If you did not read the blog post last week regarding the Sales Exception Reporting mechanism, please go back and read it now.
We ended our discussion last week by stating that for the Sales Exception Report to work you have to set certain criteria. In most large companies with a big product ‘catalog’ they have some kind of grouping. Let’s take a cosmetics company. They will group their product as follows:
You might call these ‘departments’ just as you would in a Department Store. So let’s set up our report as follows:
- For ‘Face’ Department show all sales with Gross Margins less than zero or greater than 50%.
- For ‘Lips’ Department show all sales with Gross Margins less than 5% or greater than 30%
- For ‘Eyes’ Department show all sales with Gross Margins less than 2% or greater than 60%.
- For ‘Hair’ Department show all sales with Gross Margins less than 0% or greater than 25%
Now we have the parameters for our new report. For some, you may need to ask your software vendor to design and deliver the report. You may be able to build an Excel spreadsheet that can handle it but a hard coded report is preferable as long as it is not cost prohibitive.
Accurate cost of goods sold per unit of measure of product is critical. If you don’t have an accurate and reliable (not perfect) costing system, the report will not be effective.
In reviewing your report, you are looking for two things:
- Is the cost right
- Is the Selling Price Correct
Compared to fifty years ago when prices did not change from day to day at the grocery store or the gas station, prices were much more stable. But now, even with the technology that allows price scanning (UPC Coding) we believe we are keeping up. But a price scan depends on what a human being entered into the system somewhere along the line.
Who among us has not been to the grocery store or a big box hardware center and seen the price ring up incorrectly. The item has been put on sale based on the signage where you picked it up but the sale price has not been entered. Conversely, prices increasing the Selling Price may not have been updated. Someone needs to monitor how items are being priced and more significantly, losses that may be generated through bad costing or errors in unit sales price.
Sales Exception Reporting is the essence of ‘Management by Exception’. Not looking at everything but just those things you defined as outside the expected result.
If you have any questions on this topic, please feel free to contact me.