This article was updated in March 2023 to better reflect current industry trends and new data.
Distributors entire business revolves around inventory. Due to the nature of the distribution model where distributors profit by selling inventory to their customers, failing to manage inventory well can be a major liability for distributors.
Let’s discuss some of the best ways to make your distribution inventory management practices the best asset in your business.
10 distribution inventory management tips for distributors
Below are 10 ways you can improve your distribution inventory management.
1. Engage with your people
While automated systems for inventory management are a key component, you still need skilled staff in your distribution business to help identify opportunities, threats, weakness and advantages. Keep your staff and colleagues engaged to continuously improve systems and collaborate to pinpoint problems and provide solutions.
2. Create sound systems and processes as a distributor
Develop quality inventory management processes to make them mistake-proof, preventing errors before they happen. Adopt a good inventory management system that allows distribution efforts to be automated making human error less common.
3. Create efficiency when ordering inventory needs
Reduce lead times by establishing a continuous flow of materials and equipment, such that products are pulled through the correct supply chain at the right place, at the right time and in the right quantity. This can be done with the aid of a sound inventory system that pulls data from previous records to create accurate forecasting measures benefiting your distribution practices.
4. Standardize processes where necessary
Get organized by documenting best practices and ensuring they are followed carefully. This creates efficiency and helps with training new personnel, as well as creating checks and balances in process, minimizing room for error. This can be hugely beneficial as errors in the distribution business can be costly.
5. Implement, review and revise
It is good business practice to review processes once implemented and improve continuously. This should be done periodically; no matter how good a process appears to be, there is always room to improve it. This is especially the case when introducing new technology.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.