Monday, November 4, 2013

How to Order (Tradecraft)

This is a topic discussed right now in the game store forums, plus something of interest to my friends opening new game stores. How do you do it? I've covered this before and have written and talked about Open to Buy at trade shows. Here's an overview of what I do.

Do I have any money? For me, it's not a question of do I have cash in the bank, because I buy everything on terms or using a credit card. If you have COD and no terms, by all means arrange them. The question for me then is do I have money in the budget? Budgeting for purchases is tracked separately from your store budget with Open to Buy, a process large retailers use to track their inventory budgets.

You must spend this budget or your sales will fall and if you start using this money for operations, you can end up in the dreaded inventory death spiral. That's when you can't pay the rent, so you borrow money from your inventory budget (usually you don't have one), which lowers sales, which means you can't pay the rent next month, so you borrow more purchasing money and eventually you've had a liquidation sale without intending it.

Here's a simple version of Open to Buy to get you started:

Starting Budget: $ 1,000.00

27-Feb $ 358.15 $ 208.59 $ 1,208.59 $ 201.00 $ 1,007.59
28-Feb $ 543.69 $ 255.59 $ 1,275.96 $ 1,193.30 $ 82.66
1-Mar $ 334.35 $ 194.12 $ 286.49 $ - $ 286.49
2-Mar $ 690.33 $ 415.53 $ 722.79 $ 500.00 $ 222.79
3-Mar $ 597.10 $ 339.16 $ 578.91 $ 901.44 $ (322.53)
4-Mar $ 453.38 $ 246.19 $ (64.03) $ 94.61 $ (158.64)
5-Mar $ 391.26 $ 212.69 $ 64.68 $ - $ 64.68

Above is a clean example, but below I've included my Open to Buy from the first week of January, warts and all. It's a spreadsheet I've used for 9 years. Like the one above, the important information is the COGS (Cost of Goods Sold), Purchases, and Balance. Available tells me how much I've spent or how much I've gone over budget.

There are some other columns with notes and room for adjustment as well. For example, on January 1st, rather than keep my negative budget of $5406, I accepted it as an inventory increase going forward. Likewise, I can use columns to budget, if necessary. I track other things on here too, like COGS percent, usually with an explanation. On the far right are things like "Need" which is kind of a moving target on whether I hit my sales goals. At the bottom of this spreadsheet, I've got half a dozen charts showing sales per month, per quarter and per year, cost of goods per year, and other random tracking of this data with 9 years of thought gone into it.

I then have to decide what to buy and from whom. The first priority is special orders. Our point of sale system tracks special orders for us, but in the past we've used a spreadsheet. I've seen some stores use a special order book, or (shudder) a spiral notebook with scribbles. Every time I open my pending order requests, I look to see what's available. In this example, only one item is in stock today, so I'll have to make an extra effort to order it from that supplier.

Next I'm going to generate some purchase orders. There are several ways, based on lowest cost supplier or primary supplier, and of course there are direct items you have to get from the source. Today, I've placed an order for Magic with Wizards of the Coast, a Games Workshop restock with them, and a primary order with my main distributor, ACD.

I also need to handle my special order (Creeping Infection 2 base from Secret Weapon Miniatures) with my specialty miniature distributor, E-figures. This week I'll likely get calls from my classic games people (Wood Expressions) and possibly a puzzle company or two, as I asked them to call to get my holiday orders rolling. Did I budget for that? Mmm, no, but the credit card I'll be using will have a due date of 12/26, meaning I'll pay for it with holiday cash.

The top section of the screen above is prompting me to create a PO based on my special orders, which in this case would only include Efig, since that's the only special order item available today. The other items are pre-orders for future product. Below that section is the ability to generate a PO based on default supplier, which is the raw report I run to make the bulk of my order.

The date used to generate that report is the item record in our system with the re-order information. You can see from the item record to the right that we try to keep 12 white sleeves in stock at all times. When that number gets below 12, we order up. So there are 8 available right now, with 4 coming on the order I placed today.

Every item in our system, tens of thousands of items, has this re-order information. It's constantly tweaked based on demand of the product and budget. This is critical business intelligence and for a couple weeks this Summer we flew blind without it, creating chaos, over budget spending, order guesswork, and a loss of sales. We also lost our sales history which meant I had no idea what to drop when budgeting for new product.

Open to Buy is a zero sum game, so if we order something new, it means something old has to be eliminated by not re-ordering it or reducing its stock level. That might be by permanently changing the item to not re-order, temporarily letting it go and bringing it back later (there are hundreds of items like that from our primary at the moment), or simply going lean for a while and not ordering up when it tells me to.

From this data, the system can generate a purchase order of things that may or may not be available at the distributor. I then have the option of emailing it off to my sales rep, a lazy way that gives him control of my spending that day, or I can go on their online system and spend hours selecting items they have and removing items they don't from my PO.

In this case, I'm ordering 177 items from ACD today and NOT ordering 975 for whatever reason, that number shown in the Actions screen above. Eventually I'll go through those 975 items and order from another distributor, decide the items are gone forever and set the reorder to zero, order them later when my budget says I can, or just let it ride. It's a pool of data to draw upon, rather than a laser focused tool.

Only 15% of the items my system told me to order were actually ordered. That's from a combination of purchasing decision making, distributor availability, available budget, and the strength or weakness of my data. I could not, for example, just generate a PO and send it off blindly. That happened once with an employee and it created a mini disaster as all the considerations of a purchase were thrown out the window.

I'll repeat this process for every supplier I use today, budget permitting, including a secondary to pick up items that the primary doesn't have, with free freight being a priority. The game trade offers free freight at thresholds of around $350 and I hate to spend money on shipping. For our specialty distributors, like puzzles, I'll often wait for a trade show special for a free or reduced freight deal (which is why we don't do special orders on those items).

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