages, which are generally caused by poor invoicing. By consistently following these simple rules, retailers can successfully use inventory to spot high-risk theft anywhere discrepancies exist and take steps to fix it, according to Blacko.
Other ways to increase profitability include buydown reimbursement promotions for cost in the tobacco category, as well as scan data, which gives access to tobacco promotions from companies like Altria. Retailers can also leverage promotional group pricing for efficient management.
Profitability in non-tobacco categories can be achieved through running different promotions for customers. This allows retailers to target the right products to the right people. Tracking the promotional cost throughout the time period an item is on promotion is vital in order to have proper data and calculate the promotion's overall profitability, he added.
A replay of "Shrink & Profit: How to Make Your Inventory Work Harder for You" is available here.
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