The Pay by scan model puts a lot of responsibility on the grower. The pay by scan grower is completely responsible for the inventory in stores. There are many differences between pay by scan and conventional purchase order business. For a complete review see our blog: Pay By Scan Vs Purchase Order Business Models For Growers.

Success in pay by scan requires good data flows to make the right decisions. In order to make those right decisions the grower needs visibility to data in several areas.

Pay By Scan Key Data Areas 

• Growers must be more aware of their sales patterns with the pay by scan model. This includes store level and SKU level details as well as the various grouping meta data.  
• Growers must also have visibility to their inventory in stores including what has been scrapped or dumped.  
• Growers must know what deliveries were made to stores 
• Growers must have access to correct SKU costing and pricing. The pay by scan arrangement requires a more diligent and accurate approach to pricing. You, the grower, own the inventory until it is sold. A successful pay by scan program will include pricing your product correctly. 

The key areas to focus on for pay by scan are all of the various types of transactions such as sales, scrap, deliveries, your in-store inventory quantities and dollars and unsold items/shrink/unknown loss in order to increase the chances for profitability. 

Pay by Scan Key Data Management 

If you are going to start using pay by scan and don’t currently have an efficient data management system in place, then you need to establish how you are going to collect and track all the data from your stores. You will need to identify the key data pieces you need to be collecting and build a program around that for reporting purposes. You need to understand what these numbers mean for your business and pricing decisions.  

Pay by Scan Key Data Statistics 

Once a grower has established a key data management system, they must ensure they have access to reports that calculate some of the most important pay by scan statistics. These statistics help growers understand how product is moving, if its priced correctly and what the store situations are.  

Pay By Scan Sell Through 

It is impossible to stock and replenish stores effectively without being fully aware of your sell through numbers.  

At its core sell through is the percentage of delivered product that has sold. For example, if 100 units of a SKU were delivered and 84 have been sold and 16 remain in the store then the current unit sell through is 84%.  

You can also view sell through in dollars as well. Using the same example above, if each of the SKU was priced at $10 per each your delivered value would be $1,000. You have sold $840 with a remaining wholesale value of $160. Thus, in this case the dollar sell through is also 84%.  

Pay By Scan Turn Rate 

Example sell through
Copyright Advance Grower Solutions

 
Turn rate is a cousin to sell through. Turn rate really measures how fast inventory is flowing out of the stores. In turn rate, you measure the number of times inventory is sold or used in a time period such as a year or month. You can determine that by using the equation for inventory turnover equals the cost of goods sold or net sales divided by the average inventory. Grower items that have short store sales time are harder to analyze with turn rate than those that tend to have a longer season. 

Pay By Scan Margin 

 
For an individual SKU your margin would be gross margin dollars / wholesale price. For example, if you sell a SKU for 7.99 and your cost of goods sold is 5.24 that SKU has a 34.4% gross margin.  

To determine your program margin, you have to add up your total cost of goods sold and divide by the total wholesale dollars sold. This will give you a weighted gross margin for what you have sold. Note: the total cost of goods sold is the amount you delivered to the store in a pay by scan program. 

Pay By Scan Key Analysis and Planning 

Having the right data visibility and data management for your pay by scan program help you plan for future changes better. One of the most important aspects of year over year pay by scan management is pricing.  

You need to perform pricing analysis on each item you sell to verify that you can cover your costs and needed margin under various sell through scenarios. This analysis includes accounting for potential shrink, return credits, weather related loss, markdown allowances, planned shared ad discounts and other loss events. 

Make sure you review your pricing with up-to-date sell through numbers and work with your customers to make sure your pricing is right.  Consider your accurate cost of goods as well as other costs you incur to get the product to market, such as transportation.  

For example, if you have a particular item that you sell for $4.00 under a purchase order arrangement and you believe that you will get 80% sell through on that item under a pay-by-scan model then you need to plan to markup that item to account for that 20% loss which will be your inventory. For a more complete review of the effect of sell through on pay by scan pricing and margin see our blog: Impact of Sell through on Pay by Scan for Grower Revenue.

When you review make sure you consider both sell through dollars as well as sell through quantity percentages.  

Make sure your software system provides end of year summaries and detailed reports so that you can do the necessary pricing analysis. 
 

Conclusion 

For Pay By Scan to meet the goals of both growers and suppliers, growers need to work out all of the different data factors, data management, statistics and planning involved in making this type of arrangement successful. With proper planning and execution, you the grower have the potential to revolutionize your business. 

Learn more about the Pay by Scan model arrangement between growers and big-box retailers as well as information on software capabilities needed for this model and key factors for success. Read the Pay by Scan Playbook here.

How AGS Can Help 

We can help ease the transition to pay by scan.  Our DTS/Merch helps you measure the performance of your pay by scan program. It is made for the suppliers and is a tool to use to improve your operation. It provides data, statistics and analytics to supply their performance back to the retailer while improving visiblity to enhance your profit margin.  

To learn how DTS/Merch can help your vendor management inventory tasks or to schedule a demo contact us.