CountyStat
Liquor Control Inventory Management
Department of Liquor Control
George Griffin, Director
CountyStat2DLC Inventory
Management
8/25/09
CountyStat Principles
Require Data Driven Performance
Promote Strategic Governance
Increase Government Transparency
Foster a Culture of Accountability
CountyStat3DLC Inventory
Management
8/25/09
Agenda
Introductions and meeting goal
Current DLC inventory policies and processes
Analysis of inventory and sales data
– Inventory turnover analysis of only products with on-hand inventory
– Overview of sales for all listed products
Survey of control jurisdictions’ best practices
Recommendations
Wrap-up
CountyStat4DLC Inventory
Management
8/25/09
Meeting Goals
Evaluate DLC inventory and sales data to develop a performance
measure that would assist in establishing inventory and sales goals
– Use this measure to streamline inventory practices in order to create greater
accountability and profits
CountyStat5DLC Inventory
Management
8/25/09
Importance of Evaluating Inventory
Excess inventory can tie up dollars that could otherwise be
used for another purpose
There are also operating costs associated with that inventory
– Insurance and taxes on inventory
– Rent and utilities for the warehouse
– Costs of markdowns due to age and obsolescence
– Payroll costs of moving inventory within the warehouse
– Inventory shrinkage and obsolescence
– Costs of not being able to merchandise more productive inventory in
its place
A closer examination of inventory can highlight where the
department is doing well, and where it can be looking to further refine
its inventory practices and improve performance.
CountyStat6DLC Inventory
Management
8/25/09
DLC Inventory as a Percent of Sales
Note: Data and calculations produced by DLC
0%
10%
20%
30%
40%
50%
2000 2001 2002 2003 2004 2005 2006 2007 2008
F i s c a l Y e a r2 0 0 02 0 0 12 0 0 22 0 0 32 0 0 42 0 0 52 0 0 62 0 0 72 0 0 8
I n v e n t o r y a s a % o f S a le s
18.13% 17.03% 16.73% 18.01% 16.51% 16.77% 15.47% 15.04% 13.06%
CountyStat7DLC Inventory
Management
8/25/09
Agenda
Introductions and meeting goal
Current DLC inventory policies and processes
Analysis of inventory and sales data
– Inventory turnover analysis of only products with on-hand inventory
– Overview of sales for all listed products
Survey of control jurisdictions’ best practices
Recommendations
Wrap-up
CountyStat8DLC Inventory
Management
8/25/09
Current DLC inventory policies and processes
Overall Policies
Major policies on maintaining inventory Inventory is ordered to last a certain number of days
– Targets: Beer (20 – 30 days), Wine (Domestic: 30 – 40 days; Direct Imports (45-60 days), Liquor (Same as wines)
DLC keeps a certain level of safety stock on hand– 10 percent for restaurant with private labels (i.e. Clyde’s)
– Other products: the products DLC keeps are usually Allocated items kept on hand for National Accounts. There are over 15 National Chain accounts that usually require us to carry wines for their wine list but not stocked for other accounts.
County retail stores are considered an extension of the warehouse inventory– Licensees can purchase small quantities from County retail stores at a discount
Instituted a new policy for “slow moving” inventory– Products in inventory longer than 200+ days
– Recently started offering at discount to licensees
On average, DLC has to destroy approximately 300 cases– Product could be out of date or spoiled.
– DLC makes every effort to have manufacturer pay. Manufacturer pays majority of time.
Customer service is a priority goal– Philosophy to carry a wide range of products
CountyStat9DLC Inventory
Management
8/25/09
Current DLC inventory policies and processes
Ordering Products
Decision process for ordering and reordering
Retail store managers have autonomy in ordering products for their stores
– Store managers place orders based on vendor input
– How are individual stores and store managers evaluated on their sales performance?
DLC forecasts needed stock for licensees’ based on past sales, seasonality,
and freshness of product
Policy for deciding to stock a new product
Sales and pricing are 2 indicators along with sales support
Many item are associated with a large vendor and are part of National Roll
Outs or they are extensions of products DLC carries
Category needs
Decision for new products are made by a committee of retail, operations and
purchasing with Director’s final decision
CountyStat10DLC Inventory
Management
8/25/09
Inventory Shrinkage
T y p e o f P r o d u c t
B e e r S p e c ia lsB e e r S t o c kL i q u o r / W i n e
S p e c i a l sL i q u o r / W i n e
S t o c k
T o t a l A d j u s t m e n t s
$(16,984.98) $(77,767.88) $(123,752.50) $(84,786.96)
DLC collects data on the cost of inventory shrinkage, the unplanned or unwanted loss of inventory as a result of loss, damage, deterioration, etc.
On average, DLC has to destroy approximately 300 cases, because
the product is out of date or spoiled.
– DLC makes every effort to have manufacturer pay. Manufacturer pays majority
of time.
In FY09, total adjustments due to shrinkage amounted to $303,292.32
Note: Data and calculations produced by DLC
CountyStat11DLC Inventory
Management
8/25/09
Agenda
Introductions and meeting goal
Current DLC inventory policies and processes
Analysis of inventory and sales data
– Inventory turnover analysis of only products with on-hand inventory
– Overview of sales for all listed products
Survey of control jurisdictions’ best practices
Recommendations
Wrap-up
CountyStat12DLC Inventory
Management
8/25/09
Goals of Analysis
By analyzing Liquor Control inventory and sales data, we can evaluate the
department’s current performance
– Department’s distribution of inventory and sales across different variables
– Inventory turnover, for department as a whole, by product type, and for individual products
This evaluation will inform whether changes to policies and/or procedures are
warranted and where to target those changes
Key Definitions
Product Line: A particular product offering under a brand name (i.e. Johnnie Walker Black v.
Johnnie Walker Gold)
Active Product: An active product is defined as a product which is available for purchase and
has had some activity within the last 18 months.
Annual Sales at Cost: Total number of cases sold times the cost of one case of that product
Inventory Turnover: The number of times a business sells its average investment in inventory
each year
CountyStat13DLC Inventory
Management
8/25/09
Methodology
DLC provided sales data over the last 12 months and a point-in-time
snapshot of warehouse and retail store inventory
– Sales: August 08-July 09
– Inventory: July 09 (Currently, DLC does not keep historical inventory data.)
CountyStat analyzed:
– Overall inventory turnover ratio
– Inventory turnover by product category (spirits and wine)
– Distribution of product lines by the number of inventory turns
– Distribution of sales across product categories
– Distribution of product lines and annual sales by the number of cases sold
This analysis of inventory and sales will allow the department to
evaluate its current performance and focus attention on those
products that are dead or slow-moving inventory.
CountyStat14DLC Inventory
Management
8/25/09
Methodology – Caveat to Using Inventory Data
Current inventory information provided to CountyStat lacks data on beer, and a portion of wine and spirits
– To make an apples to apples comparison, those sales were removed from inventory turnover calculations
Because DLC does not maintain detailed historical inventory valuations, CountyStat used July’s inventory value as the basis for this calculation.
– CountyStat made the assumption that July is a typical month in terms of inventory investment
– Accuracy can be improved by using historical data to develop a 12-month average
In the future, DLC could capture this value each month for all products in order to calculate an average inventory investment
CountyStat15DLC Inventory
Management
8/25/09
Annual Inventory Turnover
Turnover is the number of times a business sells its average investment in inventory each year
– Calculated with the following formula:
Sales at Cost during the Past 12 Months Average Inventory Investment during the Past 12 Months
Higher ratio leads to lower required inventory investment
– Example: Product with $10,000 annual sales; average inventory investment of $1,000; inventory turnover ratio of 10
This analysis includes only those items with at least 1 case in inventory
Inventory turnover measures how quickly inventory is moving
through the warehouse. Combined with other measures, such as
customer service level and profit margin, inventory turnover can
provide an accurate barometer of success.
Note: This distribution contains only those products with inventory on-hand in the month of July (52% of total
annual sales); Beer is not included in this distribution; DLC does not have inventory data for those items.
CountyStat16DLC Inventory
Management
8/25/09
Overview of Annual Sales
Products with inventory on-hand v. all products
$0 $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 $70,000,000
Beer
Spirits
Wine
Adjusted dollars (in yellow) only includes sales from products with
inventory on-hand in July and is the focus of this analysis.
Annual sales at cost Annual sales at cost (adjusted to
include only products in inventory)
P r o d u c t T y p eB e e r S p i r i t s W i n e
A n n u a l S a l e s$57,959,211 $43,152,233 $57,370,740
A n n u a l S a l e s ( a d j)$0 $38,429,077 $44,943,091
CountyStat17DLC Inventory
Management
8/25/09
Annual Inventory Turnover
A n n u a l S a le s a t C o s t(Beer, Wine and Spirits less items without corresponding inventory value and items with no inventory on hand)
$83,353,648
I n v e n t o r y V a lu e ( J u l y )$11,687,712.61
A n n u a l D L C I n v e n t o r y T u r n o v e r7.1
The Department of Liquor Control sold its inventory investment 7.1
times over the past 12 months, assuming July is a typical month.
The annual cost of maintaining DLC’s inventory is $7.98 million.
Note: This distribution contains only those products with inventory on-hand in the month of July (52% of total
annual sales); Beer is not included in this distribution; DLC does not have inventory data for those items.
CountyStat18DLC Inventory
Management
8/25/09
Annual Inventory Turnover by Product Type
Spirits and Wine
P r o d u c t T y p e
A n n u a l S a le s a t C o s tI n v e n t o r y V a lu e ( J u l y )A n n u a l T u r n o v e r
S p i r i t s $38,429,077 $4,671,754 8.2
W i n e $44,943,091 $6,969,890 6.4
Spirits had a higher annual turnover than wine over the past 12
months. This means that on average, wine products move more
slowly through the warehouse than spirits products.
Note: This distribution contains only those products with inventory on-hand in the month of July (52% of total
annual sales); Beer is not included in this distribution; DLC does not have inventory data for those items.
CountyStat19DLC Inventory
Management
8/25/09
Annual Inventory Turnover
All Products
A n n u a l T u r n o v e r b y P r o d u c t
# o f P r o d u c t L i n e s
I n v e n t o r y V a l u e
% I n v e n t o r y V a l u e
% T o t a l A n n u a l S a l e s ( a t c o s t )
< 01 $344 0% 0%
0-2 597 $1,453,380 12% 1%
2-4 488 $2,087,614 18% 8%
4-6 522 $2,726,010 23% 17%
6-8 382 $2,048,893 18% 17%
8-1 0252 $1,369,864 12% 15%
> 1 01,109 $1,957,873 17% 42%
T o t a l 3 , 3 5 1$ 1 1 , 6 4 3 , 9 7 7 1 0 0 %1 0 0 %
There are 212 product lines in stock that had zero sales during the
last 12 months, 5% of total product lines in stock, valued at approx.
$232,000. 77% of that value is in wine and 23% is in spirits.
Note: This distribution contains only those products with inventory on-hand in the month of July (52% of total
annual sales); Beer is not included in this distribution; DLC does not have inventory data for those items.
CountyStat20DLC Inventory
Management
8/25/09
Annual Inventory Turnover
Products with no sales over last 12 months
C o s t p e r C a s eP r o d u c t
L i n e sI n v e n t o r y
V a l u e
A v e r a g e C o s t p e r
C a s e
M a x i m u m C o s t p e r
C a s e
M i n i m u m C o s t p e r
C a s e
$ 0-2 0 0161 $127,839 $100 $200 $21
$ 2 0 0-4 0 035 $58,624 $274 $384 $200
$ 4 0 0-6 0 07 $10,552 $495 $589 $441
$ > 6 0 09 $34,860 $2,157 $5,870 $675
T o t a l 2 1 2$ 2 3 1 , 8 7 4$ 2 2 9$ 5 , 8 7 0$ 2 1
For those 212 product lines, most were $200 or less per case in cost.
On average, this group cost $229 per case, compared to $105 per
case average of all products in inventory.
CountyStat21DLC Inventory
Management
8/25/09
Annual Inventory Turnover
Wine
A n n u a l T u r n o v e r# o f P r o d u c t L in e s% I n v e n t o r y V a lu e% A n n u a l S a le s
0 – 5 1 , 1 4 75 2 . 3 %2 1 . 1 %
5 – 1 06 9 43 5 . 1 %3 7 . 2 %
1 0 – 1 52 6 76 . 6 %1 2 . 1 %
1 5 – 2 01 4 32 . 4 %6 . 3 %
2 0 – 3 01 7 01 . 9 %7 . 1 %
> 3 03 0 21 . 8 %1 6 . 2 %
0%
20%
40%
60%
80%
100%
0 – 5 5 – 10 10 – 15 15 – 20 20 – 30 > 30
%Inventory Value %Annual Sales
%Inventory Value compared to %Annual Sales
Note: This distribution contains only those products with inventory on-hand in the month of July (52% of total
annual sales); Beer is not included in this distribution; DLC does not have inventory data for those items.
CountyStat22DLC Inventory
Management
8/25/09
Annual Inventory Turnover
Spirits
A n n u a l T u r n o v e r# o f P r o d u c t L in e s% I n v e n t o r y V a lu e% A n n u a l S a le s
0 – 5 1 9 82 6 . 2 %1 0 . 6 %
5 – 1 01 8 65 0 . 7 %4 6 . 1 %
1 0 – 1 59 11 8 . 2 %2 7 . 1 %
1 5 – 2 04 32 . 5 %5 . 0 %
2 0 – 3 03 81 . 3 %3 . 5 %
> 3 07 11 . 2 %7 . 6 %
0%
20%
40%
60%
80%
100%
0 – 5 5 – 10 10 – 15 15 – 20 20 – 30 > 30
%Inventory Value %Annual Sales
%Inventory Value compared to %Annual Sales
Note: This distribution contains only those products with inventory on-hand in the month of July (52% of total
annual sales); Beer is not included in this distribution; DLC does not have inventory data for those items.
CountyStat23DLC Inventory
Management
8/25/09
Analysis of Inventory Data
Findings
DLC’s annual inventory turnover is 7.1, meaning that its inventory has been sold approximately 7 times over the last 12 months
Turnover for spirits is higher (8.2) than wine (6.4)
Wine
52% of inventory value is in products with 5 or less turns annually (21% of annual sales)
– 18% of inventory value is for products with 2 or less turns annually (1% of annual sales)
17% of inventory value is in products with 10 or more turns (42% of annual sales)
– 2% of inventory value is for products with 30 or more turns (16% of annual sales)
Spirits
26% of inventory value is in products with 5 or less turns annually (11% of annual sales)
– 5% of inventory value is for products with 2 or less turns annually (<1% of annual sales)
13% of inventory value is in products with 10 or more turns (42% of annual sales)
– 1% of inventory value is for products with 30 or more turns (8% of annual sales)
CountyStat24DLC Inventory
Management
8/25/09
Agenda
Introductions and meeting goal
Current DLC inventory policies and processes
Analysis of inventory and sales data
– Inventory turnover analysis of only products with on-hand inventory
– Overview of sales for all listed products
Survey of control jurisdictions’ best practices
Recommendations
Wrap-up
CountyStat25DLC Inventory
Management
8/25/09
Cases Sold
Drilling down into products that sold 1,000 cases or less, the greatest
percentage of annual sales at cost and cases sold are products selling
101-200 cases.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
<1 1-100 101-
200
201-
300
301-
400
401-
500
501-
600
601-
700
701-
800
801-
900
901-
1000
>1001
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
%Annual Sales Product Lines
Pro
du
ct L
ine
s
% A
nn
ua
l S
ale
s
Note: This distribution contains only those products with inventory on-hand in the month of July (52% of total
annual sales); Beer is not included in this distribution; DLC does not have inventory data for those items.
Cases Sold
Overview of Annual Sales
Distribution of products by sales (# of cases sold)
Products with on-hand inventory only
CountyStat26DLC Inventory
Management
8/25/09
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
<1 1-100 101-
200
201-
300
301-
400
401-
500
501-
600
601-
700
701-
800
801-
900
901-
1000
>1001
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
%Annual Sales Product LinesCases Sold
Pro
du
ct L
ine
s
Drilling down into products that sold 1,000 cases or less, there is
similar product line distribution; the greatest percentage of annual
sales at cost and cases sold are products selling 1-100 cases.
% A
nn
ua
l S
ale
s
Overview of Annual Sales
Distribution of products by sales (# of cases sold)
All listed products
CountyStat27DLC Inventory
Management
8/25/09
Overview of Annual Sales
Distribution of products by sales (# of cases sold)
Spirits & Wine - Products with on-hand inventory only
C a s e s S o ldS p i r i t s W i n e
P r o d u c t L in e sA n n u a l S a le sC a s e s S o ldP r o d u c t L in e sA n n u a l S a le sC a s e s S o ld
< 140 - - 172 (344) (1)
1-1 0 0375 $2,414,786 16,906 1,411 4,423,553 51,714
1 0 1-2 0 0191 $3,581,531 27,777 520 5,579,032 76,179
2 0 1-3 0 076 $2,516,089 18,651 303 5,016,338 74,080
3 0 1-4 0 056 $2,321,589 19,229 172 4,257,185 59,343
4 0 1-5 0 033 $1,814,279 14,673 121 3,212,229 53,971
5 0 1-6 0 022 $1,290,558 12,117 80 2,810,443 44,249
6 0 1-7 0 028 $2,243,420 18,220 56 2,258,683 36,408
7 0 1-8 0 016 $2,138,888 12,042 48 2,028,895 36,080
8 0 1-9 0 014 $1,536,016 11,767 30 1,295,574 25,787
9 0 1-1 0 0 010 $1,046,844 9,612 25 1,392,128 23,517
1 0 0 1-1 0 , 0 0 067 $17,525,076 142,234 135 12,669,374 270,669
1 0 , 0 0 1–1 0 0 , 0 0 0- - - - - -
> 1 0 0 , 0 0 0- - - - - -
T o t a l 9 2 8$ 3 8 , 4 2 9 , 0 7 7 3 0 3 , 2 2 8 3 , 0 7 34 4 , 9 4 3 , 0 9 1 7 5 1 , 9 9 6
Note: This distribution contains only those products with inventory on-hand in the month of July (52% of total
annual sales); Beer is not included in this distribution; DLC does not have inventory data for those items.
56% of total annual sales at cost are from product lines that sell
between 101 and 1,000 cases per year.
CountyStat28DLC Inventory
Management
8/25/09
Overview of Annual Sales
Distribution of products by sales (# of cases sold)
Beer, Spirits & Wine - All listed products
C a s e s S o ld
B E E R S P I R I T S W I N E
P r o d u c t L i n e s
A n n u a l S a le sC a s e s S o ldP r o d u c t
L i n e sA n n u a l S a le sC a s e s S o ld
P r o d u c t L i n e s
A n n u a l S a le sC a s e s S o ld
0 547 - - 795 - - 7,074 $(2,952) (15)
1–1 0 01,182 $870,710 22,116 1,243 $5,021,648 35,646 10,392 $13,947,856 144,652
1 0 1-1 , 0 0 0494 $3,973,167 185,683 534 $20,430,062 160,460 1,578 $30,546,821 471,592
1 , 0 0 1–1 0 , 0 0 0
303 $15,805,980 941,753 68 $17,700,523 144,169 138 $12,879,015 275,622
1 0 , 0 0 1–1 0 0 , 0 0 0
72 $24,736,912 1,899,497 - - - - - -
> 1 0 0 , 0 0 05 $12,572,443 733,661 - - - - - -
Looking at beer, wine and spirits, the greatest percentage, 35%, of
total annual sales at cost are from product lines that sell between 101
and 1,000 cases per year.
Note: This distribution includes all “active products” listed with DLC in their sales database. An active product
is defined as a product which is available for purchase and has had some activity within the last 18 months.
CountyStat29DLC Inventory
Management
8/25/09
Analysis of Sales Data
Findings
When looking at only those products with inventory in July, annual sales
is split between wine (54%) and spirits (46%)
– The greatest percentage of total annual sales are from product lines that sell between
101 and 1,000 cases per year
– Drilling down into products that sold 1,000 cases or less, the greatest percentage of
annual sales and cases sold are products selling 101-200 cases.
– DLC has 212 product lines in stock that had zero sales during the last 12 months (77%
wine; 23% spirits).
Looking at all active products listed, beer and wine comprise the greatest
percentage of annual sales
– 53% of offered product lines are in the 1-100 cases sold range
– The greatest percentage of total annual sales are from product lines that sell between
101 and 1,000 cases per year
– Drilling down into products that sold 1,000 cases or less, the greatest percentage of
annual sales and cases sold are products selling 1-100 cases. (53% of annual sales
are from products that sold 1,000 cases or more)
This sales overview, coupled with inventory turnover, will allow the
department to establish inventory and sales goals and streamline
inventory practices to create greater accountability and profits.
CountyStat30DLC Inventory
Management
8/25/09
Agenda
Introductions and meeting goal
Current DLC inventory policies and processes
Analysis of inventory and sales data
– Inventory turnover analysis of only products with on-hand inventory
– Overview of sales for all listed products
Survey of control jurisdictions’ best practices
Recommendations
Wrap-up
CountyStat31DLC Inventory
Management
8/25/09
Control jurisdictions’ best practices
Operating on a bailment inventory system
– Under bailment, the suppliers continue to maintain ownership of their own inventory while it is in the warehouse. Stock remains under the control of the supplier. The liquor becomes the property of the jurisdiction when it is shipped from the distribution center to retail outlets.
“New product listing” process as an important business practice
– Idaho has formal listing meetings and requires information on marketing, targeted customers, and sales projections on each potential new product. Products are given an 18-month trial period; products which fail to meet goals may be de-listed.
Improving inventory management by improving use of technology
– Oregon implemented an inventory management system to replace its mainframe set-up. This improved its ability to organize and locate inventory, fulfill orders on time and meet its standards for customer satisfaction. It also makes use of software to forecast inventory needs and adjust for freight costs and retail price changes.
CountyStat32DLC Inventory
Management
8/25/09
Recommendations
Collect inventory-on-hand data for all products on a monthly basis to confirm
inventory turnover analysis
– Collecting this key piece of data over time will improve DLC’s ability to measure its
performance
Track inventory turnover as a performance measure for the department as a
whole
– Track turnover by individual product to help DLC make decisions about future product
purchases
Develop a low turnover threshold for products and a protocol to evaluate
whether to continue to stock those products
– Consider eliminating brands with low turnover or at least low performing products within
brands (i.e. E&J Gallo = 26 turns; Duboeuf = 2 turns)
Conduct a cost-benefit analysis of using the special order process, rather
than stocking products with low turnover
– Increasing special orders might be one way to lower the need to stock slow-moving
products and free up warehouse space for more popular products
Combined with DLC’s other performance measures, inventory
turnover can provide an additional method of evaluating
performance.
CountyStat33DLC Inventory
Management
8/25/09
Example of Special Order Policy
Utah Department of Alcohol Beverage Control
Utah has a formal special order
policy and provides information
online to consumers
– This service is provided without
additional fees for consumers who
desire products the agency does
not stock or list
– Expectations of turnaround time
are listed
– The option to pay extra for special
shipping arrangements is also
offered
– An email contact form is provided
at the bottom of the page
This is one example of a formal, advertised special order policy and
process.
CountyStat34DLC Inventory
Management
8/25/09
Meeting Goals
Evaluate DLC inventory and sales data to develop a performance
measure that would assist in establishing inventory and sales goals
– Use this measure to streamline inventory practices in order to create greater
accountability and profits
CountyStat35DLC Inventory
Management
8/25/09
Wrap-Up
Confirmation of follow-up items
Time frame for next meeting