STOCK MANAGEMENT

1
STOCK MANAGEMENT

• W. Frank Dell II, CMC
• September, 2003

2
AGENDA

• INTRODUCTION
• DEPARTMENT / CATEGORY / ITEM
• REPLENISHMENT
• PROMOTING

3
Objectives

• Introduce stock organization and management
• Present the science of buying
• Identify promotion management

4
Retail Strategy
5
Product Quality
6
Target Market

• Socio-demographics
• Age
• Sex
• Education
• Income
• Household
• Single
• Married
• Multi-generations

7
Supermarket Evolution
DEPARTMENTS GM
Dry Grocery 19.9
Meat 25.9
Dairy 27.6
Produce 38.7
HBC GM 29.3
Deli 38.2
Bakery 44.5
Home Meal Replacement 50.0
8
AGENDA

• INTRODUCTION
• DEPARTMENT / CATEGORY / ITEM
• REPLENISHMENT
• PROMOTING

9
Department Drivers
10
Typical Departments

• PERISHABLE
• Fresh
• Meat
• Produce
• Fish
• Bakery
• Prepared Food
• Package
• Diary
• Frozen

• NON-PERISHABLE
• Edible
• Non-Edible
• Health Beauty Care
• General Merchandise

11
Department Size
A B C
Sales Sales Sales
- Cost - Cost
Gross Margin Gross Margin
Direct Revenue
- Inbound Costs
- Outbound Costs
Net Profit
12
Number of Departments

• MINIMUM
• Perishable
• Non-Perishable
• OR
• Random Weight
• Packaged

• MAXIMUM
• Meat
• Produce
• Fish
• Bakery
• Prepared Food
• Dairy
• Frozen
• Dry Grocery (ambient)
• HBC
• GM

13
Department Percents
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Category Role

• Destination - To be the primary category provider
  and help define the retailer as the store of
  choice by delivering consistent, superior target
  consumer value.
• Routine - To be one of the preferred category
  providers and help develop the retailer as the
  store of choice by delivering consistent,
  competitive target consumer value.

15
Category Role (Cont.)

• Occasional/Seasonal - To be a major category
  provider, help reinforce the retailer as the
  store of choice by delivering frequent,
  competitive target consumer value.
• Convenience - To be a category provider and help
  reinforce the retailer as the store of choice by
  delivering good consumer target value.

16
Category Strategy

• Strategies
• Traffic Building
• Transaction Building
• Profit Contribution
• Cash Generating
• Excitement Creating
• Image Creating
• Turf Defending

• Characteristics
• - High share, frequently purchased, high of
  sales
• - Higher Ring-up, impulse purchasing
• - Higher Gross Margin, turns
• - Higher turns, frequently purchased
• - Impulse, lifestyle oriented
• - Frequently purchased, highly promoted, impulse,
  unique
• - Used to draw customer base

17
Category Drivers
18
Category Sub-Category

• Grouping of like products and/or sub-categories

19
Perishable Percents
20
Non-Edible Percents
21
Number of Categories

• Categories
• Minimum 1
• Maximum 85
• Example
• Juices

• Sub-Categories
• Minimum 0
• Maximum 9
• Example
• Fruit Nectars
• Powdered
• Tomato

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Segment Sub-Segment
23
Item Drivers
24
Item Planning

• Support category role and strategy
• Provide an eye appealing presentation
• Minimum of 2 facings
• Recommend full case stocking
• Minimizes labor
• Reduces damage

25
Retail Price Space Interrelated
26
Shelf Holding Capacity

• Average non-promotion movement
• Replenishment cycle
• Order to shelf time

27
Space Allocation

• Software
• Apollo
• Spaceman
• Process
• Assign minimum
• Add for full case stocking
• Adjust for replenishment cycle
• Add for profit
• Adjust for presentation

28
Assortment

• Components
• Brands
• Flavor, style and color
• Size
• Research
• Excess difficulty to find item and shop
• Shortage limits sales and customer satisfaction

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Measurement

• Per linear meter
• Per floor square meter
• Per display square meter

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Per Display Square Foot
31
Units Per DSF
32
New Items

• Match target market
• Should replace existing item
• Complete or fill in offering
• Increase category sales and profits
• Item cannibalization not productive

33
Managing Multiple Formats

• Formats
• Hypermarket
• Supermarket
• Limited assortment
• Hard discount
• Warehouse
• Club
• Convenience
• Organic

• Issues
• How to manage?
• Who controls?

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Multiple Format Plan A

• All Format Buyer
• Advantages
• Buying power
• Lowest cost
• Disadvantage
• Lose focus
• Conflicting decisions

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Multiple Format Plan B

• Format Merchant
• Advantages
• Buying power
• Dedicated focus
• Disadvantages
• Conflicting decisions

36
Multiple Format Plan C

• Format Buyer
• Advantage
• Greatest focus
• Disadvantage
• Fragmented buying
• Added cost
• Increase items
• Increase transactions

37
AGENDA

• INTRODUCTION
• DEPARTMENT / CATEGORY / ITEM
• REPLENISHMENT
• PROMOTING

38
Holding Cost
( Cube Rate ) (Cost Rate)

• Cube is the dominate supply chain cost driver
• Display space is a scarce resource
• Wide range of products
• Health Beauty Care
• Paper products

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Time Vs Quantity

• Traditional
• Weekly data
• Fixed review
• Vary quantity

• Recommended
• Daily data
• Daily review
• Fixed quantity

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Fixed Time
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Variable Time
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Supplier Economics
2 Order Cost
--------------------------------------------------
------------------------- (Wk Int. Rate Wk
Dollars) (Wk Cube Rate Wk Cube)

• Economic Order Interval - Weeks
• Balance
• Holding cost Vs order cost

43
Cycle Stock
2 Pallet Cost
---------------------------------------------
------------------------------------------
((Wk Int. Rate Wk Dollar) (Wk Cube Rate Wk
Cube))
Wk Cases

• Quantity Weeks Average Movement
• Round to warehouse pallet quantity
• Balance
• Holding cost Vs handling cost

44
In-Stock Probability
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Safety Stock
CPW (RI VLT) (( 1MMAD / CPW) (1 LMAD /
LT) ) SF - (( RI VLT) CPW)

• Cases Per Week
• Review Interval
• Vendor Lead Time
• Movement Mean Average Deviation
• Lead time Mean Average Deviation
• Lead Time
• Service Factor

46
Item Order Point
(( Rev Int VLT) CPW) Safety Stock

• Trigger point for ordering an item

47
Replenishment Model
48
Forward Buy
Savings ( Extra Handling ) Holding
Cost

• Quantity Weeks Average Movement
• Excess inventory
• Cut off
• Management maximum
• Next vendor promotion
• Product dating
• Round to pallets

49
AGENDA

• INTRODUCTION
• DEPARTMENT / CATEGORY / ITEM
• REPLENISHMENT
• PROMOTING

50
Why Promote ?

• Create merchandising excitement
• Attract customers
• Present savings
• Show value
• Reward loyal customers
• Increase sales

51
Promotional Components
52
Promotions are Difficult
53
Breakeven on 11 Deal
54
Promotional Effect
55
Promotion Forecasting

• Controllable
• Category
• Season
• City Vs Suburban
• Price
• Support
• Advertising
• Display
• Frequency

• Un-Controllable
• Weather
• Competition

56
Promotional Index
57
Promotion Dollar Sales
DESCRIPTION ALL PRIVATE LABEL
Feature Adv Display 5.6 3.4
Display only 7.5 5.7
Feature Adv only 9.1 10.5
Shelf Price Reduction 8.7 9.3


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Cannibalization

• Rare across categories
• Occasional across sub-categories
• Common in sub-category
• Item uniqueness
• Current Vs future consumption

59
Promotion New Rules
60
Share Volatility
61
Promotion Planning

• DO NOT
• Promote slow selling items or categories
• Over promote
• DO
• Track competition promotions
• Feature your strength
• Create consumer excitement

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Summary

• Strategy determines items
• Customer determine categories
• Display space is a scarce resource
• Vary time not quantity
• Develop promotional indexes

63
Thank You
64

• W. Frank Dell II, CMC
• President
• DELLMART Company
• 125 Hardesty Road
• Stamford, CT 06903 USA
• Tel [phone]
• Fax [phone]
• e-mail Wfdell2_at_msn.com