How do you make a profit during inventory?

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Is it more profitable to stop stocking the shelves a month before an inventory like Home Depot does so that you have less to count so that you dont have to pay as much in wages for the inventory personnel or to keep stocking the shelves so that you make-up the time/money you lose doing the inventory by selling as much as possible?
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Molly Brown wrote:

It's undoubtedly been worked out to a science...what is in inventory is what is basis for tax as well so there's incentive there as well.
--
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Not much.
You either have the $cash or the inventory it buys (or you have the inventory and the extra loan balance). Either way, it's a wash.
But there are accounting rules for inventory which determine how is it valued. These rules (e.g.: Last In, First Out; or Last In, Last Out) can make a significant difference on the unit cost of items in inventory. When wholesale costs change materially, the makers often change the UPC which has the effect of eliminating the effect of which rule was used.

Most of the time in inventory is just identifying the item. It doesn't take all that much more time to count, say, 20 items as, say, 5.
There is a great tax inventive to UNDERCOUNT inventory. The effect is to postpone profits until the next tax year. That's way companies tend to farm out the process: they can show the tax people they made a good faith effort to get an accurate count.

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On Tue, 20 Apr 2010 13:48:26 -0400, "John Gilmer"

Are you saying that thee contractors tend to undercount?
Because they don't take the trouble to find everything?
Or the company knows they will undercount? Because that's an unspoken, or unwritten, part of the deal?
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Not all stores use the manufacturers UPC barcode... Most do, but some will add their own UPC barcode stickers over the one the manufacturer has preprinted on the packaging...
~~ Evan
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LOL...
Home Depot has a contract with REGIS to do most of its regular inventories... HD would pay the same amount for the crew to come in and do the inventory whether it took 5 hours or 8 hours...
Spot check inventories of specific products or departments are frequently ordered by District Management and Loss Prevention personnel and either trusted store management employees will do it internally or LP staffers from other stores will come in and do it if store management is suspected to be involved in the shrink...
HD does not "stop stocking its shelves" a month prior to inventory, the HD sales model is "just in time delivery" using a 1:1 item replenishment system, one item ordered for one item sold...
~~ Evan
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On Mon, 19 Apr 2010 18:02:07 -0700 (PDT), Evan

I think the biggest factor is how long it takes to do inventory per item. When it was manual, there was a much bigger incentive to reduce the number of items ot count. With bar codes and computers, of course it's faster

Don't you think REGIS got some agreement on how much there would be to inventory before they gave HD a flat price contract? 100% of normal stock, 90%, 80, whatever? Are you sure they have a flat-price contract, with no possible additional charges?

I woudln't think so. Molly, do you know something Evan doesn't?

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I wont say what I do for a living but my job has me spend almost as much time at Home Depot as my home. Based on my personal observations of more than a decade; I can say without hesitation that they DO stop stocking the shelves a month before inventory. In fact just before inventory I notice those sorry we are out stickers multiply. When ever that starts to happen at a branch I make it a point to go to another nearby branch. On two occasions two Home Depot employees admitted it when I loudly complained. Maybe they dont do it in your state where the minimum wage may be lower but here in California they DO do it. I cant say for other Home Depots in other states because Ive never been to one there.
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Molly Brown wrote:

Molly, you must have a titanic job. 8-)
TDD
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LOL... The physical location of the Home Depot store in one state or another has nothing to do with how HD conducts its business...
HD thinks globally and does its business on that scale allowing for the regional management offices to adapt the operations to the local rules (i.e. the type and design of the overhead racking system is one of the most variable aspects of their operation as each AHJ for each store might impose a different set of safety requirements on rack performance; adapting the companies staffing policies to local employment laws to maximize profit with the least number of employees possible...)
Minimum wage rates don't affect how a store like HD operates in fact in the same ten year period you site as your experience in California at ONE or two stores, I can state for a fact that in a dozen stores in Massachusetts which has the SAME minimum wage as California that your observations about that one store are not valid company wide... Now there is a possibility of different regional policies, but your observations are better explained by an incompetent store level manager working an understaffed and therefore not profitable store rather than being reflective of the successful HD global business model...
As far as the "sorry we are out" stickers... Did you happen to note which item category those were located in ? Did you happen to see if they were all common to one or two or a handful of product vendors ? HD often embargos orders from certain vendors for a given period of time until a large enough order to get a better price for the products can be made rather than ordering one box of something for that one store... That process has nothing to do with inventory at all and the fact that you have observed that phenomenon around the same time as an inventory was little more than coincidence...
~~ Evan
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Molly Brown wrote:

Do you have your own supply chain or do your vendors deliver?
Does you company have a warehouse and buyers or does the store buy and warehouse the stock?
Does your company buy in bulk to get the best price and does the stock have to be kept in the store?
The more stock you carry over what is needed to stay in stock beyond the next order is loosed working capital and increases your labor costs in extra handling (if it is in the back and has to be restocked).
Our company pays a flat fee for inventories. The company guarantees in writing the store will be completed by a specific time, but can finish as quickly as they wish. The know how many man hours it should take and how fast each of their counters are.
I personally attend 40+ inventories a year to ensure they are as accurate as possible both by the store personnel and the inventory crew.
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Molly Brown wrote:

More complex than that. There is the tax considerations. Talk to your accountant.
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Inventory and shrinkage (theft) monitoring are considered routine costs of doing business.
It would be more profitable to always have fully-stocked shelves so consumers can buy things. Any retailer will tell you that the absolute worst thing you can have happen at retail is to have empty shelves.
Lack of stock means lack of sales. And those potential lost sales (plus lost consumer confidence) would cost far more than the wages paid to inventory that same product.
Stores are rated by their sales per-square-foot of sales-floor space. Empty shelves severely cut into that number. In fact, you can tell the better-run stores because they're more likely to always have full shelves.
For examples of two retailers who are probably the best in the business at keeping product on the shelf, see Staples and Costco.
By the way, shelves are stocked regularly as they empty, which can be up to several times a day for very high-volume product.
--
Tegger

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wrote:

Walmart does a pretty good job of tracking inventory too. If they are out of stock on something, they either had a run on them within the last day or two or that item was stolen. If you watch the CNBC special about Walmart you see they have real time tracking of items as they are being sold in each store. That is really not unusual these days but Walmart was one of the first to really do it well. Strangely most fast food places work that way too. Even as long ago as the early 90s, Burger King was even tracking how much ketchup they would be using per burger sold, in real time. I was in the rollout of that system with IBM.
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Tegger wrote:

Agreed - I have 30 years in Retail Grocery.

True, but there are limits, excess backstock can be very costly (product going out of date, damaged, too many high theft items displayed thus lost when boosted, and employee theft or grazing in the backroom).

Our stores are measured by sales per man hour. Shrink is compared against sales and lineal footage.

Temperature control, service, in stock position, rotation, inventory control, and anti-theft are all important.
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Ned Flanders wrote:

Aldi has a neat set up. A lot of the frozen and dairy stuff is in racks and shoved up to the doors from inside the walk in. Two people can run the whole store. No baggers, no bags, you bring your own or use one of the used boxes from the store, put a quarter in to get the shopping cart and you get your quarter back when you park it back in the rack. Limited selection but great prices. The store here is clean and fast check out. Cash or debit card only, no checks or credit cards. http://www.aldifoods.com/us/html/company/about_aldi_ENU_HTML.htm?WT.z_src=main The Walmart here, sorry sorry sorry, half the time the isles are blocked by the restocking crew and the prices are among the highest in town. But they are open 24 hours a day and that I like. Inventory? Gotta count the chickens and eggs to know if any are missing and who isn't laying and if all the eggs are making it to the basket. If there is loss (and there will be) the earlier it's caught the better.
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You must shop weird hours...The re-stocking crew does not start wheeling out stock on pallets until after 9:30 PM..Sometimes their is a few left at 7 AM for the day crew but are gone in an hour or 2..Sometimes the outside venders are there in the AM as well..Mostly Coke , Pepsi , ect...But to say there are pallets in all the isles half the time is being a bit over the top unless one shops very late at night....Wal-Mart will match ANY local competitors advertised price...The price over ride button is on all the computer screens at the registers and they are used sometimes , though Wal-Mart does do a VERY good job at knowing their competition and prices..The Wal-Mart world wide distribution and stock monitoring system is so good and efficient that the Pentagon has copied it as has many others...HTH......
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Which in the context of a grocery store would indeed be a consideration, but that wrench at Home Depot won't expire anytime soon, so having some amount of overstock of that item from when it could be purchased at a lower price will actually make HD some profit in the longer term...

Staples is not really a valid comparison to the environment at Home Depot which is more of a working warehouse which sells to the public than a clearly retail store with some overstock capabilities on the sales floor... I have never shopped at a Costco as they are not a major presence in my area so I can not comment on whether or not they are more of a retail store or warehouse...
As far as shelf stocking at HD, that is determined by the department manager and is usually reserved for one of the full-time staffers in that department who become an "aisle captain" and restocking product and maintaining and organizing the overstock for that aisle is their sole responsibility... Those "aisle captains" don't work everyday so some days the aisle may be more stocked than others, HD's main sales focus is for the "home warrior" tackling projects on weekends and the low volume home repairer or builder and facilities maintenance workers who for some reason their company doesn't have an account open with the local supply houses for the various construction trades...
At a Home Depot 80% of what is in the store is inaccessible to the customers wandering about inside... The racks in the "aisles" are 4 or 5 shelves high and require an order picker or forklift to access the customers can only access the items at the sales floor level...
Most of what gets stolen out of HD are the small expensive items which are then returned by the thieves who stole it so they can get a quick buck or feed their drug habit... HD realized this was a widespread problem about 10 years ago and started locking the small products which were commonly stolen and similar items in each product category inside of cabinets which you must see an associate to be able to obtain the product from...
The first category which was recognized as a true shrink issue in HD was the expensive circuit breakers which could easily be hidden on a person and were worth more than a few bucks...
~~ Evan
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wrote:

Unless they took that wrench on consignment, they've spent money for it. They now have to sell that wrench in sufficient time to be able to "turn" the money back into more stock that would likewise sell in a timely manner. Many retailers don't make much of a margin, so they rely on volume and on using their cash flow to make other investments, which is where the real money is made.
If stock sits around too long unsold, the retailer would likely make better money simply putting its cash in the bank. So it's the old "happy medium" thing again: Retailers need to keep sufficient stock on hand (in store or at the DC) to keep consumers happy, but not so much that it's a drain on profits, or goes "bad" and won't sell unless at clearance (perishables, seasonal, etc.).
HD is like most large retailers, in that they usually make one giant purchase for the whole nation, then dole it out to the regions. In such cases, and with such volume, there aren't any "specials" in pricing unless a commodity happens to be particularly low when the buyer and vendor are discussing the deal.

I don't think anybody truly does "overstock", for the reasons given above. Unless you're defining "overstock" differently from me.
HD, Costco and Staples are similar in that most of their non-shoppable stock is out there in the store. It's just up overhead, either in racks or in covered shelves. Walmart does keep a lot of stuff in the back; it's usually a jumble back there.
Again, you do need that "happy medium" in stocking.
Costco is definitely a "warehouse". They even advertise themselves as such.

This is sort of similar to Costco. The Costco equivalent of the Aisle Captain is the "Merch Manager", each of whom is in charge of a category of product. Below them are the "stockers" who do the actual heavy lifting (often literally).

I always wondered about the "Contractors" who shopped at a consumer outlet like HD...
OTOH, there are a considerable number of small retailers and food- service places that do a big portion of their shopping at Costco. Costco prices can be better than the old cash-and-carries that used to predominate before Costco came along. And Costco's private-label quality is very good (better than Walmart), even leaving price out of it.

Yeah, that's common in the Big Box format. Except Walmart.

And consumers HATE that. Even Walmart has felt the sting of consumer backlash against lockups. I understand retailers are always looking for ways to avoid having to lock stuff up.

Cosmetics are a big one for Walmart. The security tag is often on the packaging. Rip that mascara off the blister card, and... But you can't lock up cosmetics...
--
Tegger


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We aren't talking about the sales display shelves here, the racks which take full size unbroken down cargo on pallets go up 3 or 4 levels above the floor level sales stocked product displays... That is like two plus stories tall... The only retailers I have seen which use a similar format are Sam's Club, BJ's, HD, Lowes, etc... Where a forklift to move whole pallets around multiple storage levels rather than ladders to move individual boxes on a single level of storage is used...
BTW: the most accidents in a Home Depot usually involve the lumber aisle (bands breaking on a bundle of lumber due to someone's previous mistake with the forklift loading it onto the rack), the aisle where the bathtubs and shower stalls are stored up on the rack (one small slip there can set off a cascade of noise followed by one or two of the items on the end of the aisle falling down off the end of the open rack used there), and in the garden center area where UV light and weather cycling can deteriorate the packaging and banding on a pallet and make it spill its load when it is being moved... This is why HD closes the aisles in and adjacent to where pallets are being loaded to/unloaded from the racks... Safety first...

Its either lock up all the products or make inspection of purchases and screening the customer prior to exiting the store more invasive that it is now... Remember the locking up the merchandise is only because of the 1% of the customers who are shoplifting and it is much less invasive than having someone check your purchases and wand/pat you down prior to leaving the store...

Wal*Mart can usually find out who is stealing what items from which departments by reviewing the recorded footage on the CCTV system which blankets just about all of the interior of the store...
In HD they use a "monitor the perimeter and cash register areas only" approach because it would require many more cameras than Wal*Mart uses in their CCTV systems to cover each and every aisle between the "mountains" made by the racking systems...

~~ Evan
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