Is your wholesale distribution management system obsolete? Do you even have one? If you’re making these inventory management mistakes the answers must be, respectively, Yes and No. Inventory is the heart of any distribution system. How intelligently and proactively you manage it can be a difference maker.

ERP Wholesale Distributor

The Dumbest Mistakes Wholesale Distributor Make (Part 1)

Arbitrary Inventory Levels.  Do you stock the same quantity of every product you carry, or, say, whatever quantity gets you to the first volume discount, or, perhaps, a ten days supply of everything. That might have been a good way to begin, oh so many years ago. But it can’t possibly match your actual requirements today.

A proper distribution management system can use item-by-item historical data and forecasts to establish anticipated sales, how long it takes to replenish each product, customer service level strategies and even characteristics of demands (linear or irregular) to assist in maintaining optimal inventory levels. Safety stock levels can be reduced and seasonal demand swings anticipated and met

All inventory valued equally. Each item in inventory has its own unique characteristics. Some tie up more capital than others, some have higher margins than others, some move quickly, some hang around the warehouse for quite awhile. Treating all inventory as if the characteristics were the same simply doesn’t make sense.

There’s a better way. Your distribution management system can help you rank all the different products you carry based on their individual characteristics. Rank products by how quickly they move, margin contribution, dollar volume and quantity sold. This will provide valuable insight into which products are the real moneymakers and which are the dogs. Some products you’ll find are of urgent importance to customers, other less so. Knowing this will enable you to assign service level characteristics to product categories, providing even more inventory flexibility.

Ignoring product velocity.  Simply put, you need to reduce the number of items you carry in inventory. Weeding out the slow movers, or eliminating them from your catalog all together, can greatly increase inventory turns. Sure, you want to serve customers at a high level; understanding their real “off the shelf” availability needs through analysis of past activity should enable you to meet their needs and reduce inventory at the same time.

Here’s another way to address this issue: on items that sell infrequently, or are only required by a handful of customers, set up a drop ship program with your vendors. That enables you to keep customers happy and reduce inventory as well. Shipping directly from the vendor earns you margin with neither investment nor much in the way of operating costs.

Delegating inventory management down the ladder. Wholesale distributors know their single biggest expense and potential for loss is a bloated inventory. But then they make the mistake of delegating the responsibility for inventory management to a warehouse clerk or someone in purchasing. Not wanting to be caught shorthanded for any order, these people instead making the less visible mistake of over stocking.

Instead, invest in good warehouse management software that can more tightly manage inventory levels, and then invest in extensive training of those who are going to use the erp system so that they not only can master the application, but also gain a broad knowledge of inventory management best practices.

Written by :

SkipStein