You are what your numbers say you are part II !!!!!!
The exercise that lead me to develop the Key indicator Spreadsheet was as a result of client calling me to discuss a problem. A little background, the client has four stores and at the time was experiencing year over year growth of over 10%. His problem was that he started to have cash flow problems which had never had. Without boring you with all the bloody details his problem was basically caused by overbuying. He had gotten away from monitoring his inventory valuation reports and looking at stock turn by store. I’ll discuss the stock turn issue in a future post but in this post I want to discuss the spread sheet we developed. We looked a bunch of numbers with the specific goal of homing in on some numbers that would produce some immediate results.
The spreadsheet we developed has six key numbers, Monthly sales, Number of transactions, Average sale, Items per sales and Payroll as a % of sales. Each heading was posted by store with a year/year comparison to the same month last year.Two numbers jumped out immediately, the average sale per store and the items of items on each sale. Store #3 had an average sale of $30.62 while store #4 had an average sale of $22.28. The number items per sales also reflected an average of 3.2 items per sale versus 2.5. Besides any demographic difference between the locations there had to be other reasons for the difference. We had a meeting with the store managers to discuss the numbers wich resulted in a lot of back and forth with no real answer. We then decided to switch the managers for 60 days to see how that would affect the numbers. Well the number changed dramatically, store #3 held their numbers while the average sale at store #4 went from $22.38 to $24.86. It may seem like a lot but based 9,000 sales per month the increase was $22,320 (9000x$2.48), with no increased costs. We had a number of takeaways from this exercise: First in a multi-store operation affords a great opportunity to compare like store results. Secondly once we identified the problem and involved the managers the numbers became how they measured their success. thirdly we developed a bonus system built around these numbers including Payroll as a % sales and inventory valuation. They monthly became spirited with the give and take and exchange of ideas.
The biggest takeaway is that sometimes a problem open the door which can result in significant improvements. The problems were happening but until it rose to level of causing the cash flow issue they went undetected. You can visit my website: www.rcalio.com and get a copy of the spreadsheet in the Download section on the home page.
The next will deal with inventory stock and the effect of having an efficient inventory.