Saar, lekka thappagathe ella mix madidre. (sir, the accounting will be incorrect if I mix everything)
That was the summary of this article. Last night I finished a huge carnival around 11pm and I was heading home. I stopped by a vegetable seller who was packing up. I noticed some 7-10 potatoes, a few leftover radish and some stale vegetables.
There was a small darshini open opposite to where the vegetable vendor was. I offered him tea and this was my opportunity to interview him. I asked him first about how he will manage the leftovers. His answer was ‘saar, neevu thogolalla andre, yaaru thogollalva?’ (If you are not going to buy them, does it mean no one else will?)
He was implying that there is a market for even leftover vegetables. So he went on to explain that some poor fellow will buy it from him at cost price. Which is around Rs. 10 less than the rate he sells it to us. His job was only to get rid of the inventory and go home without any closing stock. Isn’t this what MegaMart does? Get rid of old inventory by giving unreasonably great offers. No sarcasm in that, I have seen instances where they give buy one and take two free offers too.
The next I asked him was how much he invests to buy the vegetables from KR Market. Adu prati-dina change agathe saar. Habba bandre, aidu saavra, illa andre onduvare saavra illa erdu saavra. (It changes daily. If it is a festival season then Rs. 5000 or else Rs. 1500 or Rs. 2000)
The investment includes the transport he pays to the rickshaw which delivers the vegetables. He takes Rs. 100-Rs. 150 per delivery depending on the quantity that needs to be delivered. Doesn’t this make you realize how expensive transport is? These startups like Flipkart are making huge losses just because of free delivery which actually is far from free!
I wanted to revisit this daily investment he makes for his inventory. I wanted to know if there is a fixed set of vegetables he buys, how he accounts for them etc. So what he does is similar to how companies use Cost Centre method of organizing their accounting. For example, Royal Challengers Bengaluru have various costs like advertising, merchandise, player salaries etc.
The cost of merchandise might be high and not doing so well. This can be scrapped. That would be the logical thing to do. However, an incorrect thing to do would be to use the revenue from ticket sales, sale of Kingfisher beer or sponsors to offset the cost of making merchandise.
This is what the vegetable seller does. He keeps a separate account /cost centre for the vegetables he buys. He won’t buy too many onions if the prices are high because he knows the public won’t buy a lot. This will affect his margins and can leave him with some closing stock. However if the prices of brinjal is low and the sales are doing well, he will not use the revenue made in this cost centre to offset the margins he couldn’t make by keeping onions in his inventory. He won’t buy a fixed inventory because that is not the way you should account for it. Saar, lekka thappagathe ella mix madidre he says.
He keeps the newer stock on top and the older ones in the bottom. This is very similar to the first in first out concept of accounting for inventory. The latest stock is used first and the older ones are used later. He keeps the leftovers and old stock till late evening because that is when a different group of customers will buy it. They aren’t as concerned about quality as we are because to them quality isn’t a priority, it is price.
This is demography (India) where price super cedes quality. A big part of India bought a Nokia 1100 because of the price factor and not the experience or quality which a Sony Ericsson could give when they launched their phones during the timeline of the Nokia 1100.
I have said this a million times before, you can learn more about business from these small business owners than what any of the IIMs can teach you. The little guys may not be as well versed in English as the professors at the IIMs are but they sure can teach better than them.