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STOCK MANAGEMENT. W. Frank Dell II, CMC September, 2003. AGENDA. INTRODUCTION DEPARTMENT / CATEGORY / ITEM REPLENISHMENT PROMOTING. Objectives. Introduce stock organization and management Present the science of buying Identify promotion management. Retail Strategy. Product Quality.

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STOCK MANAGEMENT

W. Frank Dell II, CMC

September, 2003


AGENDA

INTRODUCTION

DEPARTMENT / CATEGORY / ITEM

REPLENISHMENT

PROMOTING

DELLMART & COMPANY


Objectives

  • Introduce stock organization and management

  • Present the science of buying

  • Identify promotion management

DELLMART & COMPANY


Retail Strategy

DELLMART & COMPANY


Product Quality

DELLMART & COMPANY


Target Market

  • Socio-demographics

    • Age

    • Sex

    • Education

    • Income

  • Household

    • Single

    • Married

    • Multi-generations

DELLMART & COMPANY


Supermarket Evolution

DELLMART & COMPANY


AGENDA

INTRODUCTION

DEPARTMENT / CATEGORY / ITEM

REPLENISHMENT

PROMOTING

DELLMART & COMPANY


Department Drivers

DELLMART & COMPANY


PERISHABLE

Fresh

Meat

Produce

Fish

Bakery

Prepared Food

Package

Diary

Frozen

NON-PERISHABLE

Edible

Non-Edible

Health & Beauty Care

General Merchandise

Typical Departments

DELLMART & COMPANY


Department Size

DELLMART & COMPANY


MINIMUM

Perishable

Non-Perishable

OR

Random Weight

Packaged

MAXIMUM

Meat

Produce

Fish

Bakery

Prepared Food

Dairy

Frozen

Dry Grocery (ambient)

HBC

GM

Number of Departments

DELLMART & COMPANY


Department Percents

DELLMART & COMPANY


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.

DELLMART & COMPANY


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.

DELLMART & COMPANY


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

Category Strategy

DELLMART & COMPANY


Category Drivers

DELLMART & COMPANY


Category & Sub-Category

  • Grouping of like products and/or sub-categories

DELLMART & COMPANY


Perishable Percents

DELLMART & COMPANY


Non-Edible Percents

DELLMART & COMPANY


Categories

Minimum 1

Maximum 85

Example

Juices

Sub-Categories

Minimum 0

Maximum 9

Example

Fruit & Nectars

Powdered

Tomato

Number of Categories

DELLMART & COMPANY


Sub-Segment

Segment

Sub-Segment

Sub-Category

Sub-Segment

Segment

Sub-Segment

Category

Sub-Segment

Segment

Sub-Segment

Sub-Category

Sub-Segment

Segment

Sub-Segment

Source: ECR Category Management

Segment & Sub-Segment

DELLMART & COMPANY


Item Drivers

DELLMART & COMPANY


Item Planning

  • Support category role and strategy

  • Provide an eye appealing presentation

  • Minimum of 2 facings

  • Recommend full case stocking

    • Minimizes labor

    • Reduces damage

DELLMART & COMPANY


Retail Price & Space Interrelated

DELLMART & COMPANY


Shelf Holding Capacity

  • Average non-promotion movement

  • Replenishment cycle

    • Order to shelf time

DELLMART & COMPANY


Space Allocation

  • Software

    • Apollo

    • Spaceman

  • Process

    • Assign minimum

    • Add for full case stocking

    • Adjust for replenishment cycle

    • Add for profit

    • Adjust for presentation

DELLMART & COMPANY


Assortment

  • Components

    • Brands

    • Flavor, style and color

    • Size

  • Research

    • Excess difficulty to find item and shop

    • Shortage limits sales and customer satisfaction

DELLMART & COMPANY


Measurement

  • Per linear meter

  • Per floor square meter

  • Per display square meter

DELLMART & COMPANY


Per Display Square Foot

DELLMART & COMPANY


Units Per DSF

DELLMART & COMPANY


New Items

  • Match target market

  • Should replace existing item

  • Complete or fill in offering

  • Increase category sales and profits

    • Item cannibalization not productive

DELLMART & COMPANY


Formats

Hypermarket

Supermarket

Limited assortment

Hard discount

Warehouse

Club

Convenience

Organic

Issues

How to manage?

Who controls?

Managing Multiple Formats

DELLMART & COMPANY


Multiple Format – Plan A

All Format Buyer

  • Advantages

    • Buying power

    • Lowest cost

  • Disadvantage

    • Lose focus

    • Conflicting decisions

DELLMART & COMPANY


Multiple Format – Plan B

Format Merchant

  • Advantages

    • Buying power

    • Dedicated focus

  • Disadvantages

    • Conflicting decisions

DELLMART & COMPANY


Multiple Format – Plan C

Format Buyer

  • Advantage

    • Greatest focus

  • Disadvantage

    • Fragmented buying

    • Added cost

    • Increase items

    • Increase transactions

DELLMART & COMPANY


AGENDA

INTRODUCTION

DEPARTMENT / CATEGORY / ITEM

REPLENISHMENT

PROMOTING

DELLMART & COMPANY


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

DELLMART & COMPANY


Traditional

Weekly data

Fixed review

Vary quantity

Recommended

Daily data

Daily review

Fixed quantity

Time Vs Quantity

DELLMART & COMPANY


Fixed Time

DELLMART & COMPANY


Variable Time

DELLMART & COMPANY


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

DELLMART & COMPANY


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

DELLMART & COMPANY


In-Stock Probability

DELLMART & COMPANY


Safety Stock

CPW * (RI +VLT)

* (( 1+MMAD / 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

DELLMART & COMPANY


Item Order Point

(( Rev Int + VLT) * CPW) + Safety Stock

  • Trigger point for ordering an item

DELLMART & COMPANY


Replenishment Model

DELLMART & COMPANY


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

DELLMART & COMPANY


AGENDA

INTRODUCTION

DEPARTMENT / CATEGORY / ITEM

REPLENISHMENT

PROMOTING

DELLMART & COMPANY


Why Promote ?

  • Create merchandising excitement

  • Attract customers

  • Present savings

  • Show value

  • Reward loyal customers

  • Increase sales

DELLMART & COMPANY


Promotional Components

DELLMART & COMPANY


Promotions are Difficult

DELLMART & COMPANY


Breakeven on 11% Deal

DELLMART & COMPANY


Promotional Effect

DELLMART & COMPANY


Controllable

Category

Season

City Vs Suburban

Price

Support

Advertising

Display

Frequency

Un-Controllable

Weather

Competition

Promotion Forecasting

DELLMART & COMPANY


Promotional Index

DELLMART & COMPANY


Promotion % Dollar Sales

DELLMART & COMPANY


Cannibalization

  • Rare across categories

  • Occasional across sub-categories

  • Common in sub-category

    • Item uniqueness

  • Current Vs future consumption

DELLMART & COMPANY


Promotion New Rules

DELLMART & COMPANY


Share & Volatility

DELLMART & COMPANY


Promotion Planning

  • DO NOT

    • Promote slow selling items or categories

    • Over promote

  • DO

    • Track competition promotions

    • Feature your strength

    • Create consumer excitement

DELLMART & COMPANY


Summary

  • Strategy determines items

  • Customer determine categories

  • Display space is a scarce resource

  • Vary time not quantity

  • Develop promotional indexes

DELLMART & COMPANY


Thank You

DELLMART & COMPANY


W. Frank Dell II, CMC

President

DELLMART & Company

125 Hardesty Road

Stamford, CT 06903 USA

Tel: 203-968-8609

Fax: 203-968-8613

e-mail: Wfdell2@msn.com

DELLMART & COMPANY


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