PART 1
The short answer is ‘No’. Category Management is a tool that has a purpose, especially for smaller companies that do not have the inclination, the option, nor the software to dig deeper into their businesses.
However, Category Management is a tool to help retailers establish the general product mix on their shelves and maintaining an ongoing balance, and due to the time elements involved, notwithstanding dead or dying inventory, and theft and shrinkage, Category Management should not be used for ‘accounting’ purposes.
Item-Level Inventory Control is first and foremost an accounting tool. Starting where Category Management leaves off, and delves deep into the product mix and determines exactly which products are making you money and which products are not, and it answers the question:
Why are 30% of my products producing all of my profits, and cross-subsidizing the losses incurred by the other 70% that are either sitting on my cash or burning it up?
Every store is unique, and their performance is dependent upon many factors. These differences may have a huge effect on your stores’ profits. In my books, I write about how I view items in stores, and why understanding how products work is crucial to your on-going success. If you continue to rely on Category Management alone, you are setting yourself up for failure. That may have not been true a decade ago, but things are changing, and the competition is embracing new technology that will make your life miserable. This knowledge comes from over 35 years of installing computers and software and working with over 360 convenience store companies.
I view each item as a “a tiny little machine that generate profits… or not”
… and if you want to make money in retail, the secret to success is not simply the kinds of inventory you put on your shelves, but insuring as many items as possible are either generating profits or causing other products to generate profits.
It might surprise you to know that a specific potato chip, can drive the sales of a particular soft drink, which brings all kinds of possibilities to mind. For example: will lowering the retail price of one item accelerate the sales of a more profitable item? It can, and there are a plethora of other things you can do in your stores that will increase your profits
Why have retailers failed to address these issues in the past?
That’s a good question. Sometimes it takes years, even decades for a new technology to be accepted by the market, and most of the time the person that develops the technology gets nothing from it. For example: Johannes Gutenberg died penniless in 1468 after failing miserably to convince people to accept his printing press. Nikola Telsa, a Siberian-American is more responsible for the acceptance of electrical power than Edison ever was, yet Edison got the credit, and Telsa died in 1943, alone, in a hotel room, paid for by Westinghouse, leaving little or nothing to his heirs.
Bringing a new idea to the market is complicated. Rarely does someone come up with one that produces instant results, and when it does, generally you end up with something akin to a “Pet Rock,” or a Cabbage Patch Doll,” or a “Potato Gun.”
Launching ‘real’ technology takes time and money, lots of money, and most investors are looking for a quick turn-around in profits. So, unless investors can see a way to get in and out of an investment quickly, like dynamite, the technology lies dormant until something occurs that sets off the explosion.
We have had Cloud Computing and Item-Level Inventory Control since 2003
Cloud computing still has yet to enter the main-stream, but it looks like big corporations are including it in their long-range plans, dipping their toes into the water to find out if customers will buy into the idea. For example:
Microsoft 365 and Adobe Cloud are hybrid cloud services, but neither is truly Cloud Computing because the applications themselves are still running on local PCs
Another reason that causes a new technology to take off, is when a compelling reason comes along that forces you to adopt it. To put it mildly, when the degree of fear reaches a fever-pitch, when it becomes apparent the current method of operations will not sustain a business, the move toward a new technology becomes a fight for survival, and we see an ‘overnight sensation’ become the “Next Big Thing.”
The Internet was 23 years old when President Bill Clinton released it into public domain and the first web pages emerged. Even then, it took another decade before Tim Berners-Lee’s idea of a ‘browser’ became popular. Never heard of him? Neither had I.
Cloud Computing is the answer to ‘Item-Level Inventory Control’ and ‘Just-In-Time Inventory’ and we have been doing just that for 14 years. The technology is out there, yet the mainstream will not adopt it until someone with cash decides to fund it. Meanwhile, businesses are being deprived of the greatest thing that has happened in retail for a century or more.
Why would a store carry more inventory than they can sell?
The accepted reason is that ‘lots of inventory makes a store look good’. In other words, stores are using overstock for decoration, without stopping to consider far less expensive ways to make a store appealing. There is a huge amount of resistance against Item-Level Inventory coming from suppliers, because their immediate fears include thoughts of less sales; while actually, reducing the amount of stock in the stores will result in accelerating sales and profits for everyone. What they fail to understand is that reducing stock reduces the number of deliveries and increases the space available in the trucks so they can expand their customer base, take on more business, provide a far superior service, and cut fuel and cost of drivers by 50% or more.
In addition, it cleans up the mess in their distribution centers and increases their operating capital so they have the resources to grow and expand. How? If you know what your retailers will be selling on a day-to-day basis, you don’t need all that overstock in your warehouse. One supplier confided in me that he had 90 days worth of some popular items because he was afraid his retailers might run out.
Overstock creates a logjam of unsellable items for the retailers and their suppliers, because in the store, it draws attention away from products that will sell, and even occupies the space needed to display them. The result is overstock begetting more overstock in an attempt to ‘make the store look good’, as if it were the only reason why sales are decreasing.
A delivery to a store would consists of just the items necessary to last the retailer until the next delivery, with a tiny amount of safety stock just in case it is needed. The retailer is able to sell the stock before the invoice becomes due, and our studies have shown this can increase the retailer’s cash by 50-63%… money that could be diverted to hire employees, introduce incentives, and open more stores. By having knowledge of the number of units in the store (on demand), the stores, and their suppliers would know when to replenish the shelves and when to deliver more goods.
In Part 2 we will discuss how Item-Level Inventory Control will provide convenience stores and other retailers with ways to capture their markets and be wildly successful in the process.
(To be Continued in Part 2)