Your hidden profit center made easier by EDI.
A lot of the buzz words you'll hear today and many of the new, popular technologies such as EDI (electronic data interchange), Just In Time, and Video Cataloging are enhancing the ability of both small and large furniture retailers to build their special order business.
It's like the novice lady of the evening said after her first night on the town, "What a business! You got it, you sell it and you still got it!"
Special orders are even better... you never had it in the first place, you sell it, get a deposit, never carry it in inventory and never have to take a mark down!
It's a fairly well accepted fact that the higher your G.M.R.O.I. (gross margin return on inventory), the higher your net profit. Your G.M.R.O.I. is a simple calculation; you divide the annual gross margin by the average inventory and you'll come up with a figure of between $1.50 for low performers and as high as $3 or $4 for high performers.
Much of the typical retailer's overhead is directly related to the amount of inventory carried. Just an excess of $100,000 in inventory (existing in even small stores) can add as much as $30,000 to overhead. And that's just the tip of the iceberg. Over inventory can cause temporary moratoriums on buying which in turn result in 'out of stocks' in best sellers. This factor can cost many times the dollars wasted in carrying excess inventory.
The trick, of course is to keep best sellers flowing, to quickly move out the slow sellers and to give your customer a massive selection by encouraging special orders.
EDl speeds up communications between retailers and manufacturers. When coupled with manufacturing 'Just In Time' programs which speed up the delivery response time for specific orders, EDI results in higher levels of customer satisfaction in this age of instant gratification.
Presently the 'piece de residence' is video cataloging which has caused much enthusiasm among retailers of home furnishings. Many are saying that they are making sales that they would have lost without this new technology (see Furniture World, Canadian Scene, October 1994).
Until now, problems with special orders included: slow manufacturer response times, lack of information on the retail level concerning the status of special orders and the inability of most customers to visualize the finished product from small swatches of fabric. Today, video catalog systems allow the customer to view the product exactly the way it will look when upholstered, and computer management systems are available that keep the dealer informed about the status of special orders... allowing them to avoid potential customer service problems.
And who would object to having tens of thousands of dollars in the bank long before the invoice was due? Frankly, concentrating on special orders helps to capitalize the rest of the business.
Sid Levitz is the founder and CEO of Sid Levitz Furniture Marketing systems and former president Of Levitz Furniture Corporation. Questions on this or other articles can be directed to firstname.lastname@example.org.