Is Scan Based Trading a Viable Option for Quickly Launching Retail Entrepreneurs in the Hood?

Thanks to me following professional experts in the retail industry I’m learning a lot from, I found the missing link I was looking for in terms of inventory management for the hood. We already identified one the biggest barrier to a retailing entrepreneur based in the hood is acquiring inventory and this is where most startups spend their SBA loan money on. This article will look at Scan Based Trading or SBT as a possible solution. What is Scan Based Training? This morning, I stopped by Kroger to get one banana and a yogurt which added up to $0.89 cents for a healthily breakfast option. My physician recommended I eat more active culture yogurt as part of my daily diet to help digestion while hustling hard. So as I was in the Kroger early in the morning, I saw this Mexican dude with his little son and they had a dolly with some food packages they started to pack on the shelves at Kroger. When I saw him do this, that’s when I realize what was going on which was direct store delivery or DSD. The Mexican distributor was probably a one-man or family owned setup was teaching his son entrepreneurship bringing him in to unpack. My son was also with me selling from the beverage stand last summer as I was showing him how to run a business. Have you ever walked in Wal-Mart and saw some cats putting soda bottles on the racks and asked him or her if they knew what aisle the hot sauce was at and they tell you they don’t work there? Those cats work for the manufacturer and distributor and their job is to place the items on the shelves at the store instead of the Wal-Mart stock cats putting the items on the shelves. Direct store delivery is when these suppliers go store to store and stock the shelves of Wal-Mart, Target and Kroger and Publix and so on with the bags of chips or whatever food they were supplying. I mentioned last year that this is what we need in the hood because I found it difficult to manage inventory as an entrepreneur and it appears that the big stores already doing this on a bigger scale. They sign deals with food and product distributors where they put their own products on the shelves to be sold. This is actually not a bad arrangement because all Target and Wal-Mart has to do is just sign contracts and the supplier bring the stuff to the store to be sold. Scan based trading or SBT takes DSD to another level and that is where the supplier owns the products even while it is on the store shelves until it is scanned over the register. This means that you as a retailer do not buy anything and just offer shelves to manufacturers and distributors to stock their products and you just split the cost of the good sold. This is similar to just-in-time inventory but better because you have items on hand to be bought. The Missing Link? Scan based trading was the missing inventory link I wrote about last year but did not know the name or that this practice actually exist. Believe it or not, scan based trading is not widespread but this is the perfect solution for starting up business in the hood because the benefits are too great to not consider. The start retail entrepreneur in the hood will have products to showcase and sell and do not have to spend startup money on inventory, all they have to do is sign deals with DSD cats who own the products on the entrepreneur shelves. But there are issues with scan based trading that has to be addressed first. The first issue is a trust issue where we have to believe the DSD cats are bringing in the right number of products and giving up good quality products to put on our shelves. The second issue is fear of data manipulation were cats can modify the count and products just “disappear” off the computer books and recorded as sold by the retailer when they never got it. Third is ownership because if the DSD cats are putting their products in a hood entrepreneur store, of course they want the products displayed prominently and want to dictate where to locate the product or not do business. We can mitigate these issues involved with scan based trading in the hood because this practice is just too important. If you haven’t realize, scan based trading is a similar model to consignment sales and is the same setup for the micro-mall business model. The trust issue is important and I think we need to setup a web site like that connect distributors with retailers and allow retailers to post reviews and recommendations on good distributors and bad distributors. Now for the placement of products in your store, retail entrepreneurs should sell placement on their shelves and sell space for product advertising in their store. The Benefits So let’s look at the benefits to fully understand why scan based trading should be taken more seriously. The first thing scan based trading do is create some real jobs for brothas and sistas in the hood. Cats can ride around and stock shelves of a product. The second thing it does is make it easier for brothas and sistas to become retail entrepreneurs because now they don’t have to spend thousands on upfront inventory to start a business. And by not focusing on inventory, the entrepreneur can focus instead of selling the right product instead of holding the bag. Now, you are probably thinking the supplier or distributor or manufacturer will be holding the bag if the product doesn’t sell – that’s the way it should be. See, the distributor or supplier or manufacturer will sell items in bulk and if those items don’t sell, the retailer will be burden and may go under or take a heavy loss and can’t reorder a new stock and refresh. A distributor or manufacturer is in a better position to see what will move in the market and to stock the right products. Even better, scan based trading allow entrepreneurs who manufacture products to work with distributors instead of running store to store. When I was making house music and had my own record label in college, I would press the 12” records and give some to the distributor who would ship them out to DJ record stores worldwide and if people bought the record, they would contact me and order more records from me and pay me. That’s the same setup we should be doing in the hood for retailers. Definitely Something We Have to Take Serious So let’s look at the opportunity if we do this right. The first thing some cats can do is work a deal with the manufacturers and large distributors and become a distributor themselves for the hood retailer. This is new entrepreneurship angle that is not promoted in the Black community and the lifeblood of enabling retailing in our community. Then that distributor goal is to promote their business to new and existing retailers to stock their shelves on a scan based trading method. The retailer just sell the products to the customer and the profits are split and cats get their money. Scan based trading cannot be ignored in the hood because it will create entrepreneurs who will create real jobs and will enable the recycling and pooling of money and resources. In addition it will enable brothas and sistas to manufacturer products and have a whole distribution line to sell their products in. Definitely a serious solution we have to consider for the hood so we can start doing for ourselves, our people, our community and our future.

5 thoughts on “Is Scan Based Trading a Viable Option for Quickly Launching Retail Entrepreneurs in the Hood?

  1. As with any DSD operation it hinges on the “deal”. Trust issues exists on both sides: the vendor gets paid from what sold, but has to trust the retailer’s numbers. The retailer doesn’t know exactly what was put on the shelf, and has to trust the vendor’s numbers. The “deal” can narrowly define the trust issue as shrink.

    In a small operation the retailer should verify (get a delivery receipt from the vendor) the amount of product put on the shelf. Both parties then know exactly what was delivered. So you could say, for example, 10 items were delivered but the vendor was paid for sales of 7 items, where are the other three? If we go to the shelf and the three items are unsold, everything is fine. If the three items are missing, what is our shrink “deal”? We split the loss 50/50 or 60/40 or some variation thereof? Shrink is simply a cost of doing business. And, if agreed upon prior beginning SBT it goes a long way to developing trust.

    1. One of the suggestions I’m hearing is the creation of a new entity and business model called a trust service manager who job it is to keep the data honest and protect both the retailer and distributor in a SBT relationship.

      In terms of loss, I think the retailer should have insurance and absorb most if not all of the loss. The DSD distributor is already taking risks with a SBT arrangement.

      This is pretty enlightening because now I know why there are manufacture coupons instead of store coupons most of the time.

  2. It’s early and I’m just seeing this but this is the business I’m in and large retailers have checks and balances to ensure the numbers are correct. The check in and out software generally used is all in a handheld computer and the “receiver” in the back room checks the piece count to ensure correctness. When the guys come in for their next order, they can tell what scanned based on what they last brought into the store on previous delivery and discount any product that goes as a credit. The biggest problem is that you have to wait until the store pays their invoice for payment and it can be expensive to get scan data to check back up on an account to ensure accuracy.

  3. Big boxed stores are more likely to get Scan Based Trading contracts with DSD vendors because the vendors know that consumers will hit those stores. The more costumers a store attracts the more it can bring to the owner/vendor. Depending on the location of a urban store and the relationship btwn the owner/vendor it is not likely that the vendor would present or accept such contract.

    Merchandisers, who work for the vendors, are the ones who organize, rotate, and stock shelves during each store visit but do not confuse merchandisers with the route drivers. The product will be in the backroom for the merchandiser to place out, rotate, etc. Vendors will send merchandisers to stores even if they do not have a Scan Based Trading contract, so this could be an option for urban grocery stores. The trust does not only come btwn the store owners and the vendor but the merchandisers too.

    What do you think?

    1. Amanda, do merchandisers maintain inventory which is the core benefit of SBT in this context? I believe merchandisers work for large big box stores and retailers but for a small shop, I think this is an extra layer for a small-format operation.

      Also don’t get me wrong but I believe small-format retailers need to be aggressive with their product display and move away from outsiders arranging products in their store. i do have an issue with shops having merchandisers coming in and telling them how and where to display the potato chips in their store. So if you can expound on how merchandisers can add value instead of encumbrance to a small-format retailer, i would like to get this insight.

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