Issue link: https://www.e-digitaleditions.com/i/66147
Choosing continued something,or the more we have,carrying costs escalate.This is the hidden cost behind every inventory management deci- sion. We are all familiar with Supplier B.The industry is littered with them.With ever tighteningmargin pressure,can you real- ly afford to subsidize an erratic shipper? One of the things I really liked about this enlightened manufacturer is that they call penalties on themselveswhen they do not perform. If they do not meet their order fulfillment guarantees, they discount the invoice by 5 percent. In an industry where the margins tend to hang out in the low teens, this is a fairly stiff penalty. I am not sure how many times they've had to honor the dis- count, but it's nice to see a supplier put their money where their mouth is. Do any of your current suppliers guarantee their shipping commitments? The Key Component in Determining the ROI What is the biggest killer of inventory turns in a distribu- tion company? Besides the gut level SWAG (silly wild assed guessing) that many buyers substitute for purchasing logic, dead and slow inventory is like an anchor when it comes to spin. By the way, the SWAG method tends to breed large sur- pluses as well. Good investors of inventory understand that inventory turn is a key component in determining the return on investment. If you can turn the inventory faster,grossmar- gin pressure is less critical. Remember, your gross margin is often dictated by the marketplace. A large portion is con- trolled outside of your four walls. Inventory turn is largely controlled by your company and the suppliers you choose to partner with. How can a supplier affect inventory turn? Earlier in the arti- cle, we talked about their ability to get orders out the door quickly.This allows us to slim down the average investment in the line and inventorywill turnmore quickly. Again, the great- est inventory turn gains are achieved by removing dead and slow inventory from a line.What is the return policy of your current supplier? Do you have to jump through several hoops and pay a restocking charge? Do they run you around until you eventually get tired enough to quit asking?All of you have had these relationships. The company I spoke to takes responsi- bility for their products in a distributorship.They have a fair- ly simple policy—if you can't sell it, they can.Choose the folks that support your need to return unproductive inventory. VMI orVendor Managed Inventory is one of those concepts that many distributors shy away from. The basic concept behind VMI is simple.The supplier takes over the fulfillment function of the inventory management process.The distribu- tor supplies the vendor basic sales transactional data.The sup- plier runs it through their purchasing algorithm. Inventory is fed to the distributor as needed.The theory looks good, but many distributors are scared to give up that much control. There is a fear that the supplier will just load them with more inventory in order to make their own sales goals. In order to combat this,most VMI relationships have very specific inven- tory turn goals. If you expect six or more turns, the supplier better be very cautious about loading you up. Although most manufacturers have a relatively low per- centage of customers using their VMI solution, it is really the next step in the relationship.This is the programthat cements the partnership between distributor and manufacturer. Sure, it ties you to one brand in the marketplace. But let me ask you this,howmany of your current lines turn 11-13 times per year? Some of youmight know that I have been on a campaign for STONE HEARTH & SPECIALTY CommercialCooking Equipment Discoverwhy over 10,000 ovens, rotisseries, charbroilers, tandoors, and planchas have been sold in 75+ countries around theworld. woodstone-corp.com info@woodstone-corp.com tf !""# %!!&!'"( ) t (360) 650-1111 the last few years to teach manufacturers, particularly their sales representatives, how distributors really make money. I encourage them to be more consultative, rather than product- focused. Start to look for those suppliers that support your need for total return on investment. Challenge your current suppliers to becomemore distributor-driven in their approach. Youwill quickly separate thewheat fromthe chaff.u About the Author Jason Bader is the managing partner ofThe Distribution Team, a firm that specializes in helping distributors become more profitable through operating efficiencies.The first 20 years of his career were spent working in distributor opera- tions.Today, he is a regular speaker at industry events and spends much of his time working with individual distribu- tion companies. For more information, call (503) 282-2333 or contact him by e-mail at Jason@Distributionteam.com. Also visitThe DistributionTeam's website at www.thedistributionteam.com. 1 8 FEDA News & Views