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Daily Management of Store Operations

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This whitepaper presents the key elements that ought to be in place in order to increase sales and profitability through improved store performance. Effective daily management enables stores to tackle the issues appropriately and to take immediate actions to handle them.

Daily Management of Store Operations

  1. 1. Retail | Daily Management of Store Operations Key management elements to increase store performance In a retail business, In this white paper the moment of truth Introduction 3 occurs in the store. Common Challenges in Store Operations 3 This is a known fact, Key Elements for Successful Daily Management of a Store 4 and yet, retail stores Conclusion 6 often fail on the most Sample Results 6 basic things that make Authors 7 customers come to the store for their purchases. Insight | White Paper
  2. 2. This whitepaper presents the key elements that ought to be in place in order to increase sales and profitability through improved store performance. Effective daily management enables stores to tackle the issues appropriately and to take immediate actions to handle them. 2 Insight | Perspective
  3. 3. Introduction In a retail business, the moment of truth occurs in the store. This is a known fact, and yet, retail stores often fail on the most basic things that make customers come to the store for their purchases. In a chain operated retail company, the chain can provide the store manager with tools, standards and guidance in order to run their stores in a way that ensures customer satisfaction and increased sales. However, what makes a store successful depends on how you make best use of, and implement these tools and routines, together with the skills of the store manager. This whitepaper presents the key elements that ought to be in place in order to increase sales and profitability through improved store performance. Effective daily management enables stores to tackle the issues appropriately and to take immediate actions to handle them. Common Challenges in Store Operations Many companies are facing challenges on managing basic store operations in a “results- Image 1. Sources of shrink orientated” way. Based on our extensive experience in analyzing and improving in-store (Source: Checkpoint (2009); “Centre for Retail operations, we have identified the following as common challenges in store Research”) management; • Continuously keep the store looking good and attractive according to the chain’s standard format and guidelines • Display all products available with correct price and product information • Optimize inventory levels • Decrease shrink • Achieve efficiency in goods flow • Optimize workforce planning and execution As a consequence of neglecting these challenges, retail businesses may end up losing customers and revenues. To illustrate these challenges complexity and interdependencies, and the potential impact on store management, we will take an in-depth look at two of them; Shrink and Out-of-stock – what are their underlying causes and what are the consequences? Image 2. Sources of out-of-stock Shrink (Source: Gruen, Corsten, Bharadway (2002); “Retail Out-of-Stock”) Shrink is a constant issue in all retail companies and caused mainly by theft, suppliers actions and pricing and process failures (see image 1). Process failures include; mistakes in handling the product when stocking and shelving goods, or failures in ordering, forecasting and shelving processes. Some of the consequences of shrink are lost margin and out-of-stocks. Key management focus can help immediately reduce shrink by providing tools and processes to manage replenishment and goods flow processes in store and thus reducing process failures. Out-of-stock Incorrect stock levels confuse replenishment systems and help create out-of-stock. Other reasons include stocking and warehousing problems, management errors and problems in manufacturer availability (see image 2). Out-of-stock directly effect customer satisfaction and sales. When a product is not available on a shelf, many customers go to another store to purchase (see image 3). By effective management, most of the reasons for out-of-stock can be minimized. Insight | White Paper 3
  4. 4. Retail | Daily Management of Store Operations Image 3. Consequences of out-of-stock As described, problems in stores are the result of a number of factors. The key to this lies with the daily usage of tools and routines underpinned by active store management. To (Source: Gruen, Corsten, Bharadway (2002); Retail Out-of-Stock”) ensure management by facts rather than opinion, certain traits are required. An analytical mindset, combined with an action-focused management style can help improve store performance. Analyzing KPI’s and taking actions based on performance, using simple daily management tools systematically, communicating efficiently, clear roles and responsibilities and using the right kind of control tools are all proven methods to help improve performance when implemented and utilized in the right way. Key Elements for Successful Daily Management of a Store The successful daily management of a store requires a set of tools and elements that are used in a systematic way at all levels within a store. These tools should be simple enough for all employees to understand and use but sophisticated enough to bring structure and relevant information for decision-making. Based on our experience, the following tools and routines create an ideal combination for store management purposes: roles and responsibilities, daily management routines, KPIs and reporting structure, effective meetings and store visits from the chain (see image 4). These elements are presented in more detail in the following chapters. Roles and responsibilities Image 4. Framework for the store Everyone in a store needs to know what their roles and responsibilities are. In some daily management cases, these roles and responsibilities may not be clearly defined, documented nor communicated within the organization. Undefined or unclear roles and responsibilities mean that staff make their own decisions on what they should do. Equipping them with Daily clear roles and responsibilities, supported by adequate “rules” or guidelines, ensure that Roles and management responsibilities routines all are pulling in the desired direction. High Clearly defined roles and responsibilities are very important for stores, and to make sure Store visits Performing that everyone knows exactly what is expected from them. This means that the daily, KPIs & from chain Store reporting weekly, quarterly and annual tasks and responsibilities as well as KPIs and reporting structure responsibilities are clearly defined for everyone, and that there are no gaps or overlaps. Effective On a daily level, clear roles and responsibilities help individuals to focus on the right meetings things which have an impact on store performance. It is also a powerful motivational tool for the employees. Therefore, clearly defined and communicated roles and responsibilities can add significant value in the store. Daily management routines Effective daily management routines focus on getting the basics right and allowing employees to make immediate improvements in store performance. Daily management routines of a store and its processes should be executed in a systematic and disciplined manner at every organizational level. Daily level management routines are crucial because in retail everything happens quickly and stores need to be able to manage challenges immediately. Stores often have difficulties in reacting quickly to changing challenges if they lack a systematic way to ensure that all the daily issues are taken care of by their employees. The problem can originate from poor management skills and the lack of usage of tools to manage the daily store operations. Daily routines make life easier for both staff and store management. They provide a guide for daily work and management efforts. As a result, time is saved and employees at all levels can reduce stress and confusion. Daily routines, such as ordering, shelving, cleaning and merchandizing, all help ensure that the store’s appearance meets the standards, shelves are full of products and shopping is made easy and attractive for customers. Different tools, such as checklists and task lists, can be of great help for store and department managers to make sure daily routines are completed successfully. Focus 4 Insight | White Paper
  5. 5. should be on immediate corrective actions that have an impact on store performance and on following-up on these actions. It is also important to analyze how the executed actions have influenced the daily KPIs. KPIs and reporting structure A store should be managed by analyzing its performance through well defined Key Performance Indicators (KPIs). Every person in the organization should take responsibility for the store’s performance, and especially for the parts that they are able to influence through their daily work. For example, salesmen have a direct influence on daily KPIs such as their departments’ sales, sales per man hour and average purchase. Unfortunately, it is common for stores to not follow daily level KPIs, or at least not on every organization level. It could be that the employees do not know what the KPIs mean, how they are linked to their everyday work, or how they themselves can have an effect on store performance. Stores should have well defined KPIs that are linked to the store’s goals and broken down on a daily level. This enables everyone to easily see how well the store is performing against its goals. Understanding KPIs requires training at every organization level in store. By understanding and following the KPI trends and deviation of actual and target levels, everyone is able to take immediate corrective actions to improve the store’s performance. Without an efficient reporting structure with correct KPIs, a store may go in the wrong direction without even knowing it, eventually causing significant problems in the stores’ profitability. In retail, the time cycle is very short and therefore reporting and controlling on a daily level is essential for efficient store management as it allows them to quickly pick-up and manage issues before they may have a major impact on profitability. Effective meetings Store Managers need to manage their stores in an effective manner to optimize performance. Internal meetings should focus on the drivers of performance and customer experience to ensure performance is optimized. A clear focus on improvement actions, and usage of basic Action Logs will ensure systematic follow up of potential performance issues. Above all else this will support and drive the correct behaviors that will ensure continuous improvement. Effective meetings and meeting structure enable efficient communication flow within a store and within the whole organization. Standardized meetings ensure that the right topics are covered in the right forums and that the right people are part of the decision making process. Meetings should focus on actions that have an influence on store performance and these actions should be followed-up systematically. Critical operational information should be shared at the store floor level on a daily basis. Daily information, KPIs and needed actions within the departments should be shared in an efficient way so that it reaches all floor level employees in the store. Store visits from chain In a chain operated retail business, stores need to be followed-up systematically by the chain to make sure they are operating uniformly and that they have similar management and store standards. Efficient co-operation with category management and stores is also important to ensure that both category management and stores share common goals. Both of these interfaces with the chain are rarely systematic, visits are not frequent, and the visits are not standardized with a set agenda. Stores generally rely too much on the store managers’ ability to manage the store in the direction that the chain requires. A consistent approach from Regional/District Managers can help to drive consistent application of agreed store standards. Insight | White Paper 5
  6. 6. Image 5. Sales growth during a nine In a retail chain, it is essential that all the stores provide customers a similar shopping months OpEx programme experience; the store appearance meets the same standards, merchandizing follows the +16% same principles, assortment is mainly the same, pricing is aligned, etc. To make sure that all stores meet the same standards within the chain, frequent outside store visits are important. Regional or format managers’ store visits are more “controlling” ones that concentrate on a store’s business results and making sure the store meets the standards of the format. The other type of visit is for efficient communication and knowledge sharing between category management and stores. These visits are important to secure optimized assortment, pricing and campaigns with aligned objectives. Image 6. Improvement in sales per man Conclusion hour during a nine months OpEx Stores need a structured and systematic way to manage the daily business, which is programme. linked to the store’s overall management system. Stores are facing challenges every day +15% that need to be solved with immediate corrective actions in order to offer its customers a good shopping experience. Stores that are able to shift the management focus from a weekly and monthly level to a daily level have much better possibilities to improve their performance and further improve their position in markets. Daily follow up of KPIs, an action-focused approach that is based on store performance, efficient daily routines and tools, efficient communication flow, clear roles and responsibilities, and systematic follow-up from the chain build a structured way of managing the daily business. It is important to keep in mind that the above mentioned key elements of stores’ daily management, work closely together and should not be considered separately. Without Image 7. Decrease in stock levels during following KPIs on a daily level, you cannot be sure if the actions you have taken have a a four months OpEx programme. positive effect on store performance. Further, without an efficient communication flow, issues might not get solved before they cause problems in a store’s profitability. -15% Therefore all the elements are equally important and together they build a system, where all the elements are tightly linked with each other. Sample Results BearingPoint has helped a number of leading retail companies with large operational excellence (OpEx) programs to improve store performance with the key elements presented in this whitepaper. Results indicate measurable improvements when the right combination of elements is tailored to each company’s specific needs and culture and implemented through BearingPoint’s unique hands-on approach. Image 8. Decrease in write offs during a Metrics indicate clear improvements in sales, sales per manhour, number of customers, four months OpEx programme shrink, gross margin as well as in stock levels and stock days. This can be seen as a result -20% of the right combination of key management elements implemented in a correct and sustainable way. In the following, a few quantitative examples of results are presented. On average, stores with new management elements have shown a 16 % increase in sales (see image 5) and a 15% in number of customers and sales per manhour (see image 6). General sales growth can be seen as a result of a combination of all key elements. Growth in sales per manhour is mainly a result of a combination of sales, workforce planning, general awareness of employees, motivational management and increased add-on sales. In one of the OpEx programs, BearingPoint helped a retail client to improve goods flow in stores. By the end of the four month engagement, improvements had been implemented to some 50 locations and significant results achieved in terms of reduced stock and increased stock turnover, together with increased employee efficiency and reduced write-offs (see chart 7 and 8). A key success factor for the engagement was the implementation of a store management system to control the store goods flow. The new 6 Insight | White Paper
  7. 7. management system enabled the stores, not only to execute new goods flow routines, but also to manage all store related activities with better quality, and to control the improved performance through aligned KPIs. Authors: Jari Laine, Senior Manager Jari is a leader of retail practice in Helsinki office. He has considerable experience from operational excellence programs in retail industry. Taru Hanén, Senior Consultant Taru is a member of retail practice in Helsinki office. She has experience from various retail assignments ranging from the store operations to support function rationalization. Enni Pohjanlehto, Consultant Enni is also part of retail practice in Helsinki office. She has strong background from store management improvements and posses also knowledge from fast moving consumer goods industry. Insight | White Paper 7
  8. 8. We are BearingPoint. Management and technology consultants. BearingPoint is an independent management and technology consultancy managed and owned by its Partners throughout Europe. Serving commercial, financial and public services clients, BearingPoint focuses on offering its clients the best possible value in terms of tangible, measurable results by leveraging business and technology expertise. Its seamless cross-border approach, an entrepreneurial culture, long-standing relations with reputable organisations, profound industry and functional knowledge as well as solutions customised to clients specific needs make the company a truly trusted adviser. BearingPoint has European roots, but operates with a global reach. To get there. Together. To learn more, please visit www.bearingpointconsulting.com. BearingPoint Finland Oy Porkkalankatu 20 Helsinki, 00180 FINLAND Tel: +358 10 80 2288 Fax: +358 9 321 4621 www.bearingpoint.fi © 2010 BearingPoint. All rights reserved. Insight | White Paper