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56 FEDA News & Views Exhibit 1 The Impact of Improved Order Economics For a Typical FEDA Member Current Potential Factor Results Results 1. Number of Orders 26,667 26,667 2. Lines per Order 5.0 5.1 3. Order Lines Processed [ 1 x 2 ] 133,333 136,000 4. Average Line Value $150.00 $151.50 5. Net Sales [ 3 x 4 ] $20,000,000 $20,604,000 6. Sales Increase--% 3.0% O ne of the major profi tability chal- lenges facing distributors over the course of the last decade has been the inability to lower payroll costs as a percent of sales. This challenge has con- tinued despite the application of new technology focused specifi cally on the payroll issue, such as automated order picking, online ordering and enhanced fl eet scheduling. There are a number of issues behind the inability to lower payroll costs. They range from escalating healthcare costs to a shift in the employee mix toward high- er-compensated employees, especially in the IT area. One overlooked factor in the payroll cost challenge is the inability to get control of operating economics. That is, many distributors continue to process too many orders and a large portion of those orders are of too little value. It is a challenge that distributors need to face directly. This report will examine the nature of order economics. It will do so Money Matters Order Economics and Its Impact on Payroll By Dr. Albert D. Bates Director of Research, Profi t Planning Group from two distinct perspectives: "The Nature of Order Economics" (an analy- sis of how even small improvements in the average order size can yield large profi t gains) and Order Size Strategies and Tactics (a discussion of the oppor- tunities to improve the economics of a typical order). The Nature of Order Economics Exhibit 1 examines the nature of oper- ating economics for the typical FEDA member based upon the latest PROFIT Report. As indicated in that report, the typical fi rm generates $20 million in revenue. Of key importance to this discussion, the fi rm processes 26,667 orders per year. While the orders vary in size, the average order value is $750.00. This is with an average of 5 lines per order. Each line has an individual value of $150.00. The results indicate that the typi- cal fi rm is extremely productive, in its warehouse trucking and offi ce opera- tions. The fact that this large workload can be handled profi tably is a credit to FEDA members. However, fi rms have the potential to become more profi table if they can maintain their high level of productivity while generating additional sales volume. The key to this involves Want to Increase Your Profi ts? Start by Not Being Average. ➤ The average FEDA member processes 26,667 orders per year. ➤ The average order value is $750.00. ➤ This is with an average of 5 lines per order. ➤ Each line has an individual value of $150.00.