Financial Dimensions : Managing Retail Services

RETAIL MANAGEMENT: A STRATEGIC APPROACH,

Operations Management
Operations management is the efficient and effective implementation of the policies and tasks that satisfy a retailers customers, employees, and management (and stockholders, if it is publicly owned) Operational decisions affect performance.

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Profit-and-loss (income) statement

Summary of revenues and expenses over a given period of time A Profit and Loss Statement consists of: Net Sales $520,000 Cost of Goods Sold $320,000 Gross Profit $200,000 Operating Expenses $160,000 Net Profit before Taxes $40,000 Taxes $17,000 Net Profit after Taxes $23,000
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Asset Management
Balance Sheet
Assets any items owned of value Liabilities any financial obligations

Net Worth = Assets Liabilities

Net profit margin, asset turnover, ROA & financial leverage

Collection period, a/c payable to net sales
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Budgeting Questions
Who Develops the Budget(s)?

What is the Budgeting Time Frame?

How Often Are Budgets Planned?

What Cost Categories Are Used?

What Level of Detail is Used?

How Flexible Are Budgets?

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Chapter 12 - Operations Management: Financial Dimensions

Budgeting Process
Set Goals

Based on company needs Employee compensation amounts, sales and profit goals There are often trade-offs between expenditures that must be made This is the companys actual bills Compare planned to actual Must always be willing and able to make adjustments

Performance Standards

Planned Expenditures

Actual Expenditures

Monitoring Results

Adjustments

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Chapter 12 - Operations Management: Financial Dimensions

Resource Allocation
Capital Expenditures long-term
investments (includes land, building, fixtures, and any large equipment) Operating Expenditures short-term expenses of running the business

Opportunity Costs
Productivity: improve performance or reduce cost
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Operating A Retail Business

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Operations Blueprint Store Format, Size, and Space Allocation Personnel Utilization Store Maintenance, Energy Management, and Renovations Inventory Management Store Security Insurance Credit Management Computerization Outsourcing Crisis Management

Operations blueprint
Lists all operating functions to be performed, in detail characteristics, timing, person responsible No scope for ambiguity Large organizations can have different blueprints for different divisions/stores Separate blueprints for functions Standardizes activities Can evaluate/identify potential trouble/ opportunity
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Figure 13.1
An Operations Blueprint

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Store format, size & space

Format: prototype stores rationalized retailing Size: Big-box Space: different product categories require varying amount of space Top down & bottom-up space management
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Personnel Utilization
Important - increasing labor costs, high employee turnover Hiring Process Workload Forecasts Job Standardization and Cross-Training Employee Performance Standards Compensation Self-Service Retain Employees
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Store maintenance & energy management

Store maintenance: what, who and when all activities involved in managing physical facilities external/ internal affect customer perception can extend life

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Inventory Management Decisions

How can handling of merchandise from different suppliers be coordinated? How much inventory should be on the sales floor versus in a warehouse or storeroom? How often should inventory be moved from non-selling to selling areas of a store? What inventory functions can be done during non-store hours? What are the trade-offs between faster supplier delivery and higher shipping costs? What supplier support is expected in storing merchandise or setting up displays? What level of in-store merchandise breakage is acceptable? Which items require customer delivery? When? By whom?

More in later chapter

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Store Security
Uniformed security guards Undercover personnel Brighter lighting TV cameras and other devices Curfews Limited access to backroom facilities Frequent bank deposits

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Insurance Issues
Rising premiums Reduced scope of coverage by insurers Fewer insurers servicing retailers Greater need for insurance against environmental risks

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Credit Management Decisions

What form of payment is acceptable? Who administers the credit plan? What are customer eligibility requirements for a check or credit purchase? What credit terms will be used? How are late payments or non-payments to be handled? Checks (20%) & card (30%)- higher average transaction 1.5 billion credit & debit cards Credit card fees
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Computerization
Increase productivity Video conferencing In-store telecommunications Computerized inventory control & order Computerized check-out Electronic point of sale system Scanning RFID

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Crisis Management
There should be contingency plans for as many different types of crisis situations as possible Essential information should be communicated to all affected parties as soon as the crisis occurs Cooperation not conflict among the involved parties is essential Responses should be as swift as feasible The chain of command should be clear and decision makers given adequate authority
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Outsourcing
Retailer pays an outside party to undertake one or more of its operating functions Goals reduce costs, reduce employee time Ex: trucking operations, credit operations, maintenance Access to higher level of expertise, state-ofthe-art technology, helps deals with peaks.
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