The Distributor’s Dilemma.
Distribution companies have a unique challenge that is constantly threatening their business. Due to their position in the supply chain as intermediaries they experience extreme pressures from their vendors upstream and their customers downstream.
The vendors obviously want the distributors to take as much of their inventory as possible but this can be a big risk for the distributors. Along with the vendor’s products they are also taking on the risk of selling everything to their customers. The customers, on the other hand, work at their own pace. They buy whatever they want whenever they need it. Often they have unpredictable behavior and even the most loyal ones can’t be fully relied on all the time.
This makes the distributor’s job similar to walking a tightrope. Everything must be ‘just right’ or else the whole business is in danger of collapsing. It’s no wonder that distribution companies have such notoriously low profit margins.
The Distributor’s Main Task
The money in a distribution business is often tied up and this can be a big problem if margins are very slim. 3 things can be done to improve cash flow:
There’s not a whole lot of flexibility when it comes to dealing with vendors and customers and there is only so much that each party will tolerate. So once a distributor has negotiated the best possible deal with their partners, they are left with the task of optimizing inventory.
In fact we could say that:
Distributors are in the business of managing inventory.
To be successful a distribution business must:
- Buy as little as possible from its vendors without risking its relationship with them.
- Buy as much as is needed to supply the customers without risking stock-outs or over-stocking.
The Distributor’s Secret Weapon
For many years distributors and wholesalers have been complaining about a lack of ‘Inventory Visibility’. Software companies have struggled to offer solutions that target this problem. Often the solutions are very cumbersome and unintuitive.
The main disconnect between distribution companies and the software providers is that the problem of ‘Visibility’ is being understood metaphorically instead of literally.
The software companies think that they can provide more data, lists, and tables and that this will somehow be equivalent to visibility.
When I hear my clients talk about ‘Inventory Visibility’ I take them literally. They are looking for a way to see their entire operation in a VISUAL way. They want a bird’s eye view of everything at the same time.
That’s why I’m always thrilled to surprise my clients with the idea of using a MAP to manage inventory.
True Inventory visibility boils down to:
‘HOW MANY of WHAT do you have WHERE?’
When we phrase it this way it’s obvious that there are three components involved:
· HOW MANY = Quantities
· WHAT = Products
· WHERE = Locations
The best way to represent all three pieces of information at the same time is by using a map.
If you’re a distributor, the following 7 min video is well worth your time. You’ll see all the ins and outs of using a map to manage products, quantities and locations and to find that desperately needed VISIBILITY once and for all!
I encourage you to try this technique today and I promise you will be shocked by the amount of control and visibility you gain immediately by using an inventory map.
P.S. Message me if you would like a free private walk-through of CS software!