Distribution and wholesaling revolve around inventory. Distributors are in the business of consolidating procurement and minimizing cost for retailers and other businesses. Because distributors work with narrow margins and compete extensively on price, efficient inventory management is essential. Let’s look at some ways that a distributor can carve out inventory efficiencies.
Minimizes distribution procurement costs
A key advantage for any distributor is the ability to reduce procurement costs. Developing a good relationship with vendors, brokers and transport providers is essential to bringing procurement costs to a competitive level.
Keep a lean footprint
The cost of inventory is not limited to the cost of procuring it, inventory carrying costs can add up to a significant portion of the overall cost of goods sold. Inventory carrying costs can include the cost of renting a warehouse or paying staff to handle inventory, essentially any ongoing cost that you incur while you hold inventory prior to distribution.
Consider whether an alternative operating model, such as just in time inventory, could be appropriate for your business. A just in time approach involves only procuring stock when it is immediately required, dramatically reducing the amount of inventory that is required to be kept in stock.
Understand the product
Distributors are generalists, operating in many seemingly different industries. The key to success as a distributor is generally managing procurement and distribution costs which are common to a range of different items. That said, it is important to understand the differences between products in order to identify and manage product-specific costs and risks.
Invest in detailed forecasts
Advances in inventory technology have enabled regional distributors to access the same inventory forecasting tools as their national and global competitors. Sales forecasting is a crucial inventory management tool that provides a business with the ability to predict spikes in demand and protect against under or over stocking. Although forecasting is not 100% accurate, it does provide an opportunity for businesses to identify and manage the worst inventory risk. Historical sales performance can identify trends that can be compared with current indicators to gauge likely demand.
Sales and product forecasting has become a key inventory management technique in recent years, as it provides a useful way to predict demand and guard against over or under-stocking. While it’s a dynamic tool when it works, it pays to remember that it’s not a perfect science. There are some big challenges to getting it right.
Manage supply chain risk
As a distributor, customers rely on you to minimize cost, create efficiencies and to make their supply chain more reliable. The most careful inventory management is unlikely to make up for unreliable suppliers. Work with reputable, reliable suppliers who have a reputation for fulfilling their commitments.
Review your performance
If you are to remain competitive as a distributor, reviewing performance is essential. As your business is an inventory-based business, every member of the team has a stake in ensuring inventory is cared for appropriately through every stage of the distribution process. Consider regularly seeking feedback from your team with a view to identifying opportunities to improve, from the point that your inventory is procured to the time when it is shipped to retailers.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.