Perpetual Inv



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Benefits of Scott’s POS ServiceÓ

Note: Scott’s POS ServiceÓprovides a wide area network where all stores are networked with headquarters and their suppliers. Put simply, it creates an environment where all participants are using a single large central computer where they share a common database of information.


1.     Store Perpetual Inventory. 1

2.     Technology Aversion. 4

3.     Increased customer service level 4

4.     Reduced in-store stock levels. 5

5.     Seasonal product control 5

6.     Integration of Systems. 6

7.     Total & Complete Elimination of Data Synchronization Issues. 6

8.     Use of POS data. 6

9.     Centralization Importance. 7

10.       Category Management Systems. 7

11.       Total Elimination of Purchase Orders. 7

12.       Total Elimination of Invoicing. 8

13.       Total Elimination of Delivery Driver Theft 8

14.       DSD (Direct Store Delivery) Rack Jobber Controls and Tracking. 9

15.       Communications Between Supplier and Retailer 9

16.       Consumer Satisfaction. 9

17.       Store Level Procedures Strictly Enforced. 9

18.       Shrink. 9

19.       Remote Store Controls. 10

20.       Managed Supplier Partnerships. 10

21.       Miscellaneous Benefits. 10


1.    Store Perpetual Inventory

From Barbara V. Anderson’s book, “The Art and Science of Computer Assisted Ordering”:

”Store perpetual inventory is an accurate picture of a store’s product on hand. All changes to inventory, increases and decreases, apply to a base inventory initiated through a physical count. Perpetual inventory can represent both a quantitative and financial picture of a store and is a statement of the store condition”.

In Ms. Anderson’s book, she describes a Perpetual Inventory System as one that can be “real-time, with all increments and decrements applying immediately, daily, or weekly.” Scott’s POS ServiceÓ is real-time, with all decrements and increments occurring immediately. As a result, information is made available to headquarters and suppliers instantly, as the changes occur. There is an important distinction between this method and one that is updated periodically. By applying ‘sales’, ‘audits’ and ‘received’ to the perpetual inventory system in real time, the information can be used for immediate decision making and problem resolution.

There are three components to our perpetual inventory:


1.      The initial physical count of items – Scott’s POS ServiceÓ provides a program to set up the initial inventory levels by scanning the items on the floor using a hand-held data terminal connected wirelessly to the host computer, located at a central site and made available by Scott Systems Inc. Using the handheld devices, an average store can be audited in less than 10 man-hours. Since audits and sales occur in real time, audits may be taken ad hoc, during the sales and receiving processes, and the count will be accurate.  


2.      Sales, transfers, received inventory – Scott’s POS ServiceÓ provides an interface to existing POS systems that allow access to “tendered transactions”. The interface can be networked to the cash register, or it can poll the cash register every few minutes, depending on the type of service subscribed to, and the inventory is incremented or decremented when the polling takes place. Transactions affect inventory immediately, or almost immediately, in the order they occur, not randomly or in batch.


3.      Scott’s POS ServiceÓ provides programs for use in the transfer processes. Transfers can occur when it has been determined that the company’s inventory is not balanced between stores, or when product is received at one store that needs to be redistributed to other stores. Usually transfers are scanned into the store. The incoming inventory is handled in the same way as inventory received from suppliers, with the exception that an invoice is not created when the inventory is scanned. Inventories ordered in bulk, can be redistributed to other stores where it is profitable to do so. Too much inventory on the sales floor decreases sales.


4.      Received inventory can arrive at various times and for a variety of reasons. Other than transfers (see previous paragraph) inventory usually arrives when the supplier brings it into the store. When inventory arrives, it can be scanned using a hand-held device, provided by Scott’s POS ServiceÓ or it can be entered into the store’s computer using a program running on our host system through a local PC designed for the purpose of receiving inventory. Inventory may be accepted electronically, based on the items shipped, and audited later.


5.      Audits - No inventory system is worth its salt without frequent audits to check the accuracy of the inventory on hand. Scott’s POS ServiceÓ provides a hand-held wireless, personal data terminal for “Audits On-Demand” using the following schemes:

1.      “Gondola audits” allow store employees to audit sections or entire gondolas on a regular schedule. We recommend 3 hours per day to be set aside for audits. Audits can occur during slow periods and should occur during slow periods when the need for two active cash registers is unnecessary.

2.      “Spot check” audits provide tools to order store audits on specific items on demand. Possible triggers to schedule “Spot-check” audits include.

a.       Sales of a specific product falls below expectations

b.      A prior audit identified a ‘suspicious’ item condition

c.       The number on units on-hand falls below zero

d.      Product on hand is less than or greater than expected

e.       Forecasted product on hand does not meet service level before next delivery date

f.        Empty shelves

3.      “Daily audits” on fast moving and/or expensive items such as cigarettes can be scheduled by shift or at the end of the day

4.      “Regular third-party audits” are reduced to spot checking the store inventory in a series of random audits. Using the computer to control audits by store employees will eventually eliminate the necessity for third party audits. Category audits are a waste of time.

5.      Audits are processed in real time, solving the problem of backing out sales and adding purchases that may affect an audit’s accuracy

6.      If inventory is not received electronically based on the supplier’s electronic shipment notification, received inventory should not be put on the sales floor until it has been checked in.

2.    Technology Aversion

In the book “KMART’S 10 Deadly Sins”, the author quotes a Microsoft associate as saying:

Early on, Kmart passed up the opportunity to computerize inventory and ordering into centralized systems because local managers balked about giving up control. Wal-Mart, on the other hand, installed efficient electronic systems wherever it could.”


In another paragraph in the same book:


“Even if Kmart revamps the infrastructure and puts better processes and technology in place today. It would likely still trail Wal-Mart”


By and large, every retailer that operates in a Wal-Mart environment finds itself in a similar situation. Scott’s POS ServiceÓ advantage is the use of inexpensive technology that utilizes efficient electronic systems and the power of the Internet to provide a more level playing field.


Profit margins will continue to deteriorate. Micro-management of inventories cannot be done manually. Prices must be adjusted to take advantage of the highest profit margins available.


3.    Increased customer service level

According to the National Association of Convenience Stores (NACS), Emory University completed a study that says “stores miss out on 4% of potential sales when they run out of popular items.”

    • Items get moved around on shelves, covering “holes” popular items once occupied. Clerks often miss reordering popular items because of this type of accidental camouflage.
    • “Forecasting” involves, trends, promotions and seasons – all which may be missed by busy store clerks when re-ordering stock.

Miller Brewing recently completed a study that says: “If inventory on the sales floor is reduced to 2.5 days, sales will increase by 66%.” Reasons may include:

·        Too much inventory on the sales floor hides other items.

·        An increase in clutter.

·        Needed inventory not ordered because of clutter.


4.    Reduced in-store stock levels


The Scott’s POS ServiceÓ assists the retailer by holding down the number of items needed in the store to the quantity needed to satisfy consumer demand and enhance store presentation. The average retailer has 50% more inventory than needed to meet customer service level requirements, resulting in cluttered, unsightly shelves and lost sales opportunities due to the lack of space needed to handle a greater variety of items.


·        The costs associated with carrying unneeded items in the store is also greatly reduced. Inventory received monthly cost five times as much to manage as inventory received as needed.

·        To accomplish this, Scott’s POS ServiceÓ uses historical data, seasonal changes, trends and promotions.

·        Scott’s POS ServiceÓ helps reduce back room stock and helps prevent ordering of new inventory when back room stock is available to place on the store’s shelves.

·        It is an almost certainty that not one item in the store’s inventory is priced for its highest profit potential. Pricing is generally the result of the supplier’s recommendations based upon an analysis of the entire industry, or upon the generalized “belief system” of someone at headquarters; or more often left entirely to an uneducated, overworked and underpaid store manager.

·        Scott’s POS ServiceÓ allows us to work closely with the retailer and his suppliers to get the maximum profit out of each and every item in the store. Profits can be epitomized by manipulating retail prices to affect turns. “Prices” are like the gas petal on a car and “turns multiplied by profit” is the “efficiency monitor”. High turns may indicate a price is too low. Low turns tell us just the opposite. Somewhere in the middle is the “perfect” price. The trick is to use our software to get the highest efficiency out of each and every item in the store. This is done by slightly altering the prices (staggered pricing), letting a computer monitor the turns, compare the efficiency rating to historical data and zeroing in on the perfect price for each and every item in the store. 

5.    Seasonal product control


Scott’s POS ServiceÓassists retailers by allowing the retailer to plan for increases and decreases in floor stock and to adjust retail pricing during high and low seasons.

6.    Integration of Systems


Scott’s POS ServiceÓ integrates the business rules of disparate systems. This environment allows retailers, suppliers and software companies to integrate business functions with a minimum of hardware and software changes.

    • EDI, XML or other file transfer activity is possible but usually unnecessary. System-to-system direct integration saves businesses the costs and complications of writing and maintaining file transfer programs.
    • Computer systems are constantly in a state of flux and create an environment of separate systems for the supplier, distribution centers, stores and their headquarters. Scott’s POS ServiceÓ is designed to put into place “Functional Integration”, which allows disparate systems to operate independently, yet function as one.  The Internet is a good example of functional integration. A “web browser” provides the tools to connect to each and every computer attached to the Internet regardless of the brand of computer or the operating system being used.

7.    Total & Complete Elimination of Data Synchronization Issues

Scott’s POS ServiceÓ eliminates data synchronization problems simply by eliminating data synchronization.  Scott’s POS ServiceÓ provides a centralized platform that allows the retailer and supplier to agree on a single version of the truth regarding items and processes, and Progressive Grocer says “a tremendous impact can be made on overall cost and efficiency.”


This ‘platform’ can be used by both parties without the need for additional costly inventory and software. A POS device capable of retaining tendered transactions on individual items and Internet connections for the retailer and optionally the supplier, are all that is needed to utilize the service. 

8.    Use of POS data

In the past, POS data (T-Logs) have been of little use to the retailer. Scott’s POS ServiceÓ tracks and uses the retailer’s T-Logs to manage the inventory in real time, and stores it for use by the retailer. The data can also be made available to the retailers’ suppliers on a case-by-case basis, allowing suppliers to assist retailers in their inventory management processes. If you need proof as to how suppliers feel about this, take a drive to Bentonville, AR and see for yourself how many major manufacturers have established a presence there just to be close to Wal-Mart’s RetailLink.


Further evidence may be found in Martin Layton Turner’s book ‘K Mart’s 10 Deadly Sins”:


“Allowing suppliers to play an active role in managing Wal-Mart’s own inventory gave [Wal-Mart] an advantage that Kmart would never have thought of, had its own suppliers not pushed the company to develop a system similar to [RetailLink].

9.    Centralization Importance

Store perpetual inventory systems must be centralized to function properly. Managing the timeliness and order in which the data is processed is necessary in maintaining the accuracy of the data. If sales, transfers, received inventory and audits are not processed in the order they occur, the disposition of the inventory is ambiguous. For example: In traditional systems, during the auditing processes it is not necessary to close the store to get an accurate count. Scott’s POS ServiceÓ insures order and timeliness by processing sales, transfers, received inventory and audits in real time and in the order that the transactions occurred, so activity of all kinds can continue at will.

10.     Category Management Systems

Category management systems use average costing of categories or departments to ‘estimate’ store profits. A perpetual inventory system uses average cost of an individual product on hand to get the true cost of sale for every sale. Scott’s POS ServiceÓ allows the retailer to have unique item inventory control AND category management reporting by tracking the sales, transfers, received and audit data in both dimensions. So if a retailer has a category management system in place, Scott’s POS ServiceÓ can provide a more accurate tool to feed his category management system. Note: Category management has no value whatsoever in a Wal-Mart RetailLink-like environment.

11.     Total Elimination of Purchase Orders

1.      Retail store executives will balk at the idea of allowing the computer to “order” the inventory. We wholeheartedly agree! The computer should never be allowed to function unmonitored. Scott’s POS ServiceÓprovides the necessary tools to allow the retailer to control the ordering process by adjusting parameters within the inventory record such as “preferred on floor”, “Active/Inactive Status”, “Discontinue Dates & Flags”, “Seasonal Changes”, “Push Product Authorization”, “Re-evaluation dates”, etc.


2.      Store managers can selectively be given access to the tools governing the “Computer Assisted Ordering Process”, as required.


3.      Errors, omissions and mistakes on purchases orders are eliminated as well. Product codes cannot be accidentally transposed and unneeded or undesired product cannot be ordered.


4.      Progressive Grocer Magazine, in their February 15, 2004 issue stated “Just a simple error on one purchase order can create a wave of confusion throughout the grocery organization – from shipping and receiving to buying, merchandising and backroom inventory – and have detrimental impact on customer service and sales”.

12.     Total Elimination of Invoicing

1.      The instant the supplier confirms that product has been shipped to the retailer by issuing an electronic “Pre-Shipment Notification”, a record is generated for the retailer indicating the product is en-route to the store.

2.      When the product arrives at the retailer’s location, and the retailer scans the product’s arrival, an invoice is generated for the retailer in the supplier’s behalf and a copy is forwarded to the supplier and the retailer’s headquarters. If the retailer opts to accept the inventory as described in the supplier’s “Pre-Shipment Notification”, the invoice is created according to the supplier’s numbers.

3.      Progressive Grocer Magazine, in their February 15, 2004 issue stated “60 percent of all invoices generated have errors, 43 percent of invoices result in deductions, an each invoice error cost $40 to $400 to reconcile”. Let’s get rid of costly, error-filled invoicing once and for all.

13.     Total Elimination of Delivery Driver Theft

1.      “Delivery Driver Theft” has a negative impact on both the retailer and the supplier. By tracking the inventory from the warehouse to the store, Scott’s POS ServiceÓ monitors the entire process. When the inventory arrives, in the instance when product shipped is different from product received, the Scott’s POS ServiceÓ can instantly inform the supplier and the retailer of the discrepancy. The “invoice” may be created for items received OR items shipped, determined by the contract shared between the supplier and the retailer; however, the discrepancy is permanently logged and can be retrieved by both parties.

2.      The ability to track inventory from the supplier to the store in real time is a valuable tool to augment the receiving process.

3.      The Push Product Authorization feature with Scott’s POS ServiceÓ prevents the unnoticed receiving of unordered or undesired inventory while at the same time accepting unordered inventory when an agreement exists between the supplier and the retailer.


14.     DSD (Direct Store Delivery) Rack Jobber Controls and Tracking

Through the processes of Received Inventory and Returns Scott’s POS ServiceÓ assists the retailer and the supplier in recording and maintaining accurate and timely records on DSDs. Inventory received may be scanned in and inventory returned scanned out with the retailer given credit for returned merchandise and charged for the new inventory received. An invoice is instantly created and forwarded to both parties. 

15.     Communications Between Supplier and Retailer

Standardized, complete and electronic.

16.     Consumer Satisfaction

According to Barbara V. Anderson’s book, “The Art and Science of Computer Assisted Ordering”, consumers want “improved service, quality, price and ambiance at all locations” and have “no tolerance for an unpleasant or disappointing shopping experience”. ‘Consistency’ is the key to improving customer satisfaction. A consumer may switch stores if a retailer does not carry his or her favorite brand, but consistency in the brands that are normally available is even more important. Scott’s POS ServiceÓ can be used to insure that consistency in brands carried is maintained at its highest level.

17.     Store Level Procedures Strictly Enforced

1.      POS data is accurate and up-to-the-minute, allowing store-level procedures to be monitored and enforced in real time, allowing the retailer and the supplier to use POS real time activity and historical data to determine product needs at the individual store.

2.      Audits, transfers, sales and received inventory are constantly updated providing the most accurate inventory accounting and tracking system available anywhere in the world.

3.      Scott’s POS ServiceÓ monitors inventory and personnel problems and functions as an “Electronic Store Manager” constantly relaying store activity to headquarters and store personnel.

18.     Shrink

Shrink, spoilage, theft, grazing, it all adds up to one thing – lost profits. The Scott POS ServiceÓ is the perfect tool to lessen the occurrence of shrink. Frequent surprise audits have an enormous psychological effect on store employees. I have often heard retailers say that the idea you are being watched does more to curb shrink than any other management procedure. Management can make an on-demand request to audit a specific item in the store and receive an instantaneous rely in the form of an audit which will adjust inventory and report any discrepancies within seconds.


The need to track shrink over time is eliminated. The Scott POS ServiceÓ monitors each and every item as if it were the most important item in the store. Minor variances in profit, vendor selling price, turns and shrink allow the retailer to maintain a constant vigil.


19.     Remote Store Controls

A gentleman approached me recently with convenience store operations in Houston, TX, and with management located in Chicago, IL. With Scott’s POS ServiceÓ ‘logistics’ go out the window. You can monitor and run one store in Moscow, Russia and one in Melbourne, Australia from Chicago if you’d like.

20.     Managed Supplier Partnerships

Managed Supplier Partnerships enable the supplier to become proactive in helping the retailer manage his or her inventory. This is done through a centralized database, accessible by all authorized personnel. 


When Wal-Mart began to form Managed Supplier Partnerships with their suppliers, it was so profitable to their suppliers that Wal-Mart’s suppliers began to approach other retailers to adopt a similar strategy. The benefits to Wal-Mart are self-evident, but the benefits to the suppliers are enormous.


According to the book KMART’S 10 Deadly Sins, “One of Kmart’s biggest failures is that it failed to properly take advantage of Internet technology. The Internet has made it possible to link stores, POS systems, store headquarters and suppliers into a safe and secure network. Scott’s POS ServiceÓ provides the software and platform to make this possible.


21.     Miscellaneous Benefits

a.       Order determination or the elimination of the need for order determination

b.      POS audit

c.       Aid to forecasting

d.      Store Profit and Loss Statements

e.       Product analysis

f.        Aid to planning

g.       Reserve stock reduction

h.       Improved service level

i.         Promotion and season management

j.        Ability for the supplier to make interim stops between normal delivery cycles to replenish a store’s inventory

k.      An effective method for suppliers to announce promotions and new inventory availability

l.         Affordable for any size retailer

m.     Instantaneous cost changes from the supplier and POS retail price changes from store headquarters

n.       A reduction in back room safety stock


Scott Systems Inc & StoreReport are trademarks of ScotSystems Inc
205 David Sherman Rd - Newhebron, MS 39140 - (601) 847-6209
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