Retail Inventory Basic Overview
There are basically 3 methods of inventory control and we will review each in detail, the pros and cons of
each:
The Hope Method
The Retail Accounting Method
Itemized Inventory
The Hope Method
This method relies on the honesty of your employees, your customers and your
vendors. If you are confident that all of these three groups are honest and your
bank balance proves that, then enjoy your business and sit back and relax because one day you might find out that in reality your assumptions were not
quite correct. Hopefully before it is too late. If this method does not appeal to you
please read on
The Retail Accounting Method
Most of the world relies upon this method of inventory control. In basic terms it
works as follows:
1. You take a starting inventory at retail by pre-determined departments
2. You purchase product and enter each invoice into a specific department or
departments at cost.
3. You enter your sales by the same departments
4. You enter your Cost of Goods (COG) for those sales based on an average
profit margin for that department
5. You then take inventory at retail price, by department and apply the same
% profit to each department to ascertain your remaining inventory
6. You then calculate your opening inventory minus your COGS (sales) plus
your purchases minus your net closing inventory = your over/short for
each department.
Then you decide if you have a problem with specific departments both positive
and negative, and try to figure out where your problem lies. There are only 3
reasons for major discrepancies:
1. Mis-calculation of profit margin
2. Theft
3. Inaccurate data entry either with invoices received, % profit applied or
your taking of inventory
Now the problem exists of which one of the above is your problem. That
becomes very difficult to decide, most dealers immediately suspect theft, but the
problem is more likely to be a combination of all three.
Now how does Series2k assist in this issue.
Firstly we are one of the very few companies in the country that actually take
your SKU sales, individually analyze each SKU for profit margin, from this
calculate your TRUE % profit for that day and apply that % to each department.
This naturally can only be done for departments that have scanned items. Here
is a very simplistic overview of how the system works:
Below show you a day by day analyze of a store that only buys and sells
Pepsi and the different configurations that are sold. The errors indicated
below are exaggerated to emphasize the problem. So on Day 1 we start
with nothing, buy a case of Pepsi sell 6ea 1-cans @ $1.00 each and 1ea
6-Pack @ $3.00. Now on a strictly average retail accounting system the
Paper Loss and % Loss shows how far off the system is using the fixed or
average profit system. Using the Series2k system, your system would
show a precise profit by department that is different each day but is
accurate without itemizing your inventory.
The above is a very simplistic view of the problem with retail accounting and until
our method was developed there was no way to get it more accurate except by
averaging. The problem with averaging is the name - it is only an average and as
such, subject to margin of error between 1 - 5%. The average theft loss in a CStore is 1 - 3% so how can you know if your loss is theft or inaccuracy. You can
actually change the numbers in the above example to see how more sales or
inventory increases the problem.
Itemized Inventory
Itemized Inventory as the name suggests is a very accurate system provided the
data is obtained correctly and that it is maintained consistently. Most large
companies maintain a itemized inventory system, but there is one difference
between a large company and your C-Store and that is obvious - it is size.
Now let us examine Itemized Inventory, this is the criteria that we would
recommend that you implement this sytem:
1. You are scanning at the register
2. 95% of all your invoices are sent to you electronically
3. You own a product like our Series2k to easily maintain your system and
then use the same system to actually give a meaninfull set of reports to
make decisions
4. You have a hand held solution like our Symbol Palm Pilot 1800 to check
and collect data
5. You will actually act and react to the data collected
The above criteria is actually not met by ANY single location C-Store in the USA.
How do we know that ? Well only one or two suppliers will actually send you
electronic invoices and those companies only provide about 50% of your required
items. You are supplied by as many as 40 - 150 suppliers - check your own
records if you do not believe us !