The anatomy of planning

By Wally Lynch P.A.I.D. Associates

ents: products, advertising, pricing, and distribution with each having goals, objectives, and desired results.

All three planning concepts have been around a long time with successful companies embracing their use. Planning progresses when understood, scheduled, and implemented. About mid-fiscal year current performance can be extrapolated against history and new projections can be made. Lots of books are written on these three methods, but, like other knowledge banks, they're useless unless assimilated and executed.

No matter what formal planning you do, everyone must be concerned with two areas: the financial effect and the focus needed to achieve beneficial

Story at a Glance

Reasons why a store should begin planning lor '93 now explanation of strategic, business and marketing plans...ways to implement... competition and survival benefits.

change. Few owner/managers can measurably influence customer demand beyond their immediate trading area on a sustained upward basis. Conversely, management can markedly and continuously influence expenses and operating structures and deficiencies.

Our industry generally generates pretax profits of around 2% of sales. To cover each dollar of expense, a company must achieve $50 in sales. If you reduce expenses by one dollar, it is as if you have made $50 in sales. Similarly, a $10 reduction is like $500 in sales. Save $100 and it can substitute for $5,000 in sales. Cutting costs $1,000 per month is tantamount to a $60O,O0O annual sales increase.

Note the reverse applies as well. If you add a manager at $25,000 per year, it will take $1,250,000 in sales to generate enough profit to pay the salary.

Every company has four main areas of outgo: people, communication, product, and occupancy expense. Management can and should control these cost centers, but spending money internally and operating effectively is like conducting a symphony orchestra. Your plarming process must deal with employees, managers, benefits and bo- nuses, suppliers, vendors, goverffnent employees, professional and consumer customers. Comrnunication, product and occupancy expenses are the asset side that equals profits in the business equation.

Communication expense versus return calculation will help you manage this area. Media expense plus printing and mailing costs are advertising expenditures. Training (indoctrination, on-the-job, formal product and industry, people skills and leadership development) is part of in-house communication as are internal publications (budgets, plans, and operations manuals). Because public relations are important to most companies, expenditures must be cost effective.

Product is the inventory your store should be carrying. If you are a member of a buying group(s), you are buying as well as the chains. Your profits therefore are dependent on how well you operate or pass merchandise through your system. Figures recently published for one major chain showed total expenses to sales of 2O.9 % ; gross margins 27 .9 % with pre-tax income 7 Vo of sales. They're minimizing the average inventory on hand and its costs by ordering weekly and/or in quantities that are sold before they have to be paid for. Their inventory control is managed and mechanized. Eight, 10 and 12 time turnovers are not uncommon. Buying is easy. A plan to sell separates leaders from also rans.

Occupancy costs are real ProPertY, fixtures and equipment. How you manage yourbuilding(s), fixtures, andequipment determines the effectiveness of pass-through of product to your customers. Successful merchants understand cube utilization. If you have 48 inch gondolas and your competitor has 12 foot racks, they're using three times the cube your organization has working for it. There are companies in our industry with annual deliveries per truck of $4,00O,000. From about $2,(X)0,000 per truck and up is doable and done daily by successful dealers. Forklifts should be used effectively about 30 hours weekly per shift.

Planning, like the rest of this crazy business, is simple with only two dimensionspeople and assetsbut there's nothing easy about it. If you've not plarured before, you'll be pleased by how many surprises will be pleasant ones.