Stocking Feat

Across a 75-mile stretch that unites the borders of Ohio, Kentucky and West Virginia, transaction activity at 26 Clark's Pump-N-Shop stores travels swiftly to the company's Ashland, Ky., headquarters without the irritation of rush-hour bottlenecks.

That's where Brent Clark, president of the family business, tracks the day's business: A check on a cigarette promotion. A glance at candy sales. An examination of coffee transactions.

It's all there on Clark's computer screen. An increasingly common component of smaller business operations is the technological wizardry that large petroleum chains and other retail channels utilize to great advantage. C-store chains of all sizes are rolling out automated inventory-management programs, including scanning and computer-assisted ordering. The result is a new sense of empowerment over inventory, a degree of control that in the past was beyond the grasp of many retailers.

In the beginning, scanning, a central pricebook and a family of software programs were used in supermarkets in order to speed up the checkout lines. It succeeded.

But these programs offered more ? a new method of management, a new tool for taming out-of-stocks and a new way of interacting with vendors and wholesalers. With digitized data and the Internet playing a critical role in communication, inventory software now offers the potential to bring the retailer and vendor together and for home offices and wholesalers to obtain real-time inventory.

"We wanted to scan to help our margins and better control inventory," said Clark, whose chain two years ago inistalled a software package from CMI Solutions of Charlotte, N.C.

Three hundred and eighty miles to the east, along I-64 in Virginia, East Coast Oil Corp. is pretty pleased with the results generated from Radiant Systems' point-of-sale (POS) software and suggested order module. The program, used for the chain's tobacco category, incorporates sales history and scanned data, then recommends how many of what items should be ordered and when. "It's incredibly useful," said Barbara Moffitt, merchandising vice president for the 46-unit chain based in Richmond.

"It has identified for us slow-moving items. We found that we were overstocked," she said. "We might, for example, find that we only had one carton of a particular cigarette brand and then order two more cartons. But if we were only selling one pack a day, we just added something we didn't need for another 16 days.

"The real opportunity," Moffitt continued, "is to use it as a category- management tool. You may find a loyal Viceroy customer on an east- side store, whereas there may be no need to carry it at the west-side store. So it allows us to tailor our SKUs for the customer demand for each site."

Stronger category-management programs are one outcome of automated inventory management, but the technology also allows management by item, not category ? a profound change in the way c-stores are operated.

"The new millennium is about item-level inventory," said Bill Kilpatrick, owner of item-level specialists The Software Works! (TSW) based in Glendale, Calif. "The industry has operated under retail level, which means taking a whole group of products and managing it as a category."

While tracking by category may be acceptable for corporate offices, he said, the store should be accountable for knowing the performance of each SKU. "Tracking by retail doesn't tell me how well an individual item is performing and whether it's something I should be carrying in my store."

Lisa Stewart, president of the consulting firm Impact 21 Group in Lexington, Ky., agreed. "You need to look at each category as an individual business, with the items as components of those businesses."

The level of precision at which retailers can manage inventory not only enables them to track items based on actual sales rather than purchase orders, it also may reveal the sobering truth that they paid more for the inventory than they thought.

Stewart described such a scenario. A medium-size c-store operator used software that hunts for differences between the negotiated price and the vendor invoice. The operator spotted a $30,000 discrepancy in just one month from a supplier.

A shady supplier, perhaps? "You don't assume this is an intentional error," Stewart said. "But to be honest, nobody is looking or the vendor may be a little lax."

As for the retailer making a huge investment that can run in the hundreds of thousands of dollars, if not in the millions, the illustration points to one of the major benefits of automated inventory control. "What's the return on investment?" Stewart asked. "It's not always easy to put a dollar amount. The answer is making sure you're getting what you negotiated for. You wouldn't believe how surprised many retailers are when they discover that their invoices often do not reflect the negotiated price with the vendor."

For $10,000 to $15,000 per store, retailers can learn the anatomy of their operations. The information is there, but getting it is often the challenge. So is knowing when enough is enough.

"Before purchasing the CMI program, I read all the stuff I could about scanning," Clark said. "It takes about 24 months to see the effects. There's just tons of information you're trying to process. We don't have the personnel to process the information."

Asked how many people manage Pump-N-Shops' information systems, Clark responded, "You're talking to him. That's why it takes two to three years. We can't afford to have full-time people doing the MIS."

The Way to Save

Forty-two percent of today's c-stores employ POS scanning, a figure driven by the industry's giants, according the 1999 Convenience Store News industry report. Nearly 46 percent of chains with 500-plus stores scan. Meanwhile, less than 23 percent of retailers with 11 to 50 stores are equipped with scanning.

The difference between the manual systems employed at most small operators versus the automated systems tapped by larger businesses is huge, vendors and some retailers say. "If you have 50 stores and each store is responsible for manually checking inventory ? as you see in most convenience stores today ? you're talking about a process that is very time-consuming," said Chris Dawes, executive vice president at Kanbay Inc., a software company based in Rosemont, Ill.

"There's not only a quantitative savings, but a qualitative savings too," he said. "You're enabling that which is sold automatically to be replenished through automated order. Ultimately, you're providing the consumer with a permanently full shelf."

Rory Wall Jr. of CMI Solutions specializes in automating small c-store chains. His 320 clients generally operate one to 50 units. While many have begun to automate, most cannot afford information systems officers or amply staffed home offices to interpret data.

"Here you are, an owner with thousands of items to stock. You don't have scanning and every week you get about a half-dozen price changes from your vendors," Wall said. "There's simply no way all of your registers in all your stores can have all the correct prices every day.

"As a result, you're losing margin. The same holds true with signage and promotions. So each night you, as owner, go to sleep worrying if you're making money on that category. It's a very big problem for retailers to deal with the fluctuation of items they buy.

"When we come in, we meet the owners. We see the same frazzled look every time. They see us because they feel they're losing so much and they hope the technology that they're afraid of will help their businesses and help them sleep better at night," he said.

The key, said industry experts, is to establish a series of objectives. Retailers generally want to know movement data, profit margins, sales information by category and subcategory, the category's percentage of inside sales and benchmarking ? how stores rank against one another and their competitors.

Once goals are in place, retailers should develop internal procedures to incorporate automation into their operation. Stewart cautions that introducing a POS system or pricebook involves more than simply new hardware and software. "The cost of changing the way you do business is far more underestimated than what the industry talks about," she said.

Stewart suggests forming a team that blends a cross-section of departments, from accounts payable to marketing to operations. "People often are under the mistaken impression that it affects only the store level. Truth is, it affects everybody. People need to understand their roles are going to change." For instance, reconciling the difference between the original supplier invoice and actual cost of goods may involve store operators, marketing and accounting divisions. Communication among personnel is critical to ensure the smooth flow of information.

There's more. Don't expect to transform a business overnight from a 20th-century dinosaur to a cutting-edge 21st-century leader. Establishing an accurate pricebook takes months and involves auditing the standard retail price of your products, establishing categories and the vendors behind each item or category.

"There's a lot of information that has to be entered into the pricebook," Wall said. "Many operators are disillusioned at first because the POS guy tells them how easy it is to scan. That's crazy. There's a lot that has to be done before you can just go 'blip' on an item and it's in the system."

Once the pricebook is set up, you have to maintain it to ensure all transactions are accounted for and inventory is scanned into the system. "What you have now is a heck of a lot more confidence in the inventory," Wall said. "The nightmare scenario of before, under the manual system, is gone."

Data Mining

Now empowered with the tools to mine for information, retailers face a new dilemma: information overload. Extracting what they want can take multiple steps and consume more time than it is worth, while resulting in information they simply don't need or want.

"Each store should be able to tell me where I am now, where I stand within my chain and where I stand within the industry," said Paul Pontrello, director of the convenience store co-development consulting group for TSG Global Education Web Inc. of Guilford, Conn.

Toward that end, the company recently rolled out C-Store Analyzer software, which issues regular reports highlighting poorly performing categories and offering solutions to bolster sluggish key performance areas.

"Most reports tell you your P&Ls [profits and losses]. So what. That doesn't help me," said Pontrello. "This helps you with a plan of action. It red-flags problem areas and offers online solutions and action plans to correct it."

Andrea Jackson thinks these solutions are great. But not everyone has the resources ? financial or human ? to move ahead with scanning and inventory software.

At Jacksons Food Stores, inventory is done the old-fashioned way ? by hand. Ordering is done by Telxon, the hand-held device that transmits orders via phone. "It's pretty cumbersome," said Jackson, COO and vice president of the 70-store family business in Meridian, Idaho. "I'm starting to realize that when you have 30 stores, you know them. But when you grow and are spreading out, it's hard to know the stores."

Suddenly, capturing trends chainwide is more challenging ? and often self-defeating. "We just did it with cigarettes and it was pretty labor-intensive," she said. "If we had scanning it would have been at our fingertips."