Driving more profits with less investment sounds too good to be true, but if a retail business isn’t achieving exactly this over time, then it probably means it’s heading to go out of business altogether.
By Julian Josem
Every retail manager must look for ways to increase the productivity of its business.
Productivity measures the ratio of outputs to inputs, so if productivity is dropping, it means it costs more to run the business for the same level of effectiveness.
Productivity is often increased by training staff – getting more effective staff members is a great way to improve productivity. Better levels of customer service, better sales conversions, happier customers; increased staff morale, and on it goes.
Investment in technology is another common way to improve productivity within a retail business. The results are lower operating costs, improved availability of information for staff so they make more effective management decisions, fewer stock markdowns, improved customer service, and having the right stock at the right place at the right time.
Senator Helen Coonan, Minister for Communications, Information Technology and the Arts recently announced the results of an in-depth study into the increased productivity of the Australian economy. The study found that technology played a much more important role in generating productivity improvements than previously thought. It found up to 85% of productivity growth in the Australian manufacturing sector over the 17 years to 2001-02 could be attributed to technology projects.
For retailers, it’s not technology itself but the use of technology that drives productivity growth.
According to a Sydney Consulting study referenced by the Australian Financial Review on May 20, many retailers are very over-stocked, holding between eight and 14 weeks’ sales cover in inventory holdings.
Every retailer needs to identify improvements in the way they run their business. Here’s a summary of how to go about it:
- Measure today’s productivity ratios at various levels – sales (or better still, GP) to stock holdings, wages, and selling space.
Drill down into your productivity ratios by store and category contributions.
Turn these Key Performance Indicators into benchmarks for your business.
- Compare your benchmarks with other players in your industry. Understand the reasons for over and under performance.
- Identify steps that can improve your KPIs. Is the information system within the business helping improve KPIs? If not, find ways of improving it.
- Implement the identified improved steps. Often just the process of questioning why things are done in a particular way leads to finding more productive methods.
- After making changes, measure your KPIs again to understand the impact of your changes. It is the direction of the change that is important to understand. Analyse the reasons for what happened.
- Refine your improvements to address any issues uncovered.
A great place to start is to conduct a systems review. This is a process whereby existing systems and business processes are reviewed in order to assess their usefulness to the business.
The assessment is often best conducted by a trusted external advisor. People who work within the business will naturally find it difficult to question the way things have been done a certain way for a long time.
The Australian Retailers Association has established a business system diagnostic program for members where a consultant runs through the retailer’s business systems and associated processes to identify areas for improvement.
The consultant attempts to establish benchmarks for the business using the information systems available.
Once issues are identified, recommendations can be made. Retailers will be able to choose which recommendations they can implement, and which (if any) require some specialised expertise.
The scope of the systems diagnosis program is agreed up front, and then implementation of any recommendations is determined on a case by case basis to suit the retailer.
Every business needs to periodically review its systems. The availability of new technology has been changing rapidly. There is no need to live with systems that do not fully support the business needs any longer.
Julian Josem is ARA's technology consultant
Contact: email Julian Josem at julian.josem@vic.ara.com.au
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