Heading In The Right Direction

Driving more profits with less investment sounds too good to be true, but if a retailer isn’t achieving exactly this, then it’s heading in the wrong direction. Julian Josem reports.

Every retailer must look for ways to increase the productivity of their business. Productivity measures the ratio of outputs to inputs, so if productivity is dropping, it means that it costs more to run the business for the same level of effectiveness.

Productivity increases can be achieved in many ways. Training staff is obviously one of the best because it results in better customer service, better sales conversions, happier customers, increased staff morale, and so on.

Likewise, investing in technology is another common way to improve productivity within a retail business. Successfully applied, the results are lower operating costs, improved availability of information to staff (so that 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.

An in-depth study into the increased productivity of the Australian economy announced last year by former Minister for Communications, Information Technology and the Arts, Senator Helen Coonan, found that technology played a much more important role in generating productivity improvements than previously thought. Specifically, it found that 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 actual use of technology that drives productivity growth. Indeed, many retailers are over-stocked, holding between eight and 14 weeks worth of sales cover in inventory holdings. All retailers should identify improvements in the way they run their business, so here’s a summary of suggested ways of going 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 simply questioning why things are done a certain way leads to 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.
  • Finally, refine your improvements to address any issues uncovered.A great place to start is with a systems review whereby existing systems and business processes are reviewed so as to assess their usefulness. The assessment is often best conducted by a trusted external advisor since people who work within the business will naturally find it a little bit more difficult to question things have been done a certain way for a long time.

    Once issues are identified, look at the recommendations. Retailers can then choose which recommendations they implement, and which (if any) require some specialised expertise.

    Every business needs to periodically review its systems. Essentially, the availability of new technology has been changing rapidly and there is no need to live with systems that do not fully support business needs.

    Julian Josem, the Australian Retailers Association technology consultant. Contact: julian.josem@nullvic.ara.com.au.

    The Australian Retailers Association offers a business system diagnostic program for members where a consultant examines the retailer’s business systems and associated processes to identify areas for improvement. After the scope of the systems diagnosis program is agreed up front, the consultant attempts to establish benchmarks for the business using the information systems available. Implementation of any recommendations is then determined on a case by case basis to suit the retailer. Visit www.insideretailing.com.au/ for more information.