Why paperwork = profit

By Peter Cox June 03, 2016 Industry news

One area where I believe profit is lost within a hardware store is in the goods inwards procedures.

So a straightforward way of double checking credit for returns is the topic of this article.

I know this may seem stupidly simple but I estimate that millions of dollars of profit are lost each year with the industry not recovering credits for short deliveries and/or damaged stock.

And, despite the feeling that the internet is taking over, controls still need to be implemented to track disputes and credits.

It all starts with the goods inwards procedures. There are three stages in the process…

 

STAGE #1 – ORDERING

The first stage is ordering. It is now 2016, not 1956, so I would suggest the days of simply picking up the phone and placing an order are over.

You should have a system that can produce an order to suppliers and distributors that has the following information:

  • Order number.
  • Supplier.
  • Description of product.
  • Quantity.
  • And, importantly, the dollar cost of the order!

 

STAGE #2 – GOODS RECEIVABLE

The second stage is the most important, the Goods Receivable procedure.

The key here is checking the product in, involving using the order document as the basis for making the system work.

Check the description and more importantly the quantity received – after all, orders usually with a picking slip and not an invoice.

But, it is a recipe for disaster if the checking in is not done correctly or you just assume that the supplier has sent the right quantity and right product.

Say you are just one product short: at a cost of $100 at an average Net Profit Margin of 2%, you need to sell $5,000 of product to recoup the error!

Of course if a discrepancy is found then a credit claim needs to be raised and followed up for a credit from the supplier or a request for replacement stock.

In this process check you need:

  • Quantity.
  • Description.
  • Quality.
  • Cost price (if product is delivered with an invoice).

 

STAGE #3 – PAYMENT

The third and final part of the procedure is payment.

It is important to ensure you are only paying for what you have received and you are paying the correct unit price against the original order.

And, if the person paying the supplier accounts is not notified of a short delivery or damaged stock issue, then it would be fair to automatically assume that it is OK to pay the account…

 

PAPERWORK = PROFITS

So there are three parts in the process of goods inwards.

The most important part is the middle stage – that is, physically checking stock in and identifying and communicating any discrepancies.

If that is not occurring, then the whole system breaks down.

With some in the industry being continually challenged by increased competition, sales are golden.

So it’s counter-productive to have to make sales to cover simple errors in your operational procedures.

There are two key things to remember in the goods inwards procedure:

  1. Do not expect a supplier to provide a credit if you haven’t asked for one!
  2. Paperwork = profits!

Finally, consider this: being smart with goods inwards is why a hardware store on one side of town may be achieving a Gross Profit Margin that’s 2% higher than the competition and a 50% bigger Dollar profit as a result!

 


Peter Cox is a senior consultant for Macquarie Advisory Partnership based in Sydney. He has over a decade of experience training and consulting in the retail hardware industry. He conducts key-note addresses, and management and sales workshops, which are aimed at improving profitability and liquidity in one of Australasia’s most competitive retail environments. Phone 0061 438 712 200 or visit www.petermcox.com.au

 

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