Managing supply and distribution from contract negotiation through inventory processing is no mean feat. But by following some basic guidelines and savvy advice, it can become a strong suit for any convenience store retailer.
A plethora of challenges are sewn directly into the fabric of contract negotiations, noted Ryan Mathews, the principal of Black Monk Consulting in Eastpointe, Mich.
The biggest obstacle can be creating and maintaining “a holistic sense of the process, rather than thinking about point solution victories.” At the same time, it’s necessary to focus on the individual pieces of the process to achieve the big picture goal of supply chain optimization.
“Of course, this means that your negotiating team has to understand all of the operational and communication nuances, and that’s a tall order,” Mathews said.
The biggest mistake in any negotiation is to assume there has to be a clear winner and a clear loser, “and that your job as a negotiator is to ensure you are always the former and never the latter,” warned Mathews. “You shouldn’t confuse short-term victories with long-term success.”
Negotiating for Success
Greater success in negotiating can be brought about by following some best practices in supply and distribution management.
“Understand your basic sales at your locations through line-item scan data; (for example) what is really selling,” advised Mike Askwith, chief operating officer for PBD USA Inc. in Elmhurst, Ill., which includes 25 owned and franchised locations in Illinois, Georgia and Florida.
If you evaluate sales based on purchases instead of gathering pure scan data, results can be deceiving.
“A box of candy at 36-count looks like you sold one full box based on purchases. Scan data may show (you only sold) four candy bars,” Askwith said.
Next, remove inessential operating costs.
Askwith noted one thing he’s seen frequently is c-store retailers accepting services they think are free, such as allowing a wholesale distributor to bring in a person to handle orders for your store.
“Everything has a cost,” Askwith warned. “There is no such thing as a free lunch.”
One must also realize that credit terms always cost money. “The biggest thing is, if you get extended credit, you are always going to pay more,” Askwith noted, “and the problem is, you are paying more on every dollar, versus if you pay less on terms and pay on baseline. It’s a cash-flow business. Paying cash is king.”
Another important element is taking advantage of deals when they present themselves.
“There is a lot of money out there when these manufacturers have trade show programs,” Askwith said. “Some people say they don’t want to go to shows, but I will tell you, these deals are fantastic in a lot of cases. You can get a 50%-plus reduction in prices on some items. Take advantage of opportunities when they have trade shows and different deals.”
When it’s time to negotiate, assets should be utilized fully, added Mathews.
“Know your assets — not always as easy as it seems — and leverage them to the hilt,” Mathews said. “Obviously, large chains can leverage scale, while smaller operators may leverage access. Everyone that deserves to be in business offers some tangible benefit to their partners and their customers. If there isn’t one, shutter the stores.”
Mastering inventory management is a key step along the path to supply chain optimization. It’s hard to negotiate for what you need when you’re not clear on what products you received and what’s selling.
Exact recordkeeping, Askwith said, is often overlooked, but is essential. “At the end of the day, when the product is delivered, scan every item in to make sure that you get the proper product at the proper time.”
Technology is transforming inventory management, Mathews said.
“Look, there is a mountain of inventory optimization technology out there that can help you process inventory,” Mathews advised. “Just remember two rules: customers hate out-of-stocks, and holding too much inventory is never a good idea.”
What’s critical to remember, he said, is that you aren’t moving from the old static-state models to new static-state models. Instead, you’re converting “from old, static systems to ‘smart’ flexible systems capable of ‘learning’ and modifying in real time,” Mathews said.
But a new inventory management system alone can’t carry your c-store business across the finish line. “Those systems are only as good as the people using them,” Mathews said, “and the organization models that information flows through.”