It’s no secret that inventory management is critical for a distribution business. Distributors make money by selling their inventory to customers (whether they are consumers, retailers, or other businesses) for the lowest operational cost. This can only be achieved by efficient distribution inventory management. Although the concept is simple enough, it may leave you asking: “what can I actually do to make my business run more efficiently”? Below are some helpful tips to running an efficient inventory management practice, from the perspective of a distributor.
Develop quality processes
One of the first things a distributor can do to boost their efficiency is review their business processes. It’s wise to map out every step of the inventory life cycle, from when the inventory arrives, to when it’s stored, and to when it’s shipped to the customer. You need to balance speed with assurance of quality and reliability. Doing a critical review like this from time to help will help you work out ways to do things better, and cut out processes that don’t add value.
Know the market
Distributors operate in many different industries, with businesses that have contrasting operational needs. You may sell the same type of product to different types of business, or you might diversify your own business by selling a range of different products. Whatever way you operate, if you know each specific market that you sell you to, you will be able to tailor your practices to the product and the needs of your customers. For example, if selling sports drinks, the demand patterns and delivery requirements for a supermarket will be very different compared with selling a sports club. They will likely be different again for each if you sell energy food bars instead of drinks. Adapting to the small differences is key to gaining a competitive advantage.
Minimise holding costs through distribution inventory management
Keeping inventory is expensive. Holding costs, which range from warehouse rent, to heating and ventilation, to obsolescence, make up a large part of a distributor’s costs. It is essential to minimise these costs and can be done in two ways. Firstly, make sure the method you use to store inventory is optimal for what you sell. Are you overpaying in rent for a warehouse that is larger than you need? Is each product being stored in a way that maximises its usable life? The second way to reduce holding costs is simply to reduce your level of inventory. Avoiding stock outs is a must, but be critical of the amount of inventory you actually need to have on hand. Reducing inventory also allows you to free up funds to use productively elsewhere.
Be picky on suppliers
If you want to build long-term relationships with your customers, you have to maintain their confidence in your business. Always supply them on time, with products of good quality. Make sure your suppliers earn this confidence from you as well. Depending on the industry, you may have more or less choice on this, but when possible, choose suppliers that are consistently good, and don’t be afraid to try someone new if they offer better service.
Finally, establishing robust lines of communication is critical. Production mistakes occur from time to time, but a manufacturer that informs you of a temporary plant shutdown immediately is much preferable to one that informs you when your order is already a week late. Similarly, your customers want to know of any delays or adjustments to their orders that could affect their business. Integrate where possible. Modern distribution inventory management software can allow you to communicate up and down the supply chain automatically. This wipes the need for managers to spend time monitoring and making calls, leaving time free for productive purposes.