Turn is the relationship between inventory and sales and determines the success a retailer has in generating cash.   Just like any measurement, to be useful the measurement must be applied at the right place to have meaning.  Although a general indicator of a store’s success can be indicated by overall turn, a much more useful application of turn occurs at the classification level.  Every class should have a targeted turn based on the store’s location and character, the type of inventory (staple, fashion, hard goods etc), the season and many other variables that are all part of an effective merchandise plan.  When a classification is turning too fast, it could likely indicate that sales are being lost due to lack of selection, sizes or depth. If a classification is turning too slowly, there is too much inventory due to overbuying, old goods or other reasons that are taking up cash, space and focus while not generating sales.  Unless you have the right target, you don’t know what is too fast or too slow!

The Formula

Turnover is calculated over a continual 12 month period of time.  It is 12 months of retail sales divided by the average retail inventory over a 12 month period.  A good estimate of  turn rate can be calculated by  taking the first of month inventory amount for 12 consecutive months plus the ending inventory at the end of the 12^th month and dividing this number by 13.  This will yield the average inventory amount.  Now divide the total sales for the same 12 month period by the average inventory amount to get the annual inventory turnover rate. In a seasonal business, annual turn is the best way to analyze turn.  We  also do a 12 month rolling average turn to get the most recent data but still including a year’s worth of data.

Why is Turnover rate Important?

The questions turn answers is whether you would like surplus inventory sitting on your racks or more cash in your bank account.  Too much inventory on the racks, ties up cash, yet not enough inventory results in lost sales.  Turn is the relationship between the inventory and the sales and when done at the class level, helps you find the right balance for your store.   Since turn generates cash, your challenge is to increase sales without increasing inventory. That is the goal of the science of merchandise planning! The secret lies within the art of sales forecasting for each classification. The skill lies in arriving at the right target turn rate for each classification in each store.  The results come from adhering to the right plan.

Simon and Garfunkel got it right. Turn is the key to your success.  Focus on it. Manage it. Plan for it. See what will become of you.

Russell H. Ewing

Déjà vu All Over Again

The events of September 11 underscored the globalization that has occurred in the world. The enemy strikes when we least expect it and then retreats, invisible until the next strike.

Many businesses are faced with the same globalization effects in the Great Recession of 2009 . Retailers, manufacturers, construction moguls, Wall Street Wonks and professionals operated  businesses assuming that they were insulated from the effects of what happens elsewhere in the world and their business success would go on forever. Then comes the sudden attack when the world turns upside down. You feel victimized and vulnerable because everything you built is now threatened and none of it was your fault.

The United States and the world essentially shut down while we stabilized the situation, recovered from the disaster and developed a new strategy going forward. You need to take a similar approach as the economy enters recession, people lose jobs and spendable income ends up in savings accounts instead of new goods or  services. It will not be business as usual which means that you need to:

§  Stabilize the situation: Work with existing customers to assure they are committed to your business.  Customers you counted on before are reassessing their own situation.

§  Recover from the disaster:  Develop SWAT teams to find new ways to generate sales and reduce expenses. Even though the disaster was not your fault, don’t sit back assuming YOUR recovery is not within your control!

§  Develop a new Strategy: Reassess your markets, products, people and growth. Develop new objectives and direction for the company if that is required. Down size if necessary. Diversify if warranted. Study the situation and figure out how the environment has changed and refocus efforts, energy and assets to achieve greater success.

Sometimes survival is the first step to success but survival is never an end in itself. This country learned a lot in the hours and days after the attacks. Those lessons need to be understood in our personal lives for our security and in our business lives for our well being. We are in control if we take control. We have learned about teamwork, commitment and unity. The organization is going to change if it is to survive. Don’t act like a victim. Our future lies in our resolve, resilience and productivity.

“Sometimes I get the feeling the whole world is against me, but deep down I know that can’t be true. Some of the smaller countries are neutral.”     Robert Orben

Character is like a tree and reputation like its shadow. The shadow is what we think of it; the tree is the real thing.” — Abraham Lincoln

No, Management One® has not turned to advising the political hopefuls on the campaign trail.
This article pertains to you, your business and how you run it.

I recently read a survey done by a colleague, Nikki Weiss, that captured the mood which exists in many organizations today. She queried staff members about the management of their organization.

Nikki related, “While many said they liked their immediate manager and other managers in the firm, they reported that, in general, all managers are too busy doing other things (selling, administrating, reading reports) and do not take the act of managing (developing people) seriously. The surprising and encouraging note in the survey was that the survey respondents craved a culture of accountability, in which managers who proclaim their commitments to standards of excellence and vision statements follow through on their pledges.”

This survey is interesting because it mirrors what I have seen in countless organizations. The staff craves a management process which they perceive as fair, committed, organized and demanding. This is opposite to the perception that the owners and managers have of their own people. The staff wants the managers and leaders to spend more time coaching, teaching and nurturing their performance rather than rushing in to do the job for them.

I have broken down the success of business people into 3 broad needs:

• Make the right decisions –
  • Leadership
• Get the decisions implemented –
  • Management
• Implement the decisions –

• Work

Of course there are many pieces and parts to implementing a good leadership, management and work program in a company but most people in independent business have a vast number of areas where improvements at all levels will yield great results.

Are you nurturing and teaching others to make the right decisions? Too often the managers feel they must do too much themselves and step all over the people who should be getting the work done.

Are you empowering others to do more and even make some mistakes? When managers let the workers do their job, motivation, commitment, innovation, fun and results improve!

There are always some stories that are told and retold because they are so pertinent and meaningful to our own lives. One of my favorites is about Tiger Woods after he won the Masters Tournament in Augusta Ga. Arguably the pinnacle in the golf world, most people would revel in their success and rest on their laurels. Not Tiger. As the story goes, he went to Michael Jordon to discuss how he stays at the top if his game. The two of them agreed that constant and continuous improvement was the key. Tiger then took some time off from golf; not to vacation, not to go on the speaking tour, and not to spend time with his family. He took time off to completely revamp his swing! The best golfer in the world takes time off to revamp the best swing in the world. The rest is history.

We all work at many things and continuously practice some as well but not all practice is necessarily good. Most of us work to a level of proficiency that is acceptable or even respected and then plateau. Studies show that the level of performance does NOT correlate to the number of years in the field! How many people do you know with 30 years of experience compared to those you know with 2 years of experience 15 times over? Maybe even you!

In order to improve in our chosen endeavor, hopefully that includes running your business, you need to follow Tiger’s lead. Don’t just keep practicing the same actions but take your game apart. Get better at each piece and part. In the case of golf it might be keeping your elbow tucked into your side during your swing that is practiced for a month! In your business it might be your hiring process, your negotiation skill, your performance review process or the hundreds of other individual activities that you do every day.

Another aspect of Tiger’s approach is important too. Tiger, again the best golfer in the world, would not have tried to improve his game without his coach at his side. The coach provided feedback on his every move. The coach prevented Tiger from developing and practicing bad habits. The coach challenged Tiger’s thinking to help him arrive at the best way to improve his game.

If you really want to improve your abilities beyond the plateau you reached long ago, you need a coach that understands your challenges and your business. They don’t need to be the best player but they do need to be a great coach! In our case we not only use a coach, but the entire coaching team impacts the business. Conference calls are important to give other inputs and challenges. On site visits by the consultant is important to help the owner and the steering team improve their game.

Tiger’s success is proof positive that meaningful continuous improvement works. There are many others. Your’s should be among them.

A good leader must be able to listen and ask good questions. That means that the leader must understand himself in order to handle input in a non-judgmental way.. The leader’s judgment will be important later at the time the decision must be made. When a leader makes judgments too early in the process of making a decision, he or she stifles input from others and shuts down valuable sources of ideas, motivation and innovation. A good leader must also know his staff and organization and understand how they can contribute to decisions and actions.

Above all, a good leader defines the vision, values and culture of the business and then has the integrity to lead within those parameters. Vision and values tell the organization what you stand for and make you easier to trust and work for. The effective leader can use that template to guide the decision making process and the staff will understand what is expected and how to contribute .

A leadership team will require a steering team made up of key managers and those with influence in the organization. This team must be trained, coached, and guided in order to be successful in their mission. There are some decisions that remain in the domain of the leader and the steering team. Those involve

• Strategy
• People
• Crisis
• Budgets

In addition to these, the steering team must focus the organization on what is important.

If the owner happens to be a good leader, the right decisions will be made. When owners use a management process that brings a strong element of leadership to the organization, more good decisions will be made. Without a solid proven management and leadership process, the decision the owner wants often takes precedence over the decision that is best for the business. When that happens, the staff will often be less than enthusiastic and committed to implementation and success.

Once the right decision is made, the organization must spring into action to implement that decision. That is effective management. In 2008 success will require providing the organization a management process to communicate effectively and follow up on actions and results. Accountability is important but motivation and commitment are as important. The fact is, a good manager will use accountability positively to celebrate success and reward positive results.

Managing means allowing your organization to make decisions and influence decisions. The real work occurs where your organization interacts with customers, vendors, creditors and the community. That is what we call the Employee Action Interface. (EAI) The process of delegating successfully at the EAI begins with empowering effectively! A manager that delegates without effectively empowering makes success unlikely. The process of empowerment is not trivial and that is the subject of another blog. Suffice it to say that there are hundreds of operational decisions that are required each day and the more of these that are made at the Employee Action Interface, the more effective and efficient your organization will be. Real success is impossible unless it is reflected at the EAI!

Every owner and business should be establishing goals and resolutions for the New Year. Look back and see how well you did last year. If you need to do better this year, find a process to help you do that. This year promises to be a challenging one if you believe all the economic skeptics. The business is out there but you must be more effective and efficient at landing a greater share of a shrinking market. That means making the right decisions, focusing on the right actions and motivating the whole team to achieve results.

A solid management and leadership process is successful only when there is input from those closest to the issue. In 2008, why not commit to establishing the culture and the forum to gather the right input and arrive at the best decisions for your business. That is leadership. Have a very happy, prosperous and successful New Year!