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The Incredible Shrinking Inventory
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Date/Edition: Oct 2006
Publication: Day Spa Magazine
By: Robert & Julie Cass begin_of_the_skype_highlighting end_of_the_skype_highlighting
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Your Operational Checklist:
Keeping Profits Above the Line
Amazing treatments, fantastic service and your guests are singing your praises. This should all add up to a tidy profit, right? Hopefully, but not necessarily.
Your purchasing, receiving, and inventory control strategies represent key elements to making a profit in any spa operation. Each requires consistent and diligent scrutiny to insure that the hard earned money invested into the retail and professional product are used to the fullest potential.
These common principles of control apply to any size of spa. Often the paperwork and time involved in tracking your products and inventory seems like the last thing you want to do at the end of the day. The difference will show at the end of the month when you see a profit at the bottom right corner of your financial statement. It is not exciting or glamorous but it will make you money.
GENERAL PRINCIPLES
The concept behind these controls is to provide the proper care and protection for the business while respecting the integrity of the people working in it. Staff may feel that you don’t trust them because they have to fill out paperwork and “sign off” when they take products from a storeroom or have a second person double check a count. Firmly establish and clearly communicate to the team that it is not that you don’t trust them you are simply building a system where you can trust everyone.
Where shrinkage occurs in the United States:
Source of Inventory Shrinkage % of Loss* $ Lost
Employee Theft 48.5% $15.1 billion
Shoplifting 31.7% $9.7 billion
Administrative Error 15.3% $4.8 billion
Vendor Fraud 5.4% $1.7 billion
Total Inventory Shrinkage $31.3 billion
*total not equal to 100% due to rounding
Source: National Retail Security Survey, November 2002
(based on 2001 retail sales and inventory shrinkage)
Build a system where they cannot steal rather than having to worry if they are.
Have different people perform the various duties relating to your purchasing, receiving and inventory strategies. The segregation of duties makes your system difficult to violate. By separating these duties you are much more likely to have accurate information, because of checks and balances, and much less likely to have theft impacting your business.
PURCHASING
Begin to set up your system by determining the needs of your particular spa. The size, scope and resources of your business will help you make the right choice.
When purchasing for common items shop around as there are many supplies who can deliver the same basic products. Get multiple quotes on larger purchases as prices can vary 20% to 30% for the same item. Ask about shipping costs and customs charges as it can alter your buying decision.
Don’t forget, don’t be afraid, and don’t apologize for negotiating! This practice is common and your suppliers will expect you to do so. By getting the best possible price for your items you are simply helping yourself and the business you are in. It is not being cheap or difficult but rather a shrewd business person. The supplier is an astute business person and is looking to maximize their profit. They will only go as low as they can go with encouragement from you.
By building a good relationship with a few keys suppliers you can minimize the number of suppliers you have. The benefits for you are better overall pricing and supplier loyalty. This also aids in minimizing deliveries to the spa and accounting paperwork.
Get your suppliers to work for you. Cristina Ramirez begin_of_the_skype_highlighting end_of_the_skype_highlighting, Vice President of Intercosmetics Spa & Beauty Supply has seen this benefit both sides of the relationship. “A few clients asked us to help with order forms and it really helped them. Now if any clients do not have computer system we will create a custom order form just for them. This way they can quickly send us orders without having to call and talk to a person and it also insures we get all the information we need so we can efficiently deliver the products.”
TYPICAL DAY SPA CONTROL SYSTEM
The Manager/Owner begins by creating a Purchase Order (P.O.). Computer generated, or manually, that is set up in advance with all of the supplier information.
The P.O. is then signed by a designated senior manager/owner. This is an important step as it places the accountability on the senior member of your team who should be well educated on the expectations of the company.
The order is placed via fax or email. Avoid verbal ordering whenever possible as it lends itself to human error, mistakes and problems. Cristina Ramirez begin_of_the_skype_highlighting end_of_the_skype_highlighting, concurs, “Having a clear and legible order with all the necessary information on it makes it much more efficient for us to deliver to our customers only the items they want and on the timeline they need."
TIPS
Ø Restrict access to the computers ordering/purchasing module. Many spa staff are doing treatments in their homes that could use extra product. Make sure it is not yours.
Ø Assign the responsibility of purchasing to one person to insure that items being ordered are necessary, timely and appropriate.
Ø Separate retail and professional lines to insure proper organization and tracking.
RECEIVING
The goods are received and the packing slip is compared to the P.O. and what is delivered. Any shortage, overage, damage, error or omission is to be reported to Manager/Owner. The receiver should sign on the packing slip that the goods are in good condition and the count is accurate.
An Overage means you are accepting goods you do not need and ties up cash flow.
A Shortage means you are missing potential sales because you do not have the product on hand. If the shortage is not caught you could also be paying for something you did not receive.
Any discrepancy must be followed up directly with the supplier.
Christine Pearson begin_of_the_skype_highlighting end_of_the_skype_highlighting, Spa Director at Stillwater Spa at the Park Hyatt Toronto knows how important his can be, “We have a tremendous amount of volume in our retail operation and having strong receiving controls is crucial. It keeps our team focused on good business practices, also keeps our suppliers on their toes when they know we are watching.”
Once the quality, quantity and cost of the items are satisfied they will be issued to the storeroom/distribution centre and the items are posted in the system to update your inventory counts.
TIPS
Ø Attach the P.O., invoice and packing slip together and keep in a file under each supplier for easy reference.
Ø You can always refuse Back Orders if you realize they are not needed.
Ø Have one area to receive items to avoid confusion and items going “missing”.
INVENTORY
Inventory counts for retail and professional product must be done every month without fail. It is critical to identify problems quickly so they can be corrected and avoid future issues.
A manager should to be present with another member of the spa to do the monthly count. Preferably the same person each month does the counting to insure speed and consistency of the counts. Time is money!
Inventory counts must be done “blind”, meaning the person(s) who are doing counts do not to have last month’s inventory counts available to them. Why “blind”? This makes it difficult to “fudge” the numbers and have someone be stealing from a storage area as they are not sure how many items should be on hand.
Summer Ellis begin_of_the_skype_highlighting end_of_the_skype_highlighting, Spa Director of Avia Spa & Salon located in Santa Barbara, CA states that, ”With the busy day to day demands of our spa it is critical that I know my inventory is accurate so I don’t miss any sales opportunities and I also know nothing is walking out the door without a sales receipt attached to it.”
The spa then has a theoretical and actual count. The theoretical count is the one in the computer that has calculated your last month’s inventory, added purchases, deducted your sales, and came out with a total. The actual count is the physical count just completed.
Subtract your actual count from your theoretical count. You must to have an answer to any discrepancy on your inventory.
TIPS
Ø Coordinate count sheets with your storage area to make counting go faster.
Ø Update the computer to have the actual count on hand after each month end count. This will keep your next month inventory accurate.
Ø Have sign out sheets in storage areas to record professional products usage. Update your system to reflect a proper inventory. Review these sheets monthly to insure the usage and location of the product was appropriate.
Ø Issue keys to individuals for storage areas with signatures of responsibility. Eliminate any extra or unnecessary keys.
Ø Review storage areas for security effectiveness. Locks fit and are in good working condition. Closers to insure doors are not left open.
Ø Install a security system.
So keep performing those amazing treatments and delivering that amazing service so your guests keep singing your praises. Now armed with some of these simple guidelines to controlling your costs you can start reaping some of the rewards and keep your profits above the line..
Need helping starting your spa? Contact Spaformation at help@spaformation.com
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