Operators can also use information from these reports to address business goals, as determined in their business plan. For example, a company might want to improve its return on assets by a certain amount.
Key ratio: Return on assets
There are a variety of reasons for improving return on assets. It is one factor lenders look at in evaluating a loan proposal. Acquisition candidates also look at this ratio.
An operator could improve his return on assets by reducing accounts payable, reducing equipment depreciation, reducing product shrinkage, raising prices or redeploying equipment to more profitable accounts.
Before operators can set tangible goals for any of these actions, however, they need hard data. Here is where state-of-the-art, industry specific software is invaluable.
Basic inventory management
Software allows the operator to maintain perpetual inventory for every warehouse, truck and machine. Basic vending management reports include:
- Product purchases from suppliers
- Periodic inventories of the warehouse
- Product movement from warehouse to route truck
- Periodic inventories of route trucks
- Periodic inventories of vending machines
By accurately measuring these inventories, the operator is able to track cost of goods sold, which is typically the largest cost on the P&L statement.
By taking action to improve efficiencies, the operator will notice changes in his critical profit variables. These are:
- Sales per employee, a measure of employee productivity
- Gross margin percentage, indicating the ability to manage cost of goods sold effectively
- Operating expense percentage, focusing on expense control
- Inventory turnover, indicating how well inventory is managed
Software allows the operation to better monitor these variables. The most important benefit is the insight these measures provide about the company's profitability, and how specific operational changes will affect it.
For instance, labor metrics can allow the company to know how an investment in a forklift affects its financial condition over an extended period of time. To determine this, the company needs to know the total amount of time warehouse personnel spend unloading merchandise. The dollars invested can be compared to the amount of time saved during the life span of the new piece of equipment.
Software will make it easier for a company to make the above calculation, as well as other calculations that involve more factors.
DEX: a key to the future
Perhaps the most significant technological development in recent years has been DEX, due to its usefulness as an accountability tool. The "Wake Up Vending" series has noted the important contribution DEX makes to improving efficiencies.
DEX is the protocol in a vending machine by which data is captured in a certain file type within its electronics board. A handheld can then download this DEX file which captures cash transactions, meter readings and the spiral turns from the last time the machine was serviced.
Because a software system knows what product is in each spiral, it can then calculate the sales, e.g., E4 turned five times at $1 since the last service. The software reports that Snickers, which was in the column, sold five and there should be $5 in the machine.
The operational efficiency provided by line-item tracking cannot be overstated, given the labor savings and the ability to service machines on an as-needed basis.
Payroll in most vending operations represents the largest single expense next to cost of goods, and route labor is the largest single contributor to payroll expense. Hence, an improved return on route labor can have a significant impact on profitability. DEX offers other efficiencies as well.
DEX: improved inventory control
Aside from controlling labor better, DEX allows greater control of inventory.
Most software packages that support DEX include reports that offer input on product mix based on individual product sales. These reports can improve sales and allow the company to eliminate items that are not good sellers.
Reducing inventory (to the better selling items) brings the added benefit of requiring smaller vehicles and/or servicing more locations in less time.