Cory Kirkland, Business analyst ABM Inventory
Did you know that the world market for alcoholic beverages will grow by about 1.7 trillion US dollars by 2021? At least, that is what the experts predict. Demand for alcohol is really growing, and competition is increasing.
Market growth is driven by several factors:
- Increase in the number of urban population;
- Revenue growth in emerging market economies;
- Young people with high family incomes influenced by social networks have easy access to alcoholic beverages;
- The belief that alcohol consumption relaxes the mind leads to an increase in alcohol consumption, especially by those working under high-pressure in cities;
- New products with different tastes, beautiful packaging designs cause curiosity among consumers, especially among millennials, encouraging them to try these products, which contributes to the growth of the alcoholic beverages market.
For example, to ensure the availability of the necessary goods in stock, you need not only to analyze the demand but also to understand the existing “drinking culture”. If it is a summer hot day, cold beer is best sold, but if it is a holiday, people will go for sparkling wine and stronger alcohol.
Thus, the main thing for the retailer is to make sure he\she orders everything with a margin and at the right time in order not to be out of or in excess of some goods what leads to inefficient use of the shelf space. Sooner or later, like any other process in business, ordering goods will be optimized.
That is why business owners and top managers should not be doing the orders approximately without proper analysis and calculations to be able to automate processes in the future and solve related to human factors problems with the help of technologies.
Often, retailers come to experts who provide automation services with similar problems. ABM Inventory, which worked with a well-known network of liquor stores, shares its experience.
➥ The first thing it faced was how to understand if inventory management is effective if performance indicators are not measured at all. Without high-quality and transparent analytics, it is impossible to understand whether the chosen path is the right one.
If inventory management performance indicators and their dynamics are not being conducted and analyzed, then it is impossible to assess how well they are managed, whether the chosen ordering procedure is appropriate or not. And their second “pain” was a large number of manual operations and routine work.
Many specialists in the procurement department quickly get tired of these tasks, and staff outflows occur, and labor resources are used inefficiently. The manager could take care of the assortment, work with problem positions, but instead have to check sheets of orders.
Since the assortment of alcohol stores is quite diverse, the manager has to process a large number of orders, which are often carried out in simple Excel, sent to the supplier using instant messengers or dictated by phone.
Another consequence that the problems mentioned above lead to is that without transparent analytics and order management, such important parameters as supplier reliability and order execution accuracy cannot be traced.
➥ Many managers have been forming orders "intuitively." A person was guided by his own instinct, which is rarely confirmed by facts and calculations, and without qualitative analytics, it is difficult to understand where a mistake is. The features of various categories were also not taken into account. For goods with a short shelf life, it is necessary to take into account not only sales but also the residual shelf life and the heterogeneity of demand during the week.
Often, managers in liquor stores have to manage not only alcohol but also the fresh category (since weighted snacks and draft beer usually have a minimum shelf life).
If to make orders incorrectly, substantial losses are inevitable due to write-offs, which completely level the marginality of the product on the one hand, but also entail fines for stores on the other hand. And you want to build a business that is based on mutual respect so that people understand how it should be done properly. Moreover, competent management of snacks directly proportional to the growth of net sales in general, because this category of goods provides about a fifth of sales and very often is sold as a by-product to alcohol.
“Not only the buyer but also our supplier has a great influence in this chain. With many of them, there are agreements on the minimum conditions of shipment, which will be logistically beneficial for the supplier and valid for the company. For example, this is the minimum order amount, volume, or quantity of goods. We have to manually add products to the order to increase it to the desired value. Yes, such products are sometimes added purely intuitively”
says Alex, purchasing manager for a network of liquor stores.
For business owners, it is important to build proper inventory management, know how to do it, and what tools to employ so this can be achieved. Modern realities are such that the entire market is now seeking to automate business, and inventory management does not stand aside.
At the moment, there are solutions on the market that are based on the principles of pushing and pulling. With ABM Inventory, it has been proven that the pull system is more efficient in inventory management.
A quality tool should include the following features:
- TOC methodology, which has proven its practical effectiveness;
- High-quality expertise and years of experience in the market;
- Transparent and comprehensive analytics, extensive product functionality;
- Intuitive user interface.
There are several steps important for effective management of liquor stores:
1. Centralization of the purchasing department
Often in stores, managers have many responsibilities and, unfortunately, the result is not always comforting. If you assign responsibility for specific business processes to different employees, productivity increases significantly. Moreover, with the help of inventory management automation programs, you can successfully manage a whole network of stores, monitor the situation at each specific outlet, product category. In addition, there will be a single order counting and analytics algorithm that makes it possible to track the network performance.
It will be an excellent work monitoring tool for the owner since with the help of the program, you can quickly assess the current state of the network, the dynamics of the main indicators of stocks without leaving your office.
2. Automation of work with orders
Automatic mailing in a single order-sending form will help save managers from routine work, which requires a lot of labor and brings immeasurable benefits. Automation will allow you to use resources more efficiently and free them for more priority tasks - working with the assortment and suppliers.
Automation will optimize not only the work with the main assortment of the liquor store but also the ordering of containers and components since containers for draft beer, containers for snacks and packaging of goods should be there in an optimal amount in the outlet on a daily basis. I will emphasize the word “optimal”, because the components also physically take up space on the shopping facility and, if buy too much, there will simply be no place to store them and the hall will look sloppy. In turn, an insufficient stock entails a missed sale, since there will be nowhere to pour beer for the buyer.
Auto order systems solve this problem because the components are ordered, taking into account the consumption of products that are sold in this container.
Order automation also helps to cope with special logistics conditions. With the help of the inventory management program, you can control the number of orders and automatically generate them to a specified amount, taking into account which product is in most demand.
3. Inventory management by the product categories
As mentioned above, it is very important to understand that such categories as draft beer and snacks require special attention since they are the basis of alcohol stores assortment and, thus their profitability.
When ordering, it is important to consider not only the consumption of these goods and the delivery (the time between the supplier receives an order and its delivery to the store). Though, this data is not enough. The key feature of these products is the heterogeneity of demand because at the end of the week (Friday - Sunday) it is usually several times higher than on weekdays.
It would be wrong to calculate the need for Monday and Friday equally because the fluctuations are very high.
In addition to information about the balances and sale, you must also take into account the level of write-offs due to the expired shelf life, the residual shelf life of the product at the time of its arrival, the uneven demand for each day of the week (coefficients of the days of the week), the desired level of service of the supplier (Service Level) – a statistical indicator reflecting the probability that the buyer will find the goods on the shelf.
To take all these factors into account is very difficult when managing orders, not spending a lot of time and effort. And if you form the same orders for all categories, then such important factors will not be taken into account, and the accuracy of the order drops significantly.
It is important to understand that the stocks are in your hands in both literal and figurative sense, and an inventory management system is a tool that, if properly used, will give a good result. If you do not move on and develop, it does not mean that you are standing still. It means you are one step behind the modern market every next day.
It seems that profit is in full view. Though there are a lot of competitors in this race, the only one who pays attention to the key processes will be the first.
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