Retail,Metrics,Key,Performance business, insurance Retail Metrics: Key Performance Indicators (KPI’s) – Days o

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Normal 0 false false false st1\:*{behavior:url(#ieooui) } /* Style Definitions */ table.MsoNormalTable{mso-style-name:"Table Normal";mso-tstyle-rowband-size:0;mso-tstyle-colband-size:0;mso-style-noshow:yes;mso-style-parent:"";mso-padding-alt:0in 5.4pt 0in 5.4pt;mso-para-margin:0in;mso-para-margin-bottom:.0001pt;mso-pagination:widow-orphan;font-size:10.0pt;font-family:"Times New Roman";mso-ansi-language:#0400;mso-fareast-language:#0400;mso-bidi-language:#0400;}Previously, I’ve talkedabout Retail Metrics and the importance of Key Performance Indicators (KPI’s)in running your business.  What does thatreally mean anyway?  Some of you new tothe retail business might not have a clue as to what constitutes a “KeyPerformance Indicator”.  Some of us oldtimers who’ve been around the block a few times, might not know what they areeither or may just need to brush up on retailer lingo.  Either way, I want to really delve into whatthings you can look at to help navigate your aircraft, so to speak, like anairplane pilot would.   Flying a plane is a goodparallel to managing a store.  How does apilot know what to do when?  What tellshim when it’s time to raise the plane to a higher altitude?  What gauges tell him to lower her down abit?  How do they know when it’s okay toadd on more cargo?  What tells the pilotto toss some cargo overboard?  When dothey know to just keep flying along and not change a thing? A retailer makes decisionsall the time to best navigate the constant change of consumer buyinghabits.  Doing this actually consists of fivecritical decisions on any given item in stock in order to keep costs down andprofits high.  These are: ·       Mark the item up?·       Mark it down?·       Buy more of it?·       Buy less?·       Don’t changeanything about it? Well, the answer to thesemillion dollar questions lies in the treasure trove of information provided byyour store’s KPI’s. Just like a pilot, a retailer must know his KPI’s and howto address them, as well or better than a pilot needs to know how to read andinterpret the gauges that indicate what should be done next.  As a retailer, your KPI’s will tell you whatto do next; it’s just a matter of being able to read what those indicators aretrying to tell you and put that information into practical use in the store. Let’s take a look at whatI consider to be the five most important retail KPI’s that you can get fromyour point of sale (POS) software program. We’re talking about Days of Supply, Turn, Stock to Sales Ratio, SellThrough Percentage and Gross Margin Return on Investment.  The last one is the most important indicator. We all want to know how much money a particular item will bring back inrevenue.  But, the Gross Margin Return onInvestment is also the most tricky one to manage and know how to use inmanaging inventory. In this article we aregoing to start with Days of Supply… What does that really mean anyway?  We hear this term thrown around all the time,but not all of us really know what this actually is or what it means.  Simply put, Days of Supply means how long it will take you to sell out of yourpresent stock, assuming that sales continue at the same rate as recent saleshave been.  This is weighed against atime frame, like 30, 60 or 90 days. Days of Supply is a great statistic to usefor predicting the future.  It’s kind oflike having a real crystal ball right on your desk.  The information contained in thisreport/statistic lays it all out in a clean and concise way of telling you howmuch longer it will take to sell a particular piece of merchandise based onwhat’s been happening sales-wise in your store. It’s like a sign post that points you in the exact direction you need togo in. Forexample, you have 1000 t-shirts and over the last 30 days you’ve sold 250 ofthem.  Based on how many have been soldover the last 30 days, it will take another 90 days to sell the remaining 750t-shirts.  So, for these 1000 pieces ofinventory, the Days of Supply equals 120 days. Inessence, Days of Supply analyzes the last period of sales and based upon thatrate, gives you the amount of days left to sell off the remaining merchandise.  But how far back do you go?  Let’s take non-seasonal merchandise whichsells at a relatively steady rate; for this you could use a longer basisperiod, such as 30 or 60 days.  Then forseasonal merchandise, the rate of sale changes rapidly, and you would want touse a shorter period, a week or even a day in some cases.  Interestingly enough, different parts of thecountry have different length seasons. For instance, New Yorkhas really short bathing suit season, about two months and that’s it.  Putting this informationinto practical use, you would then want to make sure Days of Supply on acertain item matches up with the lead time to restock it.  You don’t ever want to run into the problemof having Days of Supply be less than the time it will take to get the itemsin.  In that case, you would miss out onsales because the sell-out and restock time frames did not overlap.  Instead, you ran out of an item before theshipment came in to restock it.  This canhave bad effects on overall sales in the store, too, if the item you are out ofstock on is a hot seller at a critical time of year or you lose customerloyalty because you’re out of stock on something.  Your goal here is to reduce your Days ofSupply to match the lead times without losing sales, plain and simple. Andyour point of sale system is where you should be able to get this informationand statistical data to manage your inventory. Make sure your POS is giving you this information so you actually can bettermanage Days of Supply.  If your POS isn’tgiving you that information, you should think about investing in a system thatwill give you the information you need to better manage your inventory becausein retail, profit is all about inventory and the expert management of it.   Inmy next article I’m going to cover inventory and lots of little tidbits aboutit, what you can do with it when it’s not selling and how to increase profitsby better managing your inventory.