Technology in the convenience industry seems to be the major topic these days. Although many operators were early adopters, many “old school” companies have held out. While calling on operators all over the U.S., I get asked often, “When should I invest in technology?” That is a rather broad question.
When it comes to vending and office coffee service (OCS) operators, it is overwhelming to those who haven’t started in the technology field. Therefore, let’s break it down in segments:
- VMS (Vending Management Systems)
- Credit Card readers
- Prekitting
- Warehouse automation and management systems
- OCS
VMS
Like any other industry, investing in technology is not cheap. However, VMS companies have become affordable for small to medium operators. They offer better service and can better communicate how and why you should have a VMS. Because I talk to so many operators, I find companies with 10 machines using a VMS and I find operators with 200 machines still using paper, or nothing but “trust.” A good indication that your system of ‘trust” is not working is when route drivers are driving nicer cars than the owners. When I pull into an operator’s parking lot and see expensive cars, I usually ask them first if they have a VMS to run their business. Most drivers across the nation make around the same money, plus or minus a few bucks. If a driver is making $36,000 but they are driving a $50,000 vehicle, your system of trust may not be working. If you are running more than one route and depend on an employee to run routes for your business, you should invest in software to help you manage the cash, inventory and sales. There are plenty of choices when it comes to choosing a VMS. Shop around, and don’t be afraid to ask outside of the VMS sales people for help in choosing a VMS provider. This could be a consultant, or another operator whom you do not compete with. Getting unbiased advice is always helpful. I come across so many operators who leave one VMS to go to another VMS. This is not an easy task nor is it cheap. Pick a VMS that does both OCS and vending and has the capability to integrate with the major kiosk providers. If you don’t provide OCS then ask if you can “turn it off” or not pay for it until you need it.
If you are using an old, outdated software that is no longer supported by the company with new updates and modern-day technology, you should be looking at an alternative now. Back in the 1990s, there were several independent companies launching into the vending world. Some have merged, some have closed and some are just barely hanging on. Don’t wait until your system crashes to make this important change.
Credit card readers
Many small operators are scared of credit card readers. Maybe it is the monthly fees, maybe it’s the costs of the readers or maybe it is the challenge of installing them. The old saying “cash is king” doesn’t resonate with today’s society. We are becoming a cashless society. So, what happens when you don’t offer a credit card payment system? You simply lose sales.
It has been proven that adding credit card readers that offer several payment methods increases sales. Nowadays credit card readers are around 50 percent or more of an operator’s sales. But there is a break-even point on smaller volume accounts. It will depend on the age of the machine on whether it can accommodate a credit card reader, so do your homework first. If you have low volume machines, and you choose not to pull them out, adding a credit card reader probably won’t be the answer to doubling the sales. Face it, if you have a machine doing $35 a month and you add a credit card reader to it hoping it does $70 a month, it still won’t make you much profit. It’s time to pull the machine, not invest more into the location. On the other hand, if you have a machine doing $100 in cash sales, it’s probably worth it to add a credit card reader.
Card readers in general have the technology to allow remote monitoring called telemetry. This means the DEX file can be read by a VMS which will allow you to change over to prekitting. Prekitting is when you pick the machines from your warehouse and send your drivers out with just what the machine needs. They no longer need to drive around with a loaded truck full of expensive inventory. The majority of operators have converted to prekitting or are in the process of doing so. This will make them more competitive by making them able to manage their machines from their VMS and fill just when the machines need it. It also gives the operator control of what sells in the machine versus what the driver wants to put in the machines.
Prekitting
When is it time to prekit? NOW! Why send out route drivers with more inventory than they need? I can’t tell you how much product gets smashed, stepped on, eaten, stolen and just wasted due to driver and truck negligence. I have talked to operators who have had drivers selling products out of the truck for cash. No accountability is an open checkbook to drivers and employees. A small operator may fill 15 machines on an average day doing vending the old school way. Once prekitted, your drivers could possibly do twice that much because they are no longer picking products from the back of the truck, shopping your warehouse, doing truck inventory and making two trips into each location.
One of the biggest reasons to prekit is the control it gives you to manage the machines and markets. We have all seen that lazy driver who would rather leave three duplicate rows of a slow seller than pull two rows and replace with better selling items. When you can manage the spirals and markets, you better manage your business. This is what will pay for the technology. Technology is usually seen as an expense — it should be seen as an investment.
Warehouse automation
When is it a good time to invest in warehouse automation? The fourth step in investing in technology is investing in your warehouse. Now that the loose product is off of the trucks and into your warehouse, you should use measures to manage and control the inventory in the warehouse. But what happens when you use two or more systems that don’t talk to each other? I find that having several kiosk systems and a VMS that do not communicate with each other is very common these days. Inventory becomes almost impossible to keep track of because of the tons of SKUs (stock keeping units/products) leaving the facility to go into various micro markets, pantry and vending machines. Generally, what happens is the operator gives up and just doesn’t do inventory. Cost of goods sold (COGS) is your highest expense out of all expenses. Why ignore it? There are options that will work together, and more and more kiosks are integrating with VMS companies. Again, do your homework and ask around make sure your needs are met. Talk to an unbiased consultant or friendly non-competitor to ask the right questions for your business.
So, is there an answer to all the above problems? In short, yes. Talk to a company like LightSpeed Automation or any other vending picking system. LightSpeed integrates with all major kiosks and VMS companies. In the end, if you use several different kiosks, and a different VMS, make sure your warehouse automation company can handle all of the integration for picking all products out of one picking system. It is also helpful if the system can be tailored for operations small to large and can help simplify your warehouse organization. Typically, when you get past one route and are still picking from paper, using a warehouse automation system can allow you to pick multiple machines at one time, versus picking off paper and making multiple trips all over the warehouse to pick one market or machine. Picking off paper is fine for one to two routes, but after that, look into a better way of picking.
Next comes a warehouse ordering system. How can you order if you have several systems that don’t communicate with each other? One answer is a system called “Level” from LightSpeed Automation. It uses the LightSpeed system for relieving inventory that goes out and has its own purchasing system for products coming into the warehouse. Since it uses the inventory movement from the LightSpeed picking system, it doesn’t rely on or use any VMS inventory system anymore. It becomes the system of record of inventory management.
OCS and technology
When is it time to invest in OCS technology? In the old days, drivers could just load up their trucks for the day and go in and take a customer’s order. Then they returned to the truck, grabbed the needed supplies and went back in to deliver it. Now, many customers are investing in pantry items from OCS operators. It has reached such a level that the industry has gone to more of a pre-order system so that the driver will have the full complete order upon delivery. If you and your staff are getting overwhelmed with emails and taking phone orders, you should invest in a web entry system. This allows the customer to place an order right on your company’s website, get the customer’s own pricing and places the order into the VMS system, to be delivered by the route driver. Some of these add onto your current website and some take orders in a different portal or webpage. Either way, it is usually an inexpensive and professional way to allow the customers to place orders on the web verses clogging up your inbox and phone lines. Face it, today’s society orders many things off the internet. Keep up with the times and you will keep customers.
Investing in technology vs. selling
Companies looking to grow through acquisitions want to buy operators who have already made the technology investment. Being already prekitted will bring your company a higher sales price and make it more in demand than an operator that is not prekitted and has no technology. Once prekitted, no company wants to go through that challenge again. Technology also offers much better due diligence, and brings a better sales price versus a company using nothing but trust and paper to track sales, pricing, inventory and routing.
Mike Ferguson
Mike Ferguson, owner of VMAC Solutions, LLC, is an intermediary business broker who has owned and operated a vending and office coffee business. He specializes in selling office refreshment businesses.
