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    The Master Matrix (1) - Compressed

    Uploaded by

    Ana Sofía Gil

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    © All Rights Reserved
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    of 43
    THE MASTER MATRIX: HOW TO USE IT DOUGLAS J. TIGERT, BABSON COLLEGE sa ws 001 ‘The Master Matrix for large stores involves the calculation of the complete productivity model (GMROI, GMROF, GMROL) by department (or category) by store. The level of analysis should be as detailed as possible, but primarily down to a level where space, ‘merchandise and people can be measured as belonging to that specific department or category. THE MEADOWBROOK STORE ‘The enclosed data provide analyses for a few categories for a store called Meadowbrook. ‘Meadowbrook is a single store in a Canadian chain of department stores and is located in a major regional mall. For purposes of analysis, the Meadowbrook data are benchmarked against: 2) Sanderson, called the "comp" store or the comparison store. Sanderson is another store in the same chain and is very similar in size, sales, market environment, competition et. b) The BIR average which provides data for the total 70 store chain. ©) Starting on page 3, with the first category analyzed (category 1: Ladies’ shoes), there is another benchmark comparison called "the grid average.” The grid is a group of stores that are most like Meadowbrook and Sanderson, Page 2 provides the productivity model data for the total store, i.e. for Meadowbrook, for Sanderson and for the BUR average. This page is critical because the first comparison to be made across departments is how well the department is doing versus the total store. HOW WELL IS MEADOWBROOK DOING OVERALL? 1. Meadowbrook’s gross margin percentage, at 36.5%, is about two points higher than both Sanderson and the BUR average. Thus, on this first measurement, Meadowbrook is a star. The other stores should have a look at their markdown percentages, their shrink, or their merchandise mix to see why Meadowbrook is doing better. 2, Multiplying gross margin percentage by the sales to stock ratio (inventory is at cost), which is 5.34 for Meadowbrook, we get the GMROI which is $1.90. That is, for every dollar of inventory at cast, on average for the year, the store produces $1.90 of gross margin dollars. Meadowbrook’s GMROI is equal to the BIR average and slightly below Sanderson, which has e GMROI of $2.00. Meadowbrook’s GMROI is affected by a lower sales/stock ratio of 5.34 compared to Sanderson at 5.79. As it turns out, this is not a problem for Meadowbrook because it is trading away a slightly lower GMROI for a much higher GMROF. 3. Multiplying down the center column, we first multiply the sales/stock ratio by merchandise intensity, which is $844 per square meter for Meadowbrook. Meadowbrook has the highest merchandise intensity (inventory at cost, per square foot, on average for the year). This higher merchandise intensity more than offsets a slightly lower stock turn and results in sales per square meter for Meadowbrook of $4506, This number is almost $500 per square meter higher than Sanderson and the BJR average. Once again, Meadowbrook is the winner in performance. Since GMROF is the most important measurement to maximize, Meadowbrook is the overall best performer on page 2. 4, Why should GMROF be maximized? First, the cost of space is usually about 10 times higher than the cost of inventory (below the gross margin line, the cost of inventory is inventory carrying cost). So GMROF takes precedent over GMROI. Second, GMROL should not be maximized because that would imply cutting service levels. GMROL should be optimized, not maximized. For this company, the new target for optimizing GMROL is $110,000 per full time equivalent employee (FTE). 5. Meadowbrook is "trading away” a slightly lower GMROI for a significantly higher GMROF. 6, Continuing down the center column, we multiply sales per square meter by service intensity (square meters of space per FTE employee). Meadowbrook runs the store with. ‘each employee managing 73.9 square meters of space (about 740 square feet). This store is a “middle to down” department store and does not have high service intensity, As will 'be seen later, however, some departments have well above average service intensity. 7. Meadowbrook generates $333,113 of sales per FTE in the last box in the center column (that is sales per square meter times service intensity). This result is very close to Sanderson and to the BIR average. However, 8, Multiplying down and around, the gross margin percentage times the sales per FTE, we get GMROL, which is $121,544 for Meadowbrook. Meadowbrook has the highest GMROL which is however, now above the new optimization target of $110,000 so it will be brought down in the next year, from $121,000 to $110,000 by adding about 14 more new FTE employees, ANALYZING BY CATEGORY: ACTION PLANS 9. The first category analyzed is category 11, ladies shoes, on page 3. How is Meadowbrook doing? The gross margin percentage, at 42.0%, is bout a half a point too low, compared to Sanderson, to the BIR average, and to the GRID average. So we ask the store to look at markdowns, stirink and merchandise mix and set a target to improve this umber by about half a point over the next 12 months. 10. The sales to stock ratio for Meadowbrook is 5.64 and is the highest, leading to the highest GMROT at $2.40. This GMROI is higher than the store average on page 2 and looks like a winning number. However, it is achieved only because merchandise intensity for Meadowbrook is the lowest, at $1074 per square meter. Meadowbrook is turning stock faster because it does not have the optimal level of stock. Consequently, Meadowbrook has the lowest sales and gross margin per square meter, at $6059 and $2542, Sanderson is achieving a much higher GMROF at $3407, or 900 dollars higher. ‘THE ACTION PLAN HERE FOR MEADOWBROOK IS TO INCREASE MERCHANDISE INTENSITY TO $1500 PER SQUARE METER. 1, More important, ifthe result of that action for Meadowbrook raises the gross margin per square meter next year to the Sanderson fevel of $3407, this category will now be sereaming for more space. That is because the GMROF for ladies shoes, in the $3500 range, would be double the store average GMROF on page 2, of $1644, 12, HERE WE HAVE TWO CRITCIAL ACTION PLANS WHICH ARE. GENERALIZEABLE....BEST GMROF GETS THE BEST SPACE AND BEST GMROF GETS MORE SPACE. FURTHER, MORE SPACE MEANS MORE SKU'S. We do not just spread the same number of SKU's across more space. Rather, we increase the number of SKU's in direct proportion to the increase in the space. In a similar manner, if we increase merchandise intensity, we do not just put more of the same SKU's into that space. We increase the number of SKU's we put into that same space. 13, Service intensity at Meadowbrook is 50.2 square meters per FTE, which is the highest number across the benchmarks. The action plan here is for Meadowbrook to increase service intensity by reducing the intensity number from $0.2 to about 45 meters per FTE. ‘That means adding about 0.6 additional FTE's. 14. In addition, the GMROL number for Meadowbrook, at $127,562 is above the target of $110,000 and should be forced down by adding about another 0.5 FTE's, 15, Finally, the overall target for GMROL of $110,000 is being adjusted by department. Categories that need higher service intensity (such as shoes) have a GMROL target of about $90,000 and categories that are primarily self-service are being targeted for a GMROL of about $130,000. That means we should add another 1-2 FTE's to ladies shoes to get down to the right target level. THE REMAINING CATEGORIES FOR MEADOWBROOK 16, Meadowbrook has the best GMROF in category 13, fashion accessories. Since Meadowbrook has the highest merchandise intensity and the highest service intensity (lowest intensity # at 55.9 sq. meters), the other stores should move to the treatments deing used by Meadowbrook. Meadowbrook should then become the pilot store to see what happens if you increase both merchandise intensity and service intensity to new higher levels. There is some evidence that this treatment will produce even higher GMROF's, The sales/stock ratio is a bit too high, suggesting the department is being starved of merchandise. The test should involve decreasing the GMROI and increasing the GMROF. 17. The best GMROF for cosmetics is the BJR average. It has the best service intensity and the highest merchandise intensity. Thus, Meadowbrook should move in this direction, The action plan is to add 4 more FTE's and a little more merchandise. Finally, the GMROF is well above the store average, suggesting that the space for cosmetics should be expanded.. 18, For watches and jewelry, the winner is Sanderson, Sanderson has a lot higher service intensity (lowest intensity # of 35.8 sq, meters per FTE), suggesting that this category is more service sensitive than it is merchandise sensitive. The action plan fur Meadowbrook is to increase the number of FTE's from 2 to 4. If the GMROF comes up to the Sanderson, level, then in about a year, the category will be shouting for more space. 19. Personal Care is the single highest performing category in the store, with a whopping GMROF of $5912. It is screaming for more space, more SKU's, more service, etc. Thus, the category should be exploded in all directions. Notice that merchandise intensity for Meadowbrook in personal care products is very high at $4566 per square meter and it's working!!! The store average merchandise intensity on page 2 is only $844 per square ‘meter. In personal care, Meadowbrook has a very low GMROI and a very high GMROF and this is a positive tradeoff. Personal care makes a lot of money and has a gross margin percentage (above the store average). Ifreaders have any questions they can e-mail me for advice. MASTER MATRIX DATA -- TEAM ASSIGNMENTS Team 1 Ladies Shoes (11) Sportswear & Dresses (24) Men's Accessories (33) Large Appliances (47) Table Top (41) Child/Essentials (83) Team 2 Fashion Accessories (13) Miss Shop (26) Trend Shop Jeans (34) Home Office (51) Cooks Kitchen (42) Baby World (84) Team 3 Cosmetics (14) Specialty Concepts (27) Collections (36) Books, Cards ($2) Travel Goods (57) Children’s Footwear (85 Di Tigert, Babson College Team 4 Watches/Jewelry (15) Collections (28) Formal Clothing (37) Sporting Edge (53) ‘Home Entertainment (58) Confectionery (91) Team _5 Personal Care (16) Intimate Apparel (29) Men's Footwear (38) Pre-Recorded Audio (54) Baby/Kids World (81) Toys (55) Off Limits (82) THE MASTER MATRIX* ALL CATEGORIES ANALYZING LARGE STORES BY DEPARTMENT BY STORE USING THE FULL PRODUCTIVITY MODEL FOR DECISION MAKING PURPOSES i. SPACE RE-ALLOCATION 2, SERVICE RE-ALLOCATION 3. CHANGING GROSS MARGIN REQUIREMENTS 4, NEW INVENTORY TURNOVER TARGETS 5. MERCHANDISE INTENSITY TARGETS 6. CHANGING THE ASSORTMENT MIX *Data are in Canadian dollars, per square metre, for space analysis. D. J. 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