Products

Apples and Oranges: Retail/Distribution

LEARNING OBJECTIVES:

1. Understand how your business operates and makes a profit.
2. Understand how each employee impacts profitability every business day.
3. Visually demonstrates the financial impact of:
   • Capital investment in inventory and expected returns (EVA)
   • Better communications between the selling floor and the stock room
   • Keeping precise track of arriving merchandise
   • Elimination of bottle necks in the supply chain
   • Increasing employee task flexibility
   • Lowering labor costs and other forms of overhead
   • Dealing with reliable suppliers
   • The impact of shrink on profitability
   • The impact of discounting on profitability
   • The importance of inventory turns
4. Understand your profit and loss statements to be able to make better business decisions

Teams of 4-5 participants run a retail store for three years. A visual workmat models a store with a financial perspective having cash values in inventory, SGA costs, real property and equipment investments, depreciation and cash flow. Teams complete an income statement and balance sheet after each year of operation. Key ratios of ROA and ROE are calculated. Participants increase their understanding of how improvements in the business processes also influence the financials in a positive way.

After Year One of the simulation participants begin to make some discoveries.

1. Out of stocks bring down sales which in turn brings down gross profit and operating profit.
2. Shrink falls directly to the bottom-line.
3. You’ve got to move seasonal products in a timely manner to avoid discounting
4. Moving inventory from the backroom to the store shelves and knowing the value of that inventory contributes to gross profit
5. Overhead expense needs to be controlled to meet operating targets
6. Delayed shipments can impact revenue
7. Capital tied up in warehouse inventory contributes to declining margins

Going into Year Two an investment is made in technology to improve the business. The stock room will be better organized, inventory reports are more accurate and deliveries are more reliable. As a result of these changes:

1. Seasonal items are on the floor longer and they sell with fewer being moved at a discount
2. Additional customers are served growing the top line
3. Shrink is improved.
4. People see how the same fixed cost can drive more operating profit.
5. People see the importance of capacity utilization.

In Year 3 participants decide what type of inventory to bring into the store to meet customer demand. In previous years, merchandisers have directed shipments. As teams forecast customer demand, they prepare business presentations to close the day that outlines their business results.