The S-18 Problem


As you may know, the franchise agreement requires SEI to provide bookkeeping services to the franchisee, including maintaining the daily book value of the store inventory. This used to be accomplished utilizing a cadre of accounting clerks in the local market office who knew the franchisee and would call them when there was a question regarding an invoice. If a franchisee desired, the retails could be listed on the invoice and extended before submitting it, and the accounting clerk would enter that amount as the retail value of the invoice on the Merchandise Report.

As SEI grew, this process was deemed too labor intensive and the company realized an automated system was needed. In February 1993, several franchisees were brought together to give input on a paperless accounting system. None of those franchisees could foresee the system that has since emerged. The Electronic Data Interchange (EDI) was the beginning, and served as the backbone of the retail book value established electronically and a document sent to the store, the S-18.

As developed, the S-18 was to be sent to the store so it could verify the retail value of the products delivered by DSD vendors, and did not include McLane or magazine invoices. Non-recommended items would be factored and listed as such on the S-18 report for the store to further review and be given the opportunity to correct, if needed.

At that time the factoring percentage was based on the gross profit percentage of that supplier and could be changed at any time. Now the factoring percentage is based on the gross profit of the category. An example is Frito Lay. The Snack Category has a gross profit of 50 percent, but our largest snack supplier has an average gross profit of 28 percent. Thanks to the work of the National Coalition, Frito Lay is now its own category within the Snack Category, resulting in a more accurate factored retail. Too often pre-booked items are also factored, and the response from the merchandiser or category manager is that the supplier shipped the product a few days too early. Is the system really that complicated?

The major frustration with the S-18 is the continuing factoring of Recommended Items—items that have been in the SEI Item Master for an extended length of time suddenly begin to have a factored retail assigned. This requires the franchisee to research and scan the S-18 back to Accounting for a correction to the book inventory.

Throughout this process there is no one keeping track of the returned S-18s to determine if there is an issue within the SEI system that needs to be corrected. The only means to end this merry-go-round of paperwork is to create a case to the merchandising group. Too many times the answer that comes back is that a vendor caused the problem, but it seems there is rarely an effort to contact that vendor to get it corrected. On occasion the answer to the case is that the item was set up incorrectly and Merchandising is trying to correct the problem, which ends up taking several months or longer. Meanwhile, the franchisee has to submit S-18 corrections weekly while waiting for a resolution.

A related issue is corrections to the retails listed on the McLane invoices. This problem has been exacerbated now that McLane is creating multiple invoices for a delivery. Ostensibly these second, third or even forth invoices are for items ordered outside the normal ordering system, i.e., cigarette promotions, trade show items, call in orders, or free fill items. Many times these items then get listed on the McLane invoice with an incorrect retail or no retail at all. Diligent franchisees submit Retail Inventory Adjustments only to learn later from a Merchandise Report that SEI made a blanket correction. It is disturbing that SEI does not provide any documentation to the franchisee on how the adjustment was calculated, probably creating inventory variation.

SEI needs to complete this circle of information by providing documentation on the true calculation of this McLane adjustment. Franchisees deserve a system that is both transparent and seamless. The accounting system should not impact the day-to-day operations of the store. It should not take months to correct factoring problems. Is the system really that difficult to manage? I have often heard the saying, “We can send a man to the moon, but …” Fill in the blank yourself.