Putting Inventory to Work to Increase Profits

CHICAGO — Managing shrinkage is a key aspect of maximizing a convenience store’s profitability. By minimizing shrink, retailers can increase profits while maintaining stable cash flow, supplier relationships, and customer satisfaction.

It’s easier said than done, but technology can make the process easier, according to a recent webinar titled “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 back-office solutions for convenience stores and gas stations.

When shrinkage isn’t kept low, stores have to buy more product to replace what’s missing, which can drive down gross profit margins over time. There are many reasons why the contraction is happening, and “many different buckets that you can throw reasons into,” said Shawn Backo, director of corporate programs at Petrosoft.

The three main compartments are:

  1. Customer theft
  2. Seller theft
  3. Employee theft

Everyone thinks of customer theft when they think of shrinkage, but supplier theft can be both a serious and unintended issue. Units and crates might be listed incorrectly, with quantities misrepresented. If retailers don’t pay close attention to inventory, it could be a major source of shrinkage.

Employee theft is a bucket no one wants to think about, according to Backo. This type of shrink can be “sometimes very, very hard to spot 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 challenges and prevent losses. Loss prevention analytics can identify customer theft as well as employee theft while alerting store managers to overall trends such as the number of transactions and times of day when transactions are highest in order to deploy the correct number of personnel. This means that cameras should be placed in front of and behind the counter and automatically record high-risk transactions.

Technology can also be used to solve the main problem of supplier theft/mismanagement in the supply chain: how do you know that the supplier company is real? Tracking costs and verifying invoices are the “very important steps” to achieving this, Bracko said.

Bracko highlighted the challenges presented by the negotiated cost. For example, a large soft drink seller wishes to organize a promotion including a unit discount of 50 cents. Savvy retailers will demand a reduction in their costs in return. The trick is to compare the negotiated cost to the cost on invoice. The technology can perform these comparisons, verify the actual amount charged, and reconcile it with the supplier, a process that is more error-prone when done manually.

Offerings such as Petrosoft’s CStoreOffice and its associated mobile app offer rate management that keeps prices up-to-date after negotiations with vendors. Depending on the company, this saved time can be better spent on the sales floor to avoid losses or even working with suppliers to negotiate offers at better prices.

Operators can also reduce user error and fraud by using Petrosoft’s data processing services, which use a proprietary method to provide near-perfect accuracy and 24-hour turnaround, Blacko said.

ACCURACY IN AUDIT

Blacko also recommends taking a carefully organized approach to inventory audits that are necessary to manage shrinkage. Audits are most effective when scheduled at specific intervals, such as every one, three, or six months. More than one person has to 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, as this can lead to miscounts and errors, he added.

“This can lead to double 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 overruns, which are usually caused by poor billing. By consistently following these simple rules, retailers can successfully use inventory to spot high-risk theft wherever discrepancies exist and take action to address them, according to Blacko.

Other ways to increase profitability include buyback promotions for costs in the tobacco category, as well as analytics data, which provides access to tobacco promotions from companies like Altria. Retailers can also take advantage of group promotional pricing for efficient management.

Profitability in categories other than tobacco can be achieved by running different promotions for customers. This allows retailers to target the right products to the right people. Tracking the promotional cost throughout the period an item is on promotion is key to having proper data and calculating the overall profitability of the promotion, he added.

A replay of “Shrink & Profit: How to Make Your Inventory Work Better for You” is available here.

Maria D. Ervin