Hardware Retailing

SEP 2017

Hardware Retailing magazine is the pre-eminent how-to management magazine for small business owners and managers in the home improvement retailing industry.

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HARDWARE RETAILING | September 2017 48 The Solution It was time to rid the store of its ghost inventory. In addition to the challenges with merging POS records, the company also lacked a standard for purchasing and receiving, which also contributed to the inventory issues, says Hazelbaker. Rather than start by conducting a full inventory of the store, Hazelbaker decided to look first for those problems he could resolve quickly. "We started by running reports from the POS system for any items with excessive costs," he says. "We looked for anything that seemed out of the ordinary. If you see $2,000 worth of wire nuts on the report, for example, you know something is wrong. We were looking for that low-hanging fruit that would be easy to spot and take care of." He also generated reports that showed all items without a location code in the store, items not sold in the past year and items not counted in over a year. Those particular reports were useful, as Hazelbaker says he found they offered the fastest way to indicate something was off. If, for example, an item hadn't sold in a year, he should check to see if it was actually on the shelf. After identifying suspicious items in the report, Hazelbaker or another store manager walked the salesfloor to physically confirm whether those items were indeed in stock. The results came quickly. Within a few weeks, Hazelbaker had identified $72,000 in ghost inventory. Considering the estimated 34 percent tax on inventory, that was the equivalent of a $20,000 savings, just by keeping more accurate inventory records. By correcting his inventory, he raised his gross margin return on inventory (GMROI) from 132 percent to 148 percent. Pointers for Success Do a Physical Inventory A few months after rooting out his $72,000 in ghost items, Hazelbaker completed a full store inventory. "It had been a long time since our last physical inventory," he says. "Just doing that corrected a lot of issues, too." He also continues to review store reports on a weekly basis to make sure there are no lingering issues and that the new procedures for tracking inventory are working. Doing a full store inventory is like hitting the reset button, he says, especially if you suspect there are issues with your records. "Many people these days do mostly cycle counts, but that is something you should do more for maintenance. But if you haven't done one in a while, you might want to start with a front-to-back inventory of your store." 1 Have a System for Ordering In a smaller operation, there may be one person who does all of the ordering, but some retailers may have several managers doing that task. Communication is essential. "There has to be some oversight. If you have several people ordering, and no communication between them, it can get out of hand really fast," says Hazelbaker. Avoid mistakes by establishing a standardized system for entering orders into the POS system. "Always get a confirmation slip from your vendor on what you receive. They are critical for maintaining your books," he says. They also allow you to verify the accuracy of other fees such as freight charges. 2 Train Cashiers Cashiers also can contribute to inventory discrepancies if they are not trained properly. The biggest issues usually arise with incorrectly scanning an item. Case quantities are frequent culprits. "Make sure cashiers are not charging for a single item when they're actually selling a case," Hazelbaker says. In addition, if an item code has been incorrectly entered into the POS system, an alert cashier should be able to recognize that the product they just rang up doesn't match what's on the screen. Train cashiers to be attentive to what they are scanning and to have a working knowledge of the products in the store. These skills will help them quickly recognize when something is incorrect. 3

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