Wholesale distribution companies face unrelenting margin pressures. As they stride to add value everyway they can, workflows become more complex and disjointed. And globalization and consolidation are major disruptions. It’s not enough to simply grow sales. Distributors have to get serious about operating expenses if they really want to improve the bottom line. The notion that distribution is basically a fixed cost business in which sales can grow without a similar growth in expenses is basically untrue. The reality is that most all costs a distributor incurs are variable with the level of transaction volume. In fact, increased expenses almost always wipe out the added income that comes from sudden spikes in sales. Wholesale distribution software can be the key to rooting out and eliminating excess expenses.

Distribution software

Margin-thin distribution companies must manage operating expenses. (Part 1)

This two-part series of articles looks at the most common mistakes distributors make in failing to adequately manage expenses. There are literally thousands of places for expenses to hide in a distribution organization. We’ll attempt to uncover the most common and egregious errors that siphon off profits in even the best-run distribution businesses.

A warehouse full of inventory. Wait, how can this be a mistake? Isn’t this what distribution is all about? In today’s hyper-speed marketplace, your warehouses should be used as a resource to keep things moving, not as a place to store inventory. Goods need to flow in and out, and even straight through. The old model of buying in bulk and aggregating product is too risky. Today distributors need distribution management systems that enable them to closely match supply to demand so the warehouse carries only the products that customers are buying now.

Develop the mindset that all inventory is an expense and that excess inventory in an unnecessary expense. Make sure you are using your distribution software system to capture all costs in an SKU-by-SKU profit comparisons, including warehouse operations, front office, logistics and all personnel. ERP Software should also help you consolidate warehouses and optimize locations for faster, more accurate handling of incoming and outgoing shipments. Speed is of the essence.

Still relying on manual processes. The essence of a good distribution software system is that all data is captured electronically and managed in a way that provides complete visibility into every aspect of the distribution process. That means the end of all manual and localized data gathering.  That’s where errors happen and margin points drop through the cracks. Instead employ a system that can automate all data processes, from order entry to customer returns. It should track your inventory in real time with cycle counting and be able to manage multiple warehouses and both suppliers and partners to give you the ability to view and source products more efficiently. Employ bar code scanners and RFID tags to enable warehouse personnel to instantly verify incoming shipments and be automatically notified of cross-docking opportunities or back-ordered status that requires expedited processing.  Such technologies greatly improve physical inventory accuracy and make it possible to find old and dead inventory hiding in the warehouse.

In Part 2 of this series well look for additional ways to employ technology to wring expenses out of your wholesale distribution business.

Written by :

Don Cooper