The Supply Chain

English: An illustration of a company's supply chain Deutsch: Darstellung der Lieferkette eines Unternehmens (Photo credit: Wikipedia)

In today's retail environment, it is more critical than ever that your supply chain functions properly to insure that your stores have the proper mix of merchandise available both in the store and available for delivery to your customer.

However, even in the best of companies problems can occur in the supply chain whether there is one store or many. It is vital that the supply chain functions properly but problems do occur.

Here are some examples of supply chain failures that I have observed recently:

1. Over the last few years a major chain has created a new format of stores that are smaller than their tradition store. However, the people who were in charge of the program have moved on  leaving the small stores to be treated the same as large stores which means they are getting the same amount of merchandise as the large stores despite their lack of space both for merchandise and back stock. 
2. Stores in one company are once a week receiving a large amount of seasonal product after the season has ended but not a random selection of items but a large amount of one item. In some cases the stores receive a seven or eight year supply of product. 
3. In another store I scanned product to see how many weeks of a slow selling product a store has on stock and their inventory system calculated that there was a 4300 WEEK supply of the product on the shelf. No that is not a typo, the store was sent an 82 year supply of a product that will expire in less than a year. 
4. Stores that are over stock on merchandise for a certain season but have many empty shelves in their everyday aisles. 

While these are some extreme examples you could probably find these type of problems at almost any retail business. What is most distressing is the amount of money that this is costing stores and affecting their customer service. 

Here are some places to look when you evaluate the performance of your supply chain: 

• How are the sales matching the amount of product being ordered. Are the buyers ramping up on seasonal merchandise while ignoring the important basic items that your customers are going to be looking for? In addition are the buyers purchasing the right mix of merchandise on a consistent basis? Even the best buyers have hits and misses when it comes to purchasing merchandise but if there is too many misses and not enough hits then there is a problem. 
• Are you receiving the product from your suppliers in a timely matter and if problems do occur how well do your suppliers take care of the problem or do they pass the buck? 
• Is the warehouse whether run by the company or by a 3PL logistics company dumping product into stores that should not be receiving it in order to make their operation look better? How well does the product being shipped out match with sales history and with the up coming promotions that are being run? 
• If your operations has multiple styles of stores does your supply chain calculate properly the proper amount of type and amount of merchandise that should be shipped to each store depending on their sales and size? 
• Are the stores that receive to much merchandise or the wrong products for their format taking care of the product in a timely matter either by shipping it to a store that needs the product or finding room in their own store to merchandise it or is it sitting on some backroom shelf until it becomes a clearance item? 

These are just a few examples of things that should be looked at to solve supply chain issues. In today's connected marketplace customers are expecting more than ever to find the product they are looking for quickly and easily or they will go somewhere else so it is vitally important to insure your supply chain is function properly and the stores are being stocked with the right products. 

How well is your supply chain functioning? 

Can you Change your Niche?

Image via Wikipedia

You have your niche in the marketplace, but you decide that you want to head a different direction in order to capture a different part of the market. However, if a major corporation such as Wal-Mart and Nordstrom’s failed at changing their niche, is it possible for the small business owner to change their niche? Yes, it is possible but you have to do it very carefully.

First of all let’s take a look at what happened to Wal-Mart and Nordstrom’s.

As anyone who has been alive for the last 20 years knows, Wal-Mart’s niche has been the lowest common denominator, the lowest price shopper. Not the smartest shopper who wants value for the dollar but the customer who only looks at the price and not what is in the package.

The problem with having this niche is that there is not a lot of margin in this market. Realizing that they are quickly hitting market saturation in the United States, they knew that they would have to make more money off of their products in order to continue improving income.

Seeing the success that Target was having, they decided to move that direction. However, in the stores that they tried to upscale, they lost their core market and sales begin to flounder and the experiment was stopped. Wal-Mart is now moving more upscale but doing it much more slowly and not trying to alienate its existing market.

Nordstrom’s has always been known as the customer service retailer. You did not go into Nordstrom’s for low prices or the hippest fashions; you went in there if you wanted good service. Seeing that their core market was aging that they were not brining the younger market Nordstrom’s decided to change their focus by bring in the hip and trendy. Once again it failed as Nordstrom’s core market was alienated and sales went down not up.

The lesson to be learned is that you can change your niche but you cannot alienate your existing market. You can slowly bring in or start building new items, but you also want to keep your existing customers happy with the products they have been buying all along.

Take time if you want to move your niche and don’t alienate the people who have kept you in business.

Wages...

Image via Wikipedia

Right now it is not a good time to be an employee for many companies. Many companies out there are cutting wages and other benefits right now using the economic times as a way to cut costs on the backs of their employees.

Many companies have freezed wages, lower starting salaries, and cutting any benefits they can. One of the major retail chain went through and fired all their store employees then required them to reapply for them at lower wages and fewer to no benefits.

Compare that to what a grocery store I shop at has done. They went through and gave EVERY single employee in their store a $2.00 an hour wage to help them out during these tough economic times. Many people seeing that will probably think that this was some PR thing that they did. However, the company has not publicized it because they did it to help out their employees.

If you were an employee, which company would you want to be working for?

Your employees are the biggest assets your company has, yet so many companies just look at employees as a wage cost and don't see the value they bring to the business. Is it any wonder that there is so little employee loyalty?

I am not saying that all employees are perfect and you will have some bad employees, but if you treat your employees with respect and treat them like the assets they are, you will have a better group of employees.

If you want the best employees, you need to treat them like they are.

Learn lessons from the failures...

Image via Wikipedia

Previously I have discussed how important it is for you to know thy enemy and to keep appraised what they are doing right and wrong in order for you to be more competitive. However, it is also important for you to learn from those that fail since as the old saying goes "Those who do not learn from history are condemned to repeat it".

In the retail sector there has been many failures over the last year including such names as Steve & Berry's, Circuit City, Mervyn's and others.

Today I am going to give a couple of examples of things you can learn of what went wrong at Circuit City and how to use those as lessons in your own business. By studying your own competition including those who don't make it, you will learn valuable lessons to improve your business and insure the same thing doesn't happen to you.

Among the issues that Circuit City faces was the lack of a niche, customer service, and the layout of their newer format stores.

While I may start sounding like a broken record, it is critically important that you have your own niche away from the major competitors. In the case of Circuit City, it could not separate itself from its major competitor Best Buy. The only major difference between the two stores was that Circuit City eliminated appliances several years ago which seem to contribute to their problems, not help them. Otherwise, they seem to try to emulate Best Buy not set themselves apart from Best Buy.

Following up on their attempt to emulate Best Buy, Circuit City eliminated their commissioned sales staff a few years ago and put them all on hourly. At the time Circuit City said it got rid of the top of sales ladder because they would have wanted too much money and in my experience it was clear that they kept the mediocre people and that led to poor customer service.

Let me give you one of my personal examples. I wanted to buy and item and the only store to have it in my state was Circuit City (otherwise I would have gone to a local competitor). I walked into the store and immediately found it in a looked up case. There was two employees standing just a few feet away but neither one of them would come over to help me. Finally I went over to the customer service counter to ask for a manager in order to get some help.

Instead of coming up to the counter and helping the customer personally which should have been done, the manager calls on the phone, tells the customer service person to find someone to help me because he had better things to do. Finally someone did respond to the calls by the customer service counter and I got the item I needed.

Clearly Circuit City failed from management down to take care of the customer. While in many cases this could have been an isolated incident, I heard many similar stories from other people which showed that Circuit City was failing in this area.

Finally, Circuit City also had problems when it came to their new format stores. The last new Circuit City store to open near me was in their newest format and I took a drive over to check it out one day. While the store was nice and new, the whole layout of the store was confusing. There was one department that was spread over three different areas of the store. How confusing would this be to the average customer? Stores need to be logically set up so that people can come in to them and find what they need easily.

That is just three examples of what where major problems at Circuit City. These are valuable lessons to learn so that you do not suffer the same problems as they did.

Learn from your successful competitors and learn from the failures so that you do not make the same mistakes they did.

Capital Budget Needs...

In a previous entry I talked about the importance of having an emergency fund consisting of six months of expenses. This is not to be touch except in an extreme emergency. Today I am going to talk to you about another savings account you should have but this one you will tap into on a regular basis and that is your capital equipment fund.

Depending on the type of business you have you will either have a great need for capital or a small need but you still need to have a fund set up to save the money for these important purchases.

One regular reoccurring capital expense is computers. Computers either have to be replaced or heavily upgraded every three to five years. Every month you should be setting aside money for future computer needs. This not only includes the computer itself but also printers, copiers, scanners, etc. and anything else your business may use.

Here are the steps to take in order to start saving for your capital needs. First thing to do is figure out when you’re going to need a new piece of equipment. Then you set a budget for how much you’re going to spend. If it’s something that you buy on a regular basis you have a good basic idea on cost. If not, do some research and add a little padding incase of price increases or changes in needs.

The rest is pretty simple. Just divide the amount you need by the number of time periods before the purchase and you have the amount you need to save each time period. If you need a $1000 in 10 months and you will put away money every month then you need to put away $100.00 each month.

By using this system you will be ready for those major purchases and they will not take you by surprise. By budgeting for your big purchases and having your emergency fund, you will be ready when something major happens. After all like Dave Ramsey says, it’s when your not financial prepared that Murphy will come calling.

Starting A Small Business Series Part II

In the first part of the series we talked about getting ideas for you to start your own business. Now that you have a general idea of what direction you want to do, now we will see how marketable the idea is and where you should go with it. We are keeping this very basic for those going from a blank sheet.

Here is a series of questions to ask to start developing your business plan and to insure that your idea is something to run with.

1. Who would buy your product or service?
2. How big is the market for your product or service?
3. Who is your competition?
4. How will you set yourself apart from your competition?
5. What is your niche?

Once you answer these basic questions you will have a better idea of were to go with idea for a product of service.

Be sure that you are very detailed when answering your questions. We will go through each of these questions in the coming weeks.