To Survive in a Changing Market, Plugging Profit Drains is Only the First Step

Vending companies need a culture of excellence that incorporates cost controls and encourages outstanding employee performance. Veteran industry consultant Tom Britten examines these elements in a three-part series.

Stages of vending industry change

The vending business has passed through its first three phases -- fragmentation, shakeout and maturity, and now solidly rests in phase four, decline and beyond. I see no extinction
phase; there will always be a vending industry, albeit largely different.

Human nature indicates that most people don't enjoy ill tidings.As a result, bad news is often disregarded or discredited. However, the bad news is here, and this is no time for happy talk. Consider some of the headlines in Automatic Merchandiser in recent years:

• "The best news about fiscal 2003 for the vending industry is that it's over."
• "Industry loses another 5 points as employers curtail manpower."
• "Account downsizing hammers operators for second year."
• "Economy slows, vendors face more competitive environment."
• "Smaller work sites and rising costs slow sales."
• "Customer downsizing pulls top line down."

I think that you have two choices:

1) If you don't like bad news, get out of the vending business.
2) Accept that your job, as a leader, is to hear as much bad news as there is out there and figure out how to deal with it.

The business has changed, and you must change as well

The need to understand change in your industry may seem obvious. However, companies misinterpret clues and arrive at faulty conclusions all the time. Despite all the talk about the need for organizational agility, an astonishing number of businesses stay stuck in neutral when they need to implement new strategies. It is a business certainty that if you stay in place, the competition will run over you.

The marketplace for vending is experiencing more change than most others. Today's economic conditions and fierce competition have resulted in an environment that is markedly different from that experienced in past decades.

Your company needs to be aligned with the changes taking place. You need to have a strategy in place to do this.

In order to survive, you will have to make money at smaller accounts, achieve higher per capita sales, open new markets, introduce new products, utilize technology, sell new locations, and most important of all, you must tenaciously hold on to your existing business.

Concurrently, you must operate as efficiently as you possibly can and become absolutely relentless in smoking out waste and inefficiency.

The demise of any business is an insidious process; it may seem you're just in a slump, just a streak of temporary bad luck. Unfortunately, when this condition continues unchecked, it robs the organization of not only capital; it drains its people emotionally and they lose the will to fight.

Soon, you may find yourself in a tailspin you can't pull out of.

Going forward in a different business environment, there are two broad "must haves": 1) Excellent controls, and 2) A strategic plan encompassing a culture of excellence.

This month, I'll discuss the first item, the controls, which you can address immediately. Controls are a part of a strategic plan, but the strategic plan also includes creating a culture of excellence in the company. Next month, we'll examine ways to develop this culture of excellence.

The "It ain't broke" theory has done more to forestall progress than any other theory since the beginning of time. It needs to be replaced with "good is the enemy of great."

Cost cutting has its limits

When businesses look at improving efficiency, they look first at cutting costs. This is well and good.

But it is a one-trick pony. When revenue drops off again, another round of cost cutting is implemented, then another, and another, until you wake up one morning and find out the organization has been crippled.

In theory, cost cutting shouldn't be needed if good expense management is practiced on an ongoing basis. Let's examine expense management in more detail.

There is no way we can address future challenges without discussing profit drains. These days, theft and fraud know no bounds. If you think your business is immune, think again.

No business can afford to operate today without strong controls and preventive measures in place. Smaller businesses are more vulnerable because they typically lack the secondary controls and procedures that are in place in large corporations. Due to the small numbers of people, control through segregation of duties in small businesses may not be practical.

Methodology of theft and fraud

Grand schemes, concocted with Machiavellian twist and turns, do occasionally devastate businesses, but they are rare.

Most thefts are very unsophisticated. They simply take the cash, product or asset and hope they don't get caught There is very little effort to cover up; they think and hope you're snoozing.

Theft and fraud occur primarily due to the cumulative effect of loose management and weak controls, which actually encourage dishonesty because the risk of getting caught is minimal.

Preventive measures work best

For an employee even to consider fraud, the opportunity to commit the act must be there and, perhaps more importantly, he must think he can get away with it. Criminologists say this employee often has a need that he can't meet within his own financial means, and he is able to rationalize the fraud. He is somehow able to convince himself that what he's doing is ethical and not illegal.

There are two basic types of fraudulent diversions of assets.

1) Theft by employees, management, customers, suppliers, and intruders.
2) Internal and external collusion among drivers, bookkeepers, receivers, maintenance, purchasing agents, contractors and vendors.

Common frauds committed against vending businesses are:

• Skimming: make a sale, don't record it, and pocket the cash.
• Fraudulent disbursements: payments made against false invoices.
• Checkbook fraud: an employee has sole control of the checkbook with no oversight.
• Payroll fraud: collusion in filing for fake overtime.
• Inventory fraud: manipulation of invoices and reconciliation documents to cover thefts.

Let all employees know that theft, in any form, is neither allowed nor tolerated. Let them know, depending on violations, that disciplinary actions can include discharge and prosecution to the full extent of the law.

Company vehicle policy

Losses to vehicles occur in the following areas:

• Stealing fuel
• Excessive personal use
• Unauthorized people in vehicles
• Unauthorized products in vehicles
• With careful review, toll receipts and electronic toll pass analysis can be almost as good as GPS

Key control policy

Security experts have found that 70 percent of all losses occur as a result of internal theft. Don't assume you're a victim of an outsider. "Key jobs" are very often used as the great alibi by dishonest employees.

• No keys may be taken home except for on-call people.
• Keys can be transferred to another employee only by management.
• Keys cannot be duplicated.
• Keys can never be left unattended or in an unsecured area.
• All keys issued must be signed for.
• All key rings must be locked.
  
  Parking policy: how safe is your facility?

Always park the truck in a well lighted area, both at the account and at the headquarters. Whenever possible, minimize working at night. It's a well known fact that most crimes are committed at night. Many route drivers prefer to start work at 2 a.m., allegedly needing to beat the traffic. This is nonsense and should not be allowed.

Three out of four commercial burglaries are committed against buildings that have either no lights or inadequate lighting. Armed robbery usually occurs at the opening or closing of business. Here are some common sense pointers:

• Get rid of the hedges and other hiding places.
• Make sure the building is empty when you lock up.
• Make sure the perimeter fence is in good repair.
• The gate and all exterior doors should be kept locked.
• The reception area should be secured from the office proper.
• All visitors must be escorted. They must sign in and out.
• Two people should open and close the building together if at all possible.

Employees should be instructed to use only one entrance. There should be an employee parking area that is in view of management and away from the loading dock.

If you have a time clock, it should also be in view of management.

Parts and equipment policy

Your parts and equipment department needs to have specific operating procedures. You need to control the movement of parts and equipment to and from your facility.

You need to have control of what parts and equipment are coming in and out of the building.

• A parts requisition form should always be filled out for new parts used.
• The parts room must be secured when unattended.
• Warranty administration should be tracked and coordinated by accounting.
• No equipment should be moved without a move order, with a duplicate copy for the office.
• Be sure machines taken to the junkyard actually get there.
• The old part must be returned before the new one is issued.

Inventory control

Software has given vending operators the opportunity for more control over route and warehouse inventory than ever before. This opportunity is lost when collection procedures are not followed and cash meters are recorded inconsistently.

Adherence to proper procedures in this area must be non-negotiable and a condition of employment.

No matter how small your company, only authorized personnel should be allowed in the warehouse, and it should be locked when unattended. When receiving inventory, count it, weigh it, check date codes, and inspect for damage before the delivering vendor leaves.

Proper receiving still won't catch collusion. A trucker who is supposed to deliver 150 cases can unload 125, take the other 25 cases, sell them and split the cash with your warehouse man.

Watch for overly friendly relationships. Meat delivery people often keep notes on who weighs the product and who doesn't. Savvy delivery people know who the patsy is; who he can push the short shelf life product off on.

Food waste control

Excessive food waste occurs due to the following factors:

• Employees don't know how to order.
• Personnel are not concerned with waste.
• Product quality is poor.
• The sale price is perceived to be too high.
• The menu variety is inadequate.
• Stales are not returned to the office; credits issued without verification.

In all of these areas, performance can be measured, and when measured, it improves. Do you measure it? Do you have goals for cash shortages, inventory shrinkage, perishable food waste? Are these goals co-owned by all employees?

Next month, we'll look at ways to develop a culture of excellence.

Tom Britten is president of Britten Managment Services, based in Lutz, Fla. He is a longtime vending industry veteran. He can be reached at 813-792-9719; email: [email protected]

Strategies for survival in vending at a glance

• Make money in smaller accounts.
• Introduce new products.
• Achieve higher per capita sales.
• Utilize technology.
• Sell new locations.
• Hold on to existing business.