How To Control Rental Merchandise
Merchandise Control is such a huge area of any processing plant… from choosing the right textile, to processing it correctly, to getting it back after delivery. Any of these three areas can make or break a laundry, whether you service inside or outside Customers!
Step 1: Choosing the right textile for the application… getting the right product in the right place at the right cost (price).
Buying the cheapest unit priced product isn’t always the lowest cost. In fact, buying the lowest priced product isn’t always the best answer for the Customer or for you. Let’s start with Customer requirements and expectations. What quality and other attributes do they expect or can give you a differential from your competition? For instance, if most of your competition in your local marketplace is offering a 28 ounce per dozen full terry bar mop, can you differentiate by offering a 32 ounce per dozen ribbed terry bar mop. And if you do, what are the positive “wear life” ramifications for your operation? What does an improved product do to your “ragouts” percentage? As operators, we need to measure true cost and not just the price of the textile. Additionally, it is important for you to balance your product selection between marketing and cost issues.
“Life-Cycle Costing” is a term that is thrown around loosely; and yet, if understood and implemented, can prove what is “right” for the operation. Very simply, follow this math routine. If you buy a textile at30 cents per unit and it has a life of 10 washes, the life cycle cost is 3 cents per serving. If you buy a textile for 40 cents per unit and it has a life of 20 washes, the life cycle cost is 2 cents per serving. Therefore (in this example), by spending 30% more on the product, you actually gained 100%servings, and your cost is 30% less. Yes, the price is 30% higher, but the true cost is 30% less.
This is an equation that isn’t used that much in our business, but would change a lot in terms of merchandise cost if employed regularly during the product selection process. Life-cycle costing will guide you to buy the best textile for the best price… and show you the true difference between price and cost.
“Freight” is a huge consideration when looking at your cost. There really is no free lunch. If your supplier pays the bill, it has to be worked into their cost. Many times, especially in larger metro areas, it is much more cost efficient to cut your own freight deals and pay it yourself. Additionally, consolidating your shipments instead of a lot of small orders can save you a lot of money. This is best handled by buying your large put–in buys monthly rather than weekly.
Another issue to consider when buying a product for your operation is “Product Integration.” Does it meet or exceed the current plant standard? Does the packaging and case pack affect the put-in labor? Does the fabric match your current offering.. color, weight, weave? Is it “too good” for the standard… causing the integration period to drive customers to want ONLY your new product? All of these are heavy considerations as you choose the right textile for your operation.
Step 2: Proper processing in your plant can either extend or wear out products.
“Processing” is another key element in merchandise cost. You can inadvertently wear out products prematurely by improper soil sorting, chemicals overuse, formula water levels, underloading, formula time, formula temperatures (heat) or extraction. When you are dealing with premature wear-life of products, it is either in this area or in the application from the user (Customer misuse). It is important to work both your product supplier and your chemical company in this review, as these problems can typically be discovered and solved fairly easily. Some of the key results in improper processing are: alkaline hydrolysis, shrinkage, redeposition, bleach damage, placket crease, thermal shock, polyester heat damage, excessive linting, excessive pilling, excessive fading, hanger molding, compression wrinkles. Bottom line… if you have premature wear-out of textiles, it’s either the wrong textile for the job, or its been abused in the laundry process or by the Customer. In any of these cases, the first step is recognition.
Step 3: Getting your product back after delivery (and in rentable form):
Another key issue in merchandise control is “Loss & Abuse Recovery.” Some companies count their soil, inspect it, and charge for abuse and replacement. Other companies don’t count and simply charge an “inventory maintenance fee” to cover average losses. The bottom line on whether this is working is a simple formula as follows:
- How many pieces of are you putting in for inventory maintenance to cover your loads?
- How many pieces does your loss/abuse revenue cover (whether direct or in a maintenance charge?
The difference in these two numbers could show you the black hole of missing merchandise. If you are putting in more than you are getting paid for, and you are using the maintenance fee, it would be apparent that one or some of your accounts are abusing the system by either damaging or losing more merchandise than you are recovering through revenue. You may have to isolate these accounts and put them back on a soil count system rather than a maintenance program.
“Product ReUse” is the next consideration, and most operators do a marvelous job in this area. For instance… using your downgraded bar mops for Turk towels. Dyeing hand towels for automotive cleanup, etc. As you choose your products, it is important to consider their “second life.” Otherwise, you must measure your cost of “ragout” and choose a product and placement that can give you the longest life. If you are ragging out products directly from their first life to junk, consider a second tier product that you can introduce to reuse them. It is important to establish what the military terms “command and control” in your operation. Your merchandise is one of the most costly areas of our business, and typically the area where unknown and unaccounted for shrinkage occurs the most.
First, establish “Security” in your operation. Your flat goods should be held within a fenced crib, where only authorized employees can enter. Your backup inventory area should also be secured so that unauthorized personnel cannot get to it. Your stockroom should be secured as well, with only authorized employees allowed within. If you cannot crib your areas, then it is suggested that a bold yellow line is painted on the floor. In securing your area, it is important to post “Authorized personnel only” signs, cover this issue in your orientation documents and then reinforce your security rules at every employee meeting. Specifically, it should be completely against company policy for a route person to pull their own load or fill their own garment orders. Wanna’ see stuff disappear into the black hole? Just open up your hen house to the fox. I mean no disrespect to the fine route personnel who serve our industry. That’s where I started myself. But why would we want to dangle the carrot we don’t need to. It isn’t that route personnel typically “steal” the goods. Many times, uncontrolled merchandise ends up at your Customers, and they are not being billed for it. Any good route person worth his or her salt has extra goods on the street. We just don’t want to invite this practice.
The “Product Flow” within your operation must have a proper paper trail in order to control your inventories. This even means, if a manager is filling a “shortage,” there should be a signed document from a manager one level higher who has authorized the fill. Personally, I would authorize this sort of emergency or shortage activity only at the GM level.
All movement of merchandise to and from your operation should be secured with a properly executed inventory control document. Your plant employees should be trained to fill these orders only with proper authorization.
Many operators install video equipment and signage at all exits to monitor all merchandise movement. If this is done thoroughly and talked about in your meetings, employees will be motivated to assist you in merchandise control and understand that this is a high cost in your operation. The video equipment is certainly meant to make people think about taking unauthorized merchandise, but also a way for you to monitor the proper flow within and from your plant.
Now… one of the most misunderstood and frustrating parts of merchandise control… “Put-InManagement.” This is an area that can truly show you how much you may be losing… to customers,employees, product quality and wash/finish process. Start with any control period (week, month,quarter), and take your total starting inventory. Now add your organic growth… the invoiced increases in pieces per product, as well as new items added to accounts. Subtract your invoiced decreases in pieces by-product, as well as item cancellations from accounts. Very important now to measure and subtract your product “down-grades” and “rag-outs” from the mix, by product. The balance of this inventory exercise is what you should have in stock. Considering all this, if you are still short product to fill your loads, you have identified a black hole. Merchandise that you now have to buy and put-that has not been paid for by loss or damage charges, or that has been reconciled in any way. The amount you are out of balance in this exercise will show you whether your problem is large enough to implement some of the other operational controls discussed here.
“Stockroom Management” as it relates to merchandise control is a fine balance between product reuse and customer satisfaction. First, set up visual standards for your grading and establish 3grades at the least: near new (A), standard grade (B), utility grade (C). Keep your new and near new goods apart and away from your standard goods. If an order comes in for standard goods and cannot be filled, it should not be an easy task to fill with new. Put your new goods in another area, across the aisle, etc. Implement a second level management authorization to fill “B” grade orders with “A” grade garments. And if goods need to be ordered from a manufacturer, the highest level of management in operation should be in the review/approval cycle. There are many other tricks of the trade in the stockroom, but one of the most widely used is hemming pants to fill shorter inseam orders (rather than order new), as well as cutting sleeves for short sleeves when necessary and when inventory allows.
“Route Control” is one of the most key merchandise control areas for any operation. In some cases, shrinkage can occur through theft. But in most cases, shrinkage occurs when extra (free)merchandise is given to Customers. Customers love it, and it keeps your route personnel in good stead with them. The problem is…you pay for it and get no revenue! Try a true unannounced audit of suspect route. Start by validating the actual goods that are being sent out on the load. Have a manager pre-count them before they are loaded. When the truck comes in, count in the soil, count in all clean return and balance it against the load sheet. Any discrepancies should be discussed directly with the route person, with the Owner and/or GM present. Take it seriously, and they will too. Take appropriate action when necessary, and make it count.
“Route Rides” by plant management are probably the most effective way to get a handle on extra merchandise on the route. The manager should actually inventory accounts on the route ride and reconcile the extra goods. Keep in mind that this is not an audit of the customer, but rather of the route person. At the customer site, you are not only looking for extra inventory; you are looking at how the soil is coming in. Are they using all your bar towels for grill pads? Are they using your shop towels to wipe off Bondo putty, etc.? The ride along should be documented and reviewed with the route person and key management.
Merchandise control doesn’t have to be all doom and gloom. It can be fun and rewarding as well. Oneway to make it fun is to implement an annual (or semi-annual) “Inventory Correction & AccountGrowth Contest”. The basis of this contest is either bring it back or get the Customer to pay for it…but balance the inventories with the invoices. Typically, routes are paid new business commission on“add items” only, and not increases. In this case, authorize commissions for the length of the contest(recommended at 6 weeks) on all inventory increases. This allows the route to fix the invoice by adding the additionally used inventory instead of bringing it back. The commission will motivate any route person worth their salt, as they never get extra money just to fix invoices. This contest can be taken further to organically grow your business, but that is a different discussion. Another upside to this contest (other than getting paid for the product you have in the field) is that you don’t have to buy extra merchandise to support the growth revenue… it’s already there! Given the choice of bringing goods back and putting them into your “amnesty cart,” experience has proven that most route personnel prefer to fix the invoice and make some money. Additionally, when customers are faced with either sending the goods back or paying for it, they will typically approve adding it to their invoice. These aren’t “extra” goods… they need them!
So let’s review the 12 key elements and indicators of controlling your merchandise costs:
1) Product placement within accounts
2) Life-cycle costing
3) Freight cost considerations
4) Product integration
5) Loss & abuse recovery
6) Product reuse
7) Facility Security & Product Flow
8) Put-In Management
9) Stockroom Management
10) Route Control
11) Processing & Customer Mis-use
12) Inventory Correction Initiatives
As you think about your own operation, use these 12 steps to evaluate and measure where you are.
Merchandise Control in these 3 areas can make or break you.
Steve “KBach” Kallenbach
Steve Kallenbach (known as KBach) has been in the uniform/image apparel and textile rental industry for over 40 years; from Route Service to Sales Manager, Plant Manager, General & Regional Manager, Reseller Business Owner, and now Chief Marketing Officer at ADI™.
For more information, contact Steve “KBach” Kallenbach at American Dawn 800-821-2221 or firstname.lastname@example.org