liquor control inventory management · dlc inventory 11 management 8/25/09 agenda introductions and...

CountyStat

Liquor Control Inventory Management

Department of Liquor Control

George Griffin, Director

CountyStat2DLC Inventory

Management

8/25/09

CountyStat Principles

Require Data Driven Performance

Promote Strategic Governance

Increase Government Transparency

Foster a Culture of Accountability


Management

8/25/09

Agenda

Introductions and meeting goal

Current DLC inventory policies and processes

Analysis of inventory and sales data

– Inventory turnover analysis of only products with on-hand inventory

– Overview of sales for all listed products

Survey of control jurisdictions’ best practices

Recommendations

Wrap-up


Management

8/25/09

Meeting Goals

Evaluate DLC inventory and sales data to develop a performance

measure that would assist in establishing inventory and sales goals

– Use this measure to streamline inventory practices in order to create greater

accountability and profits


Management

8/25/09

Importance of Evaluating Inventory

Excess inventory can tie up dollars that could otherwise be

used for another purpose

There are also operating costs associated with that inventory

– Insurance and taxes on inventory

– Rent and utilities for the warehouse

– Costs of markdowns due to age and obsolescence

– Payroll costs of moving inventory within the warehouse

– Inventory shrinkage and obsolescence

– Costs of not being able to merchandise more productive inventory in

its place

A closer examination of inventory can highlight where the

department is doing well, and where it can be looking to further refine

its inventory practices and improve performance.


Management

8/25/09

DLC Inventory as a Percent of Sales

Note: Data and calculations produced by DLC

0%

10%

20%

30%

40%

50%

2000 2001 2002 2003 2004 2005 2006 2007 2008

F i s c a l Y e a r2 0 0 02 0 0 12 0 0 22 0 0 32 0 0 42 0 0 52 0 0 62 0 0 72 0 0 8

I n v e n t o r y a s a % o f S a le s

18.13% 17.03% 16.73% 18.01% 16.51% 16.77% 15.47% 15.04% 13.06%


Management

8/25/09

Agenda







Recommendations

Wrap-up


Management

8/25/09


Overall Policies

Major policies on maintaining inventory Inventory is ordered to last a certain number of days

– Targets: Beer (20 – 30 days), Wine (Domestic: 30 – 40 days; Direct Imports (45-60 days), Liquor (Same as wines)

DLC keeps a certain level of safety stock on hand– 10 percent for restaurant with private labels (i.e. Clyde’s)

– Other products: the products DLC keeps are usually Allocated items kept on hand for National Accounts. There are over 15 National Chain accounts that usually require us to carry wines for their wine list but not stocked for other accounts.

County retail stores are considered an extension of the warehouse inventory– Licensees can purchase small quantities from County retail stores at a discount

Instituted a new policy for “slow moving” inventory– Products in inventory longer than 200+ days

– Recently started offering at discount to licensees

On average, DLC has to destroy approximately 300 cases– Product could be out of date or spoiled.

– DLC makes every effort to have manufacturer pay. Manufacturer pays majority of time.

Customer service is a priority goal– Philosophy to carry a wide range of products


Management

8/25/09


Ordering Products

Decision process for ordering and reordering

Retail store managers have autonomy in ordering products for their stores

– Store managers place orders based on vendor input

– How are individual stores and store managers evaluated on their sales performance?

DLC forecasts needed stock for licensees’ based on past sales, seasonality,

and freshness of product

Policy for deciding to stock a new product

Sales and pricing are 2 indicators along with sales support

Many item are associated with a large vendor and are part of National Roll

Outs or they are extensions of products DLC carries

Category needs

Decision for new products are made by a committee of retail, operations and

purchasing with Director’s final decision


Management

8/25/09

Inventory Shrinkage

T y p e o f P r o d u c t

B e e r S p e c ia lsB e e r S t o c kL i q u o r / W i n e

S p e c i a l sL i q u o r / W i n e

S t o c k

T o t a l A d j u s t m e n t s

$(16,984.98) $(77,767.88) $(123,752.50) $(84,786.96)

DLC collects data on the cost of inventory shrinkage, the unplanned or unwanted loss of inventory as a result of loss, damage, deterioration, etc.

On average, DLC has to destroy approximately 300 cases, because

the product is out of date or spoiled.

– DLC makes every effort to have manufacturer pay. Manufacturer pays majority

of time.

In FY09, total adjustments due to shrinkage amounted to $303,292.32

Note: Data and calculations produced by DLC


Management

8/25/09

Agenda







Recommendations

Wrap-up


Management

8/25/09

Goals of Analysis

By analyzing Liquor Control inventory and sales data, we can evaluate the

department’s current performance

– Department’s distribution of inventory and sales across different variables

– Inventory turnover, for department as a whole, by product type, and for individual products

This evaluation will inform whether changes to policies and/or procedures are

warranted and where to target those changes

Key Definitions

Product Line: A particular product offering under a brand name (i.e. Johnnie Walker Black v.

Johnnie Walker Gold)

Active Product: An active product is defined as a product which is available for purchase and

has had some activity within the last 18 months.

Annual Sales at Cost: Total number of cases sold times the cost of one case of that product

Inventory Turnover: The number of times a business sells its average investment in inventory

each year


Management

8/25/09

Methodology

DLC provided sales data over the last 12 months and a point-in-time

snapshot of warehouse and retail store inventory

– Sales: August 08-July 09

– Inventory: July 09 (Currently, DLC does not keep historical inventory data.)

CountyStat analyzed:

– Overall inventory turnover ratio

– Inventory turnover by product category (spirits and wine)

– Distribution of product lines by the number of inventory turns

– Distribution of sales across product categories

– Distribution of product lines and annual sales by the number of cases sold

This analysis of inventory and sales will allow the department to

evaluate its current performance and focus attention on those

products that are dead or slow-moving inventory.


Management

8/25/09

Methodology – Caveat to Using Inventory Data

Current inventory information provided to CountyStat lacks data on beer, and a portion of wine and spirits

– To make an apples to apples comparison, those sales were removed from inventory turnover calculations

Because DLC does not maintain detailed historical inventory valuations, CountyStat used July’s inventory value as the basis for this calculation.

– CountyStat made the assumption that July is a typical month in terms of inventory investment

– Accuracy can be improved by using historical data to develop a 12-month average

In the future, DLC could capture this value each month for all products in order to calculate an average inventory investment


Management

8/25/09

Annual Inventory Turnover

Turnover is the number of times a business sells its average investment in inventory each year

– Calculated with the following formula:

Sales at Cost during the Past 12 Months Average Inventory Investment during the Past 12 Months

Higher ratio leads to lower required inventory investment

– Example: Product with $10,000 annual sales; average inventory investment of $1,000; inventory turnover ratio of 10

This analysis includes only those items with at least 1 case in inventory

Inventory turnover measures how quickly inventory is moving

through the warehouse. Combined with other measures, such as

customer service level and profit margin, inventory turnover can

provide an accurate barometer of success.

Note: This distribution contains only those products with inventory on-hand in the month of July (52% of total

annual sales); Beer is not included in this distribution; DLC does not have inventory data for those items.


Management

8/25/09

Overview of Annual Sales

Products with inventory on-hand v. all products

$0 $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 $70,000,000

Beer

Spirits

Wine

Adjusted dollars (in yellow) only includes sales from products with

inventory on-hand in July and is the focus of this analysis.

Annual sales at cost Annual sales at cost (adjusted to

include only products in inventory)

P r o d u c t T y p eB e e r S p i r i t s W i n e

A n n u a l S a l e s$57,959,211 $43,152,233 $57,370,740

A n n u a l S a l e s ( a d j)$0 $38,429,077 $44,943,091


Management

8/25/09


A n n u a l S a le s a t C o s t(Beer, Wine and Spirits less items without corresponding inventory value and items with no inventory on hand)

$83,353,648

I n v e n t o r y V a lu e ( J u l y )$11,687,712.61

A n n u a l D L C I n v e n t o r y T u r n o v e r7.1

The Department of Liquor Control sold its inventory investment 7.1

times over the past 12 months, assuming July is a typical month.

The annual cost of maintaining DLC’s inventory is $7.98 million.




Management

8/25/09

Annual Inventory Turnover by Product Type

Spirits and Wine

P r o d u c t T y p e

A n n u a l S a le s a t C o s tI n v e n t o r y V a lu e ( J u l y )A n n u a l T u r n o v e r

S p i r i t s $38,429,077 $4,671,754 8.2

W i n e $44,943,091 $6,969,890 6.4

Spirits had a higher annual turnover than wine over the past 12

months. This means that on average, wine products move more

slowly through the warehouse than spirits products.




Management

8/25/09


All Products

A n n u a l T u r n o v e r b y P r o d u c t

# o f P r o d u c t L i n e s

I n v e n t o r y V a l u e

% I n v e n t o r y V a l u e

% T o t a l A n n u a l S a l e s ( a t c o s t )

< 01 $344 0% 0%

0-2 597 $1,453,380 12% 1%

2-4 488 $2,087,614 18% 8%

4-6 522 $2,726,010 23% 17%

6-8 382 $2,048,893 18% 17%

8-1 0252 $1,369,864 12% 15%

> 1 01,109 $1,957,873 17% 42%

T o t a l 3 , 3 5 1$ 1 1 , 6 4 3 , 9 7 7 1 0 0 %1 0 0 %

There are 212 product lines in stock that had zero sales during the

last 12 months, 5% of total product lines in stock, valued at approx.

$232,000. 77% of that value is in wine and 23% is in spirits.




Management

8/25/09


Products with no sales over last 12 months

C o s t p e r C a s eP r o d u c t

L i n e sI n v e n t o r y

V a l u e

A v e r a g e C o s t p e r

C a s e

M a x i m u m C o s t p e r

C a s e

M i n i m u m C o s t p e r

C a s e

$ 0-2 0 0161 $127,839 $100 $200 $21

$ 2 0 0-4 0 035 $58,624 $274 $384 $200

$ 4 0 0-6 0 07 $10,552 $495 $589 $441

$ > 6 0 09 $34,860 $2,157 $5,870 $675

T o t a l 2 1 2$ 2 3 1 , 8 7 4$ 2 2 9$ 5 , 8 7 0$ 2 1

For those 212 product lines, most were $200 or less per case in cost.

On average, this group cost $229 per case, compared to $105 per

case average of all products in inventory.


Management

8/25/09


Wine

A n n u a l T u r n o v e r# o f P r o d u c t L in e s% I n v e n t o r y V a lu e% A n n u a l S a le s

0 – 5 1 , 1 4 75 2 . 3 %2 1 . 1 %

5 – 1 06 9 43 5 . 1 %3 7 . 2 %

1 0 – 1 52 6 76 . 6 %1 2 . 1 %

1 5 – 2 01 4 32 . 4 %6 . 3 %

2 0 – 3 01 7 01 . 9 %7 . 1 %

> 3 03 0 21 . 8 %1 6 . 2 %

0%

20%

40%

60%

80%

100%

0 – 5 5 – 10 10 – 15 15 – 20 20 – 30 > 30

%Inventory Value %Annual Sales

%Inventory Value compared to %Annual Sales




Management

8/25/09


Spirits

A n n u a l T u r n o v e r# o f P r o d u c t L in e s% I n v e n t o r y V a lu e% A n n u a l S a le s

0 – 5 1 9 82 6 . 2 %1 0 . 6 %

5 – 1 01 8 65 0 . 7 %4 6 . 1 %

1 0 – 1 59 11 8 . 2 %2 7 . 1 %

1 5 – 2 04 32 . 5 %5 . 0 %

2 0 – 3 03 81 . 3 %3 . 5 %

> 3 07 11 . 2 %7 . 6 %

0%

20%

40%

60%

80%

100%

0 – 5 5 – 10 10 – 15 15 – 20 20 – 30 > 30

%Inventory Value %Annual Sales

%Inventory Value compared to %Annual Sales




Management

8/25/09

Analysis of Inventory Data

Findings

DLC’s annual inventory turnover is 7.1, meaning that its inventory has been sold approximately 7 times over the last 12 months

Turnover for spirits is higher (8.2) than wine (6.4)

Wine

52% of inventory value is in products with 5 or less turns annually (21% of annual sales)

– 18% of inventory value is for products with 2 or less turns annually (1% of annual sales)

17% of inventory value is in products with 10 or more turns (42% of annual sales)

– 2% of inventory value is for products with 30 or more turns (16% of annual sales)

Spirits

26% of inventory value is in products with 5 or less turns annually (11% of annual sales)

– 5% of inventory value is for products with 2 or less turns annually (<1% of annual sales)

13% of inventory value is in products with 10 or more turns (42% of annual sales)

– 1% of inventory value is for products with 30 or more turns (8% of annual sales)


Management

8/25/09

Agenda







Recommendations

Wrap-up


Management

8/25/09

Cases Sold

Drilling down into products that sold 1,000 cases or less, the greatest

percentage of annual sales at cost and cases sold are products selling

101-200 cases.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

<1 1-100 101-

200

201-

300

301-

400

401-

500

501-

600

601-

700

701-

800

801-

900

901-

1000

>1001

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

%Annual Sales Product Lines

Pro

du

ct L

ine

s

% A

nn

ua

l S

ale

s



Cases Sold


Distribution of products by sales (# of cases sold)

Products with on-hand inventory only


Management

8/25/09

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

<1 1-100 101-

200

201-

300

301-

400

401-

500

501-

600

601-

700

701-

800

801-

900

901-

1000

>1001

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

%Annual Sales Product LinesCases Sold

Pro

du

ct L

ine

s

Drilling down into products that sold 1,000 cases or less, there is

similar product line distribution; the greatest percentage of annual

sales at cost and cases sold are products selling 1-100 cases.

% A

nn

ua

l S

ale

s



All listed products


Management

8/25/09



Spirits & Wine - Products with on-hand inventory only

C a s e s S o ldS p i r i t s W i n e

P r o d u c t L in e sA n n u a l S a le sC a s e s S o ldP r o d u c t L in e sA n n u a l S a le sC a s e s S o ld

< 140 - - 172 (344) (1)

1-1 0 0375 $2,414,786 16,906 1,411 4,423,553 51,714

1 0 1-2 0 0191 $3,581,531 27,777 520 5,579,032 76,179

2 0 1-3 0 076 $2,516,089 18,651 303 5,016,338 74,080

3 0 1-4 0 056 $2,321,589 19,229 172 4,257,185 59,343

4 0 1-5 0 033 $1,814,279 14,673 121 3,212,229 53,971

5 0 1-6 0 022 $1,290,558 12,117 80 2,810,443 44,249

6 0 1-7 0 028 $2,243,420 18,220 56 2,258,683 36,408

7 0 1-8 0 016 $2,138,888 12,042 48 2,028,895 36,080

8 0 1-9 0 014 $1,536,016 11,767 30 1,295,574 25,787

9 0 1-1 0 0 010 $1,046,844 9,612 25 1,392,128 23,517

1 0 0 1-1 0 , 0 0 067 $17,525,076 142,234 135 12,669,374 270,669

1 0 , 0 0 1–1 0 0 , 0 0 0- - - - - -

> 1 0 0 , 0 0 0- - - - - -

T o t a l 9 2 8$ 3 8 , 4 2 9 , 0 7 7 3 0 3 , 2 2 8 3 , 0 7 34 4 , 9 4 3 , 0 9 1 7 5 1 , 9 9 6



56% of total annual sales at cost are from product lines that sell

between 101 and 1,000 cases per year.


Management

8/25/09



Beer, Spirits & Wine - All listed products

C a s e s S o ld

B E E R S P I R I T S W I N E

P r o d u c t L i n e s

A n n u a l S a le sC a s e s S o ldP r o d u c t

L i n e sA n n u a l S a le sC a s e s S o ld

P r o d u c t L i n e s

A n n u a l S a le sC a s e s S o ld

0 547 - - 795 - - 7,074 $(2,952) (15)

1–1 0 01,182 $870,710 22,116 1,243 $5,021,648 35,646 10,392 $13,947,856 144,652

1 0 1-1 , 0 0 0494 $3,973,167 185,683 534 $20,430,062 160,460 1,578 $30,546,821 471,592

1 , 0 0 1–1 0 , 0 0 0

303 $15,805,980 941,753 68 $17,700,523 144,169 138 $12,879,015 275,622

1 0 , 0 0 1–1 0 0 , 0 0 0

72 $24,736,912 1,899,497 - - - - - -

> 1 0 0 , 0 0 05 $12,572,443 733,661 - - - - - -

Looking at beer, wine and spirits, the greatest percentage, 35%, of

total annual sales at cost are from product lines that sell between 101

and 1,000 cases per year.

Note: This distribution includes all “active products” listed with DLC in their sales database. An active product

is defined as a product which is available for purchase and has had some activity within the last 18 months.


Management

8/25/09

Analysis of Sales Data

Findings

When looking at only those products with inventory in July, annual sales

is split between wine (54%) and spirits (46%)

– The greatest percentage of total annual sales are from product lines that sell between

101 and 1,000 cases per year

– Drilling down into products that sold 1,000 cases or less, the greatest percentage of

annual sales and cases sold are products selling 101-200 cases.

– DLC has 212 product lines in stock that had zero sales during the last 12 months (77%

wine; 23% spirits).

Looking at all active products listed, beer and wine comprise the greatest

percentage of annual sales

– 53% of offered product lines are in the 1-100 cases sold range

– The greatest percentage of total annual sales are from product lines that sell between

101 and 1,000 cases per year

– Drilling down into products that sold 1,000 cases or less, the greatest percentage of

annual sales and cases sold are products selling 1-100 cases. (53% of annual sales

are from products that sold 1,000 cases or more)

This sales overview, coupled with inventory turnover, will allow the

department to establish inventory and sales goals and streamline

inventory practices to create greater accountability and profits.


Management

8/25/09

Agenda







Recommendations

Wrap-up


Management

8/25/09

Control jurisdictions’ best practices

Operating on a bailment inventory system

– Under bailment, the suppliers continue to maintain ownership of their own inventory while it is in the warehouse. Stock remains under the control of the supplier. The liquor becomes the property of the jurisdiction when it is shipped from the distribution center to retail outlets.

“New product listing” process as an important business practice

– Idaho has formal listing meetings and requires information on marketing, targeted customers, and sales projections on each potential new product. Products are given an 18-month trial period; products which fail to meet goals may be de-listed.

Improving inventory management by improving use of technology

– Oregon implemented an inventory management system to replace its mainframe set-up. This improved its ability to organize and locate inventory, fulfill orders on time and meet its standards for customer satisfaction. It also makes use of software to forecast inventory needs and adjust for freight costs and retail price changes.


Management

8/25/09

Recommendations

Collect inventory-on-hand data for all products on a monthly basis to confirm

inventory turnover analysis

– Collecting this key piece of data over time will improve DLC’s ability to measure its

performance

Track inventory turnover as a performance measure for the department as a

whole

– Track turnover by individual product to help DLC make decisions about future product

purchases

Develop a low turnover threshold for products and a protocol to evaluate

whether to continue to stock those products

– Consider eliminating brands with low turnover or at least low performing products within

brands (i.e. E&J Gallo = 26 turns; Duboeuf = 2 turns)

Conduct a cost-benefit analysis of using the special order process, rather

than stocking products with low turnover

– Increasing special orders might be one way to lower the need to stock slow-moving

products and free up warehouse space for more popular products

Combined with DLC’s other performance measures, inventory

turnover can provide an additional method of evaluating

performance.


Management

8/25/09

Example of Special Order Policy

Utah Department of Alcohol Beverage Control

Utah has a formal special order

policy and provides information

online to consumers

– This service is provided without

additional fees for consumers who

desire products the agency does

not stock or list

– Expectations of turnaround time

are listed

– The option to pay extra for special

shipping arrangements is also

offered

– An email contact form is provided

at the bottom of the page

This is one example of a formal, advertised special order policy and

process.


Management

8/25/09

Meeting Goals

Evaluate DLC inventory and sales data to develop a performance

measure that would assist in establishing inventory and sales goals

– Use this measure to streamline inventory practices in order to create greater

accountability and profits


Management

8/25/09

Wrap-Up

Confirmation of follow-up items

Time frame for next meeting

liquor control inventory management · dlc inventory 11 management 8/25/09 agenda introductions and...

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