Profit Boosting, Cost Cutting

The economic picture for 2001 appears to be lackluster with key furniture retailer indicators trending flat to moderate sales gains. Sales increases may be harder to come by, so it's time to look at other ways to boost the bottom line.

I'm reminded of a smart business leader I worked with years ago. He once explained that he had just "made" his profit budget by what he saved, rather than by what he sold. He went on to elaborate on a number of cost and productivity refinements his management team had achieved.

With this issue landing on your desk at New Year's resolution time, here's a Top Ten List of ideas that have been helpful to others and may be helpful to you.

Measure vendor performance:
Focus your purchases on those vendors that meet their delivery commitments, whose product arrives without damage and who quickly ship parts when needed. Why deal with vendors that are always a hassle?

Review training programs:
There are a variety of training videos and articles that cover all aspects of receiving, storage, prep and delivery. These topics are also covered in past articles archived on www.furninfo.com (in the Operations Management Index). The delivery is either the first step toward getting your next order, or the proper completion of the current order resulting in a satisfied customer.

Advertise on your delivery trucks:
Well maintained and clean trucks carrying your company logo, spread the word to travelers on the highways and to your customers' neighbors. A variety of permanent and temporary signs are available.

Lease instead of owning trucks:
Thorough cost analyses have resulted in many retailers replacing owned trucks with full service leasing. Leasing companies can buy their trucks at volume prices and then trade them out before they require costly maintenance.

Cut your electricity costs:
If your facility is more than a few years old, you probably have inefficient lighting. Current lighting systems provide the same light with about half the electric consumption. Excess heat from lights increases the air conditioning load. In addition, utilities in many states offer incentives for updates. Paybacks of less than a year are common.

Fire your worst employee!
Whether the worst employee is a family member or a non-family employee, everyone has to carry their own weight. If you are an obstacle to growing the business, get out of the way! There have been a number of instances where company founders have passed over their own children in favor of more qualified outsiders because it was the best way to maintain the livelihoods of all company employees (including the livelihoods of the passed-over children).

Calculate GMROI on an individual sku basis:
Full warehouses may have 15-20 % of slow moving or non-selling inventory clogging up the operation. Excess inventory causes premium labor costs, damage, insurance claims and ties up cash that should be invested in winners.

Increase Delivery Efficiency:
Increase the number of deliveries each truck makes daily. Furniture retailers have increased their delivery efficiency by several stops per day through two techniques.

• The first is to have all merchandise staged and ready to go when the drivers pull in to load. Does it take 45 minutes to load out or does it take almost two hours?
  
• The second approach is to use computerized routing technology available as an option with most big-ticket retail management systems (see page 51 in this issue).

Examine your inbound freight costs:
Most LTL freight companies increased rates 5-6% in late summer and are also adding 4-6% to cover their higher fuel costs. By focusing your business on a limited number of carriers and working with the carriers to minimize delays in unloading, you can get better rates which drop right to the bottom line.

Review your service call records:
The best furniture retailers have 2%-5% of the deliveries that require service calls within one week of delivery. Unfortunately, many furniture retailers have reported 15% to 25% of their orders requiring service. Your true costs for a service call are probably in the $45-$60 per hour range, so it is easy to see how service calls can easily wipe out the profit from a sale. Excessive service calls are frequently caused by inadequate prep before delivery.