Item setup is one of the smallest jobs in the business and one of the longest-lasting. A new item is set up once, usually in a hurry, and every price, reorder and report that touches it afterwards inherits whatever went in that first time.
Setting up a new item takes a few minutes. A box arrives, a customer is waiting, someone fills in enough fields to sell it, and the day moves on.
The trouble is that nobody comes back. The item goes on selling for years with the cost, the price rule, the department and the reorder settings it was given in those few minutes. If any of them was wrong, it stays wrong.
What item setup touches
Each field on a new item feeds something else in the business. That’s what makes a small mistake expensive.
The field
Cost and vendor part number
Price, or the pricing rule it follows
Department and category
Unit of measure and pack size
Reorder settings: minimum, maximum, lead time
Supersessions and replacements
Taxable and other flags
Bin location
What it drives
Margin on every sale, and vendor returns
Whether the price moves when cost moves
Every sales and margin report by department
Whether you sell one or charge for a case
Whether it’s on the shelf when someone asks
Whether the old part number still sells
What’s charged at the counter
Whether anyone can find it
A part set up in the wrong department makes that department’s margin look wrong for as long as it sells. A price typed in by hand instead of following the rule doesn’t move when cost does. A missing reorder point means the item sells out once and is never ordered again.
Nobody decides to underprice a part. It happens once, at setup, and then it happens on every sale.
Decide who owns item setup
When whoever’s at the counter sets up the item as the box arrives, it’s fast, but the rules end up depending on who was working that day.
Item setup works better with an owner: one person, or a small group, who sets up new items, or at least reviews them before they’re final. They don’t need to do every one. They need to know the rules, and to check what others have done.
A short checklist for every new item
01
Use the vendor’s part number and description exactly, so you can match invoices and returns.
02
Enter the real landed cost, including freight where your system allows it.
03
Put the item in the right department and category, the same way every time.
04
Let the pricing rule set the price, unless there’s a written reason not to.
05
Set the unit of measure and pack size, and check them against the invoice.
06
Set reorder settings, or decide on purpose that it’s a one-time special order.
07
Link supersessions and replacements to the old part number.
08
Record a bin location before the item goes on the shelf.
Write your own rules down: how departments are split, which pricing rule applies to which kind of item, and when a manual price is allowed. The checklist only works if everyone is following the same rules.
Review new items regularly
Even with a checklist, mistakes get through. A short review of the items set up in the last month catches most of them while they’re still new: anything with a manual price, no reorder settings, an empty bin or a department that doesn’t fit.
It’s also worth looking back at the oldest items once in a while. Costs, vendors and rules change, and items set up years ago were set up under rules that may no longer apply. That’s often where the prices that are costing you money turn up, and it’s the kind of question the system you already have can usually answer.
How this connects
Area: Foundations — the routines and habits the rest of the business is built on.
Applies across: Operations and Revenue. Item setup decides margin, reordering and the accuracy of every report by department.
Read next: Start With the Decision, Not the Report — asking your system better questions.
Also useful: You Cannot Sell Your Way to a Better Year — why a few points of margin matter so much.
ProfitEdge Systems helps independent retailers and dealers improve profitability and operating performance through consulting, training, and intelligence tools. See how we help →
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Set the Item Up Right the First Time
A new item gets set up once, in a hurry, and is rarely looked at again. Every price, reorder and report built on it inherits whatever went in that first time.
Plan the Season Before It Arrives
A seasonal business makes most of its money in a few busy months, and most of the decisions that shape them are made in the slow ones. Preseason planning is where the season is won.
Warranty Claims Are Money You’re Owed
Warranty work is done, the customer leaves happy, and the claim gets filed late, short or never. Treat warranty claims as receivables and the money stops slipping away.
Your Shop Rate Isn’t Your Effective Labor Rate
The rate on the wall is what you charge for an hour that gets billed. What the shop actually earns per hour is a different number, and the gap between them is where service profit goes.
Bring the problem you keep re-solving
Most of what ends up in these articles started as a question from a shop owner or a dealer principal. If something here sounds like your month, say so and we will look at it together.
