Nearly a full year after releasing their previous and somewhat baffling report on their work at the NSLC, the Auditor-General this week finally released the last of their reports on their work at my former employer. This one covered a look at what used to be called the Merchandising and Marketing functions (now somewhat confusingly called Customer Strategy) which deals with product listings, de-listings, promotional programs, shelf management, and pricing; along with examination of inventory management, and Board governance. Inventory management got a clean bill of health, which was the only thing in the entire report which didn’t surprise me. That group has been very well-managed for years and apparently has stayed that way in the 7 years since I departed.
However the remaining findings leave me absolutely baffled. I really cannot write with any certainty on what has happened there since I departed, but I can tell you what I recall from when I was there. M&M as we called Merchandising and Marketing was the 1000-pound gorilla during my time there, which was really not surprising when you consider they were the group that determined what we sold and how much we sold it for. It really was the core function of what we did and how we performed, and everything else was in support of that. They were the group with whom the vendor community interacted, and their decisions had a great impact on what our customers thought of us. Everyone understood they were Very Important.
When I first got there in the early 2000s the division was not very well thought of by the vendor community. If you were a favored vendor you loved them of course, but there were a number of vendors who were not favored so much and they had a different view. Back then there were lots of reasons for that, and early on in my time there a lot of work went on to fix that. Things were made more transparent, processes were put in place and documented, and results were communicated back to those affected. It took a lot of time to change the perception but from my perspective looking at it from outside the division, it seemed that a lot of things had improved and the vendor community at least understood how and why decisions were made. Not all vendors were happy – something you will never achieve with our monopoly model where NSLC is the only game in town if you are looking to sell your product in any quantity – but things were working.
Part of that was due to a tremendous amount of work that was put in place by the institution of a category management model. Unlike the previous way of doing things where a lot of decisions were made by the seat of the pants and looking at some sales numbers, the CM approach broke everything we sold down into granular categories – so instead of just wine or white wine, you might have a category just for French white wine (along with similar ones for wine from other countries), with sub-categories made up of a number of price brackets, grape varieties, regions, whatever. Determinations would be made as to how many articles were required in the assortment for each of those, and then a call for applications would be issued. This required the vendor to supply all the information needed about the products they represented, from our price to buy it, to package size to case weight to images of the label. It was a very information-heavy process, and some vendors didn’t like having to go to all that effort, though most understood why it was necessary in making decisions. Samples would be requested, it would go through a tasting and scoring process, proposed retail prices would be determined via the pricing formula, and finally winners and losers would be determined. All of this was shared with the vendor community and everything was recorded electronically, usually in spreadsheets. Then orders were placed, products leaving the assortment would be cleared out, and new products would hit the shelves on the appropriate date. This same process happened for every listed product once a year, with various other categories being done in different months. It was a very busy place.
So, imagine my surprise when I read this in the A-G report:
1.2 For an organization of this size, we would expect to see established and well
documented policies and procedures in all the key product management
business functions at NSLC head office. However, we did not find policies or
procedures in the areas of product management that we audited.
1.3 The scope of our audit included the selection of beverage alcohol products to
sell in stores, as well as pricing, shelf management and promotional program
decisions. Generally, we found processes in place lacked clarity; document
retention was not a priority; and approval and review processes were almost
nonexistent. What the organization expected staff to do in these areas is not
clear.
Unless they threw out everything they used to do, I am stumped by this. Maybe they did, but I don’t know, and I would find it difficult to believe.
Then we read this in the report:
1.7 Currently, to arrive at product selection decisions, management stated that
staff are continuously reviewing product performance. Category managers
indicated they review sales data, identify gaps in the product mix and price
points, and consider other criteria including market, customer, and product
trends. However, the approach to conduct and document this analysis needs
consistency and accountability.
1.8 ‘General list products’ are carried regularly by the NSLC, while ‘one-time
only products’ are items brought in for a specified period. The annual
beverage alcohol selection process applies to both types of listings. However,
one-time only products can also be added and removed outside of the annual
process, making the process less transparent than for general listings.
1.9 Each year, NSLC publishes an expression of interest for alcohol beverage
products, and suppliers and their agents provide a submission which contains
the details of the products they wish to list. Submissions are grouped into
categories; generally, wines, spirits, beer, and ready-to-drink products.
1.10 Staff indicated that they meet with suppliers and agents throughout the
product selection process. These meetings may occur before or after listing
submissions are due and there is no set timeframe in relation to the process.
Management stated that any supplier or registered representative who makes
a meeting request prior to the final listing decisions will be granted a meeting
with staff. However, neither meeting minutes nor a record of discussion is
kept. Record keeping would support consistent consultation with suppliers
on product strategies and assist in relationship management and continuity
if there are staffing changes. This would also support both fairness and
efficiency in the process.
1.11 The rationale to add new general list products is often not clearly documented.
We reviewed the selection process for 26 sub-category reviews within the
wines, spirits, beer, and ready-to-drink categories over a two-year period.
Examples of sub-categories include French wine, Canadian whiskey,
and single serve beer. Management explained that there are no retention
standards for documents associated with product selection. The absence of a
filing system was further complicated by staff turnover in recent years and as
a result, it took time for us to collect the documents from staff.
So it sounds like there is a process after all, just not one that fits in the A-G’s proper type of box. If you are reviewing performance and developments in the category continually, it sounds like you are doing the job you’re supposed to. The behavior of the market and the product development cycle do not occur in handy consistent time cycles over the course of the year. The use of one-time-only or OTO listings is an attempt to respond to those sort of unexpected changes and give the customer the latest and greatest thing. Those often transform into regular listings if the trend proves to have legs. I find myself wondering if the A-G people working on this ever understood the CM process and what it tries to accomplish. I just don’t know.
The report also makes it sound like everything is still paper-based, which aside from meeting notes surely isn’t true. I know that before I left, NSLC was making a big push towards having every electronic document retained using Sharepoint, a Microsoft product. Along with others, I found it very challenging to use, and I wonder if because of that it eventually fizzled out – I do not know. I find it hard to believe that in this day and age those electronic documents are simply purged. Maybe they are in Sharepoint, but nobody could figure out where. Who knows?
The same sort of confusing findings can be seen the the A-G’s reporting on promotional programs. Without repeating everything here, the report describes the process they use and the documentation provided, then criticizes them for having inadequate documentation and processes. I’m not sure what the appropriate solution here is, since they really don’t say. I’m scratching my head.
One of my favorite pieces of the report is the shelf management section. Shelf management involves fitting all of the products you have to sell on the available shelf space in each store. Each store has different amounts of available space, so it would be a very labor-intensive process. Back when I first arrived, the NSLC had just acquired some shelf management software to help with this task. It took a while, but eventually it was tamed and one person was the subject matter expert. She learned how to use the system to generate initial results, tweak it to fit specific quirks or market variances of each store, and then distribute the resulting planograms for implementation at store level. This is something every large retailer does.
The A-G found a shelf management manual dated 1999, back when the process was fully manual. Why they thought this would be in any way applicable to the current automated system is a mystery, but no matter, they apparently do. They also seem to think that this is a hotbed for potential fraud. Because there is a reliance on one person to generate the planograms, and on a store manager to indicate that it was executed as directed, all sorts of shenanigans could allegedly occur. I mean, really. If the Springhill store has 20 facings of various tequilas, and Springhill doesn’t sell much tequila at all, I would hope the manager would take the initiative to reallocate some of the space after observing that and give it to additional facings of something that is popular there. That is what any good retailer would do. But of course, the A-G is assessing this from the point of view of a government auditor, where risk lurks behind every decision that isn’t documented and signed off by multiple people to share the blame if something goes wrong. And that presumes that nobody would notice – the agents, who are in the stores constantly, the regional managers, whomever. The return for those inclined to permit fraud is rather small too. In reality, the risk of fraud is virtually nil.
Job descriptions were noted as lacking in a number of management roles. When I was there I know from having spent many frustrating hours jousting with HR that it was impossible to get a salary rating for a management position without an approved job description. Without a salary rating the incumbent is likely being underpaid, leading to an unhappy employee. If the employees were not unhappy, that tells me the JD salary rating was not going to change and it was only the words around duties and job title that were lacking. Of course, the JD’s listing of duties is general at best, and often relates very poorly to what the person actually does on a daily basis. But that gets covered off by the annual performance review and objective-setting process, which is what really determines what the person is focused upon, along with the usual periodic updates that occur between the employee and their supervisor on what they’re working on. The fact that one of those positions lacking was or is a direct report to the President tells me that they are probably not missing much from having an outdated JD, and that their performance was not affected one iota.
Finally we get into the governance section of the report, which is perhaps the most frustrating of all. The A-G begins by misstating the relationship of the NSLC to the Department of Finance and Treasury Board. That relationship does not exist in legislation. The NSLC is assigned to a Minister by Governor-in-Council, i.e., Cabinet. That often changed in the early days of the NSLC as a Crown corporation, and was not assigned to the Minister of Finance by Cabinet until 2009. Since then, however, it has remained there, though it could be changed tomorrow by Cabinet. Like the A-G, I think this is something the government of the day believes is true. It isn’t.
Over time, that relationship has changed how the NSLC Board goes about its business. When you had the Minister of Economic Development or Tourism or Service Nova Scotia as the Minister responsible for the NSLC, the Board chair and Minister maintained a mutually respectful arm’s length relationship. The NSLC Board was largely (though not totally) free to operate the business as they thought best, balancing their mandate under the Act with the wishes of the Minister. Even in my latter days with the Corporation when the Minister of Finance was also responsible for NSLC, by and large, with one or two notable exceptions, they kept their noses out of our operations.
That seems to have changed in recent years, with Finance playing a much more hands-on role in telling the NSLC what and what not to do. I’m not there, and really have no relationship with anyone now in management there, so I can only reach my conclusions based upon what I see from the outside looking in. But it seems clear that the Finance direction is very strong – for a number of years in the not-too distant past there were 3 current or former Deputy Ministers of Finance on the NSLC Board – and that the Board has become much more of a rubber-stamp for their directives. That’s not always a bad thing, if the public policy goals of government are not being acted upon appropriately. But it becomes a problem when the public policy goals enunciated by Finance to NSLC are at odds with the 4 NSLC legislated objectives. Finance is first and foremost concerned with protecting the revenue position of government, and back in the bad old days of the NSLC as a Commission, delivering that revenue was their one and only objective, customers or local producers be damned. One hopes we are not slowly inching back to that time. The A-G does hint in the report that this degree of influence is not totally healthy, and one hopes that things change in that regard.
The rest of the report on governance issues deals with things like Board member evaluation, skills and competencies, and education for Board members. When I was there I was heavily involved in this area, and we had our challenges. Getting the Board members we needed was sometimes frustrated by having Cabinet make those choices for us, which were not always what the Board chair recommended. Subpar performers on the Board were easy to identify but difficult to rectify, for the same reason. If the Board is intended to actually make its own decisions, these things become important, but are less so (or may in fact be a detriment) if the Board is simply rubber-stamping decisions handed down from above.
So we end up with lots of time and tax dollars spent, lots of supposed flaws identified, but not much clarity on what the impact, if any, of those might be outside of some theoretical what-ifs that might cost a whole lot more to fix than what they are intended to cure. That is not to say the NSLC is perfect; far from it. I am not a fan of the direction they have taken over the last few years and from my point of view I think they have regressed in some areas. But I also think that there are a lot better ways to examine their operations than by sending in the A-G to assess them against some kind of perfect bureaucratic model, if these are the kind of results we get. Odds are that after a brief flurry of activity to check the requisite boxes, these end up as just more reports on a shelf.
One closing note: the media coverage of this part of the A-G’s report was odd. Jean Laroche of CBC noted that it was due to be released by tweeting a link to his story on last year’s report, which dealt with local producers and their relationship with the NSLC, none of which had anything to do with this report. Apparently Francis Campbell of Saltwire read that, because his story for the Herald dealt with the A-G report findings for a few paragraphs, then segued into a long section dealing with a PC Party press release from a week or two back about some communication between the NSLC and small brewers which those brewers believe may place them in jeopardy. Again, there was nothing in this A-G report about that issue either. The Saltwire story included this gem of a quote: ““Taxpayer dollars are going to this organization so they can hold back local producers? That’s not right,” Tim Halman, the MLA for Dartmouth East said.” Mr. Halman seems not to realize that the NSLC generates revenue for the Province and does not suck tax dollars away from other government programs. Like everything else about much of this, how bizarre.
Second Thoughts 