STOCK MANAGEMENT W. Frank Dell II, CMC September, 2003.

STOCK MANAGEMENTSTOCK MANAGEMENT

W. Frank Dell II, CMC

September, 2003

DELLMART & COMPANY 2

AGENDAAGENDA

INTRODUCTIONDEPARTMENT / CATEGORY / ITEM

REPLENISHMENT

PROMOTING


ObjectivesObjectivesIntroduce stock organization and

managementPresent the science of buyingIdentify promotion management


Retail StrategyRetail Strategy

LocationLocation SelectionSelection ServiceService

DisplayDisplay PricePrice DecorDecor


Product QualityProduct Quality

Best

Better

Good


Target MarketTarget MarketSocio-demographics

– Age– Sex– Education– Income

Household– Single– Married– Multi-generations


Supermarket EvolutionSupermarket EvolutionDEPARTMENTS 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% +


AGENDAAGENDA

INTRODUCTION

DEPARTMENT / CATEGORY / ITEMREPLENISHMENT

PROMOTING


Department DriversDepartment Drivers

TargetCustomer

Law

Format

StoreSize

Dept.


Typical DepartmentsTypical DepartmentsPERISHABLEFresh

– Meat– Produce– Fish– Bakery– Prepared Food

Package– Diary– Frozen

NON-PERISHABLEEdibleNon-EdibleHealth & Beauty

CareGeneral

Merchandise


Department SizeDepartment SizeA B C

Sales Sales Sales

- Cost - Cost

Gross Margin Gross Margin

+ Direct Revenue

- Inbound Costs

- Outbound Costs

= Net Profit


Number of DepartmentsNumber of DepartmentsMINIMUM Perishable Non-Perishable OR Random Weight Packaged

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


Department PercentsDepartment Percents

0%

10%

20%

30%

40%

50%

60%

Percent

PerishablesGroc. EdibleGroc. Non-EdibleHBCGM


Category RoleCategory RoleDestination - 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.


Category Role (Cont.)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.


Category StrategyCategory StrategyStrategiesTraffic 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 DriversCategory Drivers

TargetCustomer

Image

Space

Format

Category


Category & Sub-CategoryCategory & Sub-CategoryGrouping of like products and/or sub-

categories

Perishable

Meat

Beef

Chicken

Lamb


Perishable PercentsPerishable Percents

0%

5%

10%

15%

20%

25%

30%

Percent

Meat, Fish & Poultry

Produce

Dairy

Deli

Frozen

Baked Goods

Bakery


Non-Edible PercentsNon-Edible Percents

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Percent

Canning

Laundry Supplies

Soaps & Detergent

Other Cleaners

Paper, Plastic, Foil

Pesticides & RodentControl

Waxes and Polishes

Other HouseholdSupplies

Pet Foods


Number of CategoriesNumber of CategoriesCategories

– Minimum 1– Maximum 85

Example– Juices

Sub-Categories– Minimum 0– Maximum 9

Example– Fruit & Nectars– Powdered– Tomato


Segment & Sub-SegmentSegment & Sub-Segment

Source: ECR Category Management

Category

Sub-Category

Sub-Category

Segment

Segment

Segment

Segment

Sub-Segment

Sub-Segment

Sub-Segment

Sub-Segment

Sub-Segment

Sub-Segment

Sub-Segment

Sub-Segment


Item DriversItem Drivers

TargetCustomer

CategoryStrategy

Space

Presentation Item


Item PlanningItem PlanningSupport category role and strategyProvide an eye appealing presentationMinimum of 2 facingsRecommend full case stocking

– Minimizes labor– Reduces damage


Retail Price & Space Retail Price & Space InterrelatedInterrelated

0

1

2

3

4

5

6

7

8

2 3 4 5 6 7 8

Price

Space


Shelf Holding CapacityShelf Holding CapacityAverage non-promotion movementReplenishment cycle

– Order to shelf time

0

2

4

6

8

10

12

14

16

18

1 2 3 4 5 6

Max

Inv

Min


Space AllocationSpace AllocationSoftware

– Apollo– Spaceman

Process– Assign minimum– Add for full case stocking– Adjust for replenishment cycle– Add for profit– Adjust for presentation


AssortmentAssortmentComponents

– Brands– Flavor, style and color– Size

Research– Excess difficulty to find item and shop– Shortage limits sales and customer

satisfaction


MeasurementMeasurementPer linear meterPer floor square meterPer display square meter


Per Display Square FootPer Display Square Foot

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

Sales G.M. N.P

Baking Mixes

Bottle Juices

Coffee

Gravy/Sauces


Units Per DSFUnits Per DSF

0

2

4

6

8

10

12

14

Units

Baking Mixes

Bottle Juices

Coffee

Gravy/Sauces

Average


New ItemsNew ItemsMatch target marketShould replace existing itemComplete or fill in offeringIncrease category sales and profits

– Item cannibalization not productive


Managing Multiple Managing Multiple FormatsFormatsFormats

– Hypermarket– Supermarket– Limited assortment– Hard discount– Warehouse– Club– Convenience– Organic

Issues– How to manage?– Who controls?


Multiple Format – Plan AMultiple Format – Plan AAll Format BuyerAdvantages

– Buying power– Lowest cost

Disadvantage– Lose focus– Conflicting decisions

V.P.

Buyer Buyer


Multiple Format – Plan BMultiple Format – Plan BFormat MerchantAdvantages

– Buying power– Dedicated focus

Disadvantages– Conflicting decisions

V.P.

Buyer BuyerFormat

Merchant


Multiple Format – Plan CMultiple Format – Plan CFormat BuyerAdvantage

– Greatest focus

Disadvantage– Fragmented buying– Added cost– Increase items– Increase

transactions

V.P.

FormatBuyer

FormatBuyer


AGENDAAGENDA

INTRODUCTION

DEPARTMENT / CATEGORY / ITEM

REPLENISHMENTPROMOTING


Holding CostHolding Cost

Cube is the dominate supply chain cost driverDisplay space is a scarce resourceWide range of products

– Health & Beauty Care– Paper products

( Cube * Rate ) + (Cost * Rate)


Time Vs QuantityTime Vs QuantityTraditional

– Weekly data– Fixed review – Vary quantity

Recommended– Daily data– Daily review– Fixed quantity


Fixed TimeFixed TimeFixed Review

-

500

1,000

1,500

2,000

2,500

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64

Inventory

Average


Variable TimeVariable TimeVariable Review

-

500

1,000

1,500

2,000

2,500

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64

Inventory

Average


Supplier EconomicsSupplier Economics

Economic Order Interval - WeeksBalance

– Holding cost Vs order cost

2 * Order Cost ---------------------------------------------------------------------------(Wk Int. Rate * Wk Dollars) * (Wk Cube Rate * Wk Cube)


Cycle StockCycle Stock

Quantity = Weeks * Average Movement– Round to warehouse pallet quantity

Balance– Holding cost Vs handling cost

2 * Pallet Cost --------------------------------------------------------------------------------------- ((Wk Int. Rate * Wk Dollar) * (Wk Cube Rate * Wk Cube)) * Wk Cases


In-Stock ProbabilityIn-Stock Probability

0

0.5

1

1.5

2

2.5

3

3.5

4

-3 -2 -1 0 1 2 3

In

Out


Safety StockSafety Stock

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

CPW * (RI +VLT) * (( 1+MMAD / CPW) * (1 + LMAD / LT) ) ** SF

- (( RI + VLT) * CPW)


Item Order PointItem Order Point

Trigger point for ordering an item

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


Replenishment ModelReplenishment ModelTrigger

0

5

10

15

20

25

30

35

40

45

50

1 2 3 4 5 6 7 8 9

Inventory

Trigger

Safety


Forward BuyForward Buy

Quantity = Weeks * Average Movement– Excess inventory

Cut off– Management maximum– Next vendor promotion– Product dating– Round to pallets

Savings – ( Extra Handling ) Holding Cost


AGENDAAGENDA

INTRODUCTION

DEPARTMENT / CATEGORY / ITEM

REPLENISHMENT

PROMOTING


Why Promote ?Why Promote ?Create merchandising excitementAttract customersPresent savingsShow valueReward loyal customersIncrease sales


Promotional ComponentsPromotional Components

Advertising(ABC)

Advertising(ABC) PricePrice DiscountDiscount

DisplayDisplay POPPOP SeasonSeason


Promotions are DifficultPromotions are Difficult

SelectionSelection

CompetitionCompetition

HolidayHoliday

WeatherWeather

SeasonSeason

ThemeTheme

PricePrice

ProfitProfit

ExecutionExecution

StoresStores

AdvertisingAdvertising

BuyingBuying


Breakeven on 11% DealBreakeven on 11% Deal

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

10 15 20 25 30

Units

GM

Dol

lars Non-Promo

10%15%20%


Promotional EffectPromotional Effect

0

5

10

15

20

25

1 2 3 4 5 6 7

WAREHOUSE

Units

0

5

10

15

20

1 2 3 4 5 6 7

STORE

Units


Promotion ForecastingPromotion ForecastingControllable

– Category– Season– City Vs Suburban– Price– Support

• Advertising• Display

– Frequency

Un-Controllable– Weather– Competition


Promotional IndexPromotional Index

DESCRIPTION LOW MODERATE

Brand Share 90% 75%

Brand Index 1.1 .3

Private Label Index 3.0 .8

Total Index 1.3 .4


Promotion % Dollar SalesPromotion % 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%


CannibalizationCannibalizationRare across categoriesOccasional across sub-categoriesCommon in sub-category

– Item uniqueness

Current Vs future consumption


Promotion New RulesPromotion New Rules

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

1 2 3 4 5 6 7 8 9 1011121314151617

NP-Brand

Pro-Brand

Pro- P L


Share & VolatilityShare & Volatility

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

1 2 3 4 5 6 7 8 9 1011121314151617

NP-Brand

Pro-Brand

Pro- P L


Promotion PlanningPromotion PlanningDO NOT

– Promote slow selling items or categories– Over promote

DO– Track competition promotions– Feature your strength– Create consumer excitement


SummarySummaryStrategy determines itemsCustomer determine categoriesDisplay space is a scarce resourceVary time not quantityDevelop promotional indexes



W. Frank Dell II, CMCPresident

DELLMART & Company125 Hardesty Road

Stamford, CT 06903 USA

Tel: 203-968-8609Fax: 203-968-8613

e-mail: [email protected]

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STOCK MANAGEMENT W. Frank Dell II, CMC September, 2003.

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