Sunday, May 25, 2008

Monkey Pound Keyboard

I probably won't put this in the seminar, but I thought folks might be curious how an order gets placed. It's a surprisingly inefficient and error prone process that is not helped much by technology. My point-of-sale system is a godsend, but it's a powerful tool that doesn't get utilized to its full potential.

There are three ways to place an order: Sending a purchase order, manually entering data on a distributors website and electronic transfer of purchase orders. Lets get the electronic version out of the way first, as nobody in games uses the powerful, standardized formats available for sending purchase orders via my point-of-sale machine. Diamond, which does comics, is rolling out such a system and I dare say that their little brother Alliance would have a huge advantage in my book, if they followed.

Sending a purchase order. Most stores call in their order on the phone. I generate mine using my point of sale machine. I run a report for all items in which the distributor is the primary supplier. It creates a report with every item whose re-order threshold is met. For example, a bottle of Citadel paint might be set to re-order more when the quantity gets at or below three bottles, and then to order a pack of six (the minimum quantity).

Once the raw purchase order is created, I then have to go through it and prune out items that I don't want. Looking at my "open to buy" spreadsheet tells how much money I have to spend, based on recent sales. I might have generated a $1,500 purchase order, but I only have $750 available. Slower turning items or items that are still in stock but were triggered because of the re-order threshold are removed for now. If you've wondered why a story doesn't stock an item deeper or at all, it might be about the budget rather than the will or intelligence of the owner. There are always items that I would like to order, but can't. They await some magical time when I'm flush with cash, like after a big sale. If I'm really clever, I might rotate stock, letting a game go away for a while, but bringing in a similar title until that sells. I'm not that clever.

Once I have my pristine, carefully pruned purchase order, totaling no more than my budget allows, I save it as a PDF file and email it to my distributor. That's right, I've got a perfectly good electronic version that could be sent directly to an electronic order processing system, but game suppliers don't have them. Fear not, because this manual system is quite useful. My distributor sales rep gets my email, has a lackey type it into their system (or themselves if they're shorthanded) and then calls me back.

He's calling me back because my purchase order is a work in progress, a wish list. He's going to tell me that I've been smoking crack, and various items that I desperately want are not available. Didn't I get the memo? The percentage of unavailable stuff varies and for various reasons. They tend to be out of things due to their own shortcomings about 10% of the time, meaning I've got a 90% fill rate. However, what's not included are items that are out of stock at the manufacturer, out of print, or otherwise not the fault of my supplier. The total out-of-stock items might be as high as 20%. We joke that my rep is saving me money by not having these things. Items not available are back-ordered.

So I'm under budget now, right? Wrong. Next, my rep reminds me of items that I've back-ordered before that have finally come in. I manually add these to my purchase order, which may or may not put me over my budget. I'm somewhat obligated to take these items, so there's not a lot of argument here, which is why many game stores don't place back-orders or pre-orders, and why the industry has such a supply problem. Next, my sales rep reminds of new release that I've neglected to add to my purchase order or he entices me into buying something for my own good. We'll also discuss upcoming releases, his recommendations, and any pre-orders I want to make. I pre-order everything. I have a bad memory as it is, so I like being reminded about new releases. I rarely miss a new release because I forgot. I just don't rely on my memory.

So what about my budget? All this wrangling over new releases and returned back orders might bump my purchase order over my budget. What often happens is a product line is robbed of its budget for a while to pay for a new release in another department. I might skimp on re-ordering Flames of War because of a big Games Workshop release, or in the case of our toy department, stealing its re-order budget for just about anything else.

My purchase order almost always goes over budget for hot new releases. My Dungeons & Dragons 4 order will be about $5,000, money that I don't have budgeted, it's impossible. However, if I sell it all, I can pay it off with the float between my order and when the bill is due. Thus there's a big incentive for me to get pre-orders from customers so I can predict how much I should buy. This float period is very important for budgeting purchases. One of my suppliers offers me the same discount as Wizards of the Coast, but with only two week terms compared to the 5-6 weeks I get with a credit card with WOTC. The distributor doesn't get a lot of my business because of this. The danger is when you go over budget and a hot new item ain't so hot, or periods like now when items are releasing for an upcoming buying season, but customers aren't coming in to buy yet. I almost bankrupted myself a couple years ago by buying my entire Christmas season inventory in October instead of November. You've got a fully loaded store, no money in your purchasing budget, and not a lot of customers.

Electronic processing. Two of my secondary distributors have websites for order processing. These might seem like a good idea, but the end goal is for the sales rep to spend less time on me and with me, which is not always good. It saves them money but at my expense. I create my purchase order as normal, then I go through their website and manually add items that are in stock. Now I'm the monkey pounding the keyboard. This greatly increases the error rate, as a distributor rep is much better at pounding the keyboard for order entry than me. He does it all day. We're currently having a sale on tournament packs from the last Magic set because I bought them instead of a box of booster packs. Monkey pound keyboard.... badly.

Once my web order is manually entered, a process that offloads the work to me, I submit it. What happens next is similar to the email process. The sales rep calls me to say what's not available. Their websites aren't usually dynamic and the availability data might be from hours ago. They might also have pre-orders or back-orders for me that they'll want to include. What happens with some distributors is that they only call if there's a problem or something is missing. I don't hear back about the order until it arrives the next day. In those cases we don't get an opportunity to talk about pre-orders or upcoming releases.

And that is order processing, something that I do nearly every weekday nowadays. Let me stress the dangers of going over budget. Most profit margins are around 8%. If your sales are $21,000 per month, the industry average, that profit is around $1,680. Any purchasing deficit comes directly off that profit number. It's very important to maintain purchasing discipline, or it's the bottom line that pays the price.

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