Outsmarting the competition through exceptional logistics and supply chain management is nowhere more important than in the world of wholesale. Analysis and control of the supply chain network can lead to reduced costs and enhanced customer service. There are three main areas, that are sometimes forgotten, which can keep costs down while providing great value to customers. Get these three steps right and the returns can be significant and without major capital investment.
Step One: Proactive Product Mix Planning and Item Categorisation
Identifying slow, obsolete and excessive inventories is one of the biggest challenges facing wholesalers. As product numbers continue to grow with new product developments constantly being added to the market, the “mushrooming” effect in the warehouse quickly leads to a number of problems including:
• Lower performance in the warehouse
• Buyers getting overwhelmed by the volume of data and therefore losing focus
• Purchasing becomes a more time consuming process
• More capital is tied up in inventory and disguised obsolete stock
An effective way to solve these problems is to put systematic processes in place to monitor the product range. Simply ensuring to open and close items in the enterprise resource planning (ERP) system is the first step in the goal of minimising the assortment or product mix and reducing the number of obsolete items. For example by analysing open and closed items, based on stock availability and sales, along with the age of stock will form the basis of identifying and categorising discontinued product lines. By putting all closed items into two categories ie those that have sold within the last 12 months and those which have not sold in the same period or longer will show the items out of product range. There is always going to be percentage of any inventory which is not going to sell – it is about finding those products and understanding the real stock situation.
This is where ABC analysis is recommended to rank stock into different levels of significance not forgetting an additional “D” category for dead stock. A plan can then be put in place to remove obsolete items from the warehouse. This could be by returning goods to the supplier, increasing turnover via sales promotions, donations to charity or simply throwing the dead stock away.
Step Two: Effective Procedures for Supplier Evaluation
As your business grows, it is easy to become reactive to suppliers’ strategies rather than to implement a corporate wide proactive supplier management and evaluation process. A supplier strategy can range from having many suppliers, offering limited communication and transactions based mainly on price and availability. To at the other end of the spectrum the strategy could be to focus on fewer suppliers, providing more prestigious products where two-way communication is essential and although price matters quality is more important. Whatever the approach it is vital to implement a clear strategy on how to manage and build your supplier portfolio.
When the strategy has been defined, follow up is essential. There are many methods of evaluation available, such as scorecards for delivery, quality, pricing etc but the most important is the one that is relevant to each businesses. It is a mistake to blindly follow industry standards. Success lies with defining performance indicators based on individual needs. Only through this evaluation of suppliers will their true value be established and passed on to customers.
Wholesale businesses are dependent on suppliers, and love them or loath them, it is important to have a formalised system in place to regularly track and evaluate their performance.
Step Three: Use KPIs for Motivation
To efficiently run inventory processes wholesalers must identify and understand their Key Performance Indicators (KPIs). For most organisations, supply chain data and information is now held digitally, albeit typically in a number of different and disparate systems. A common mistake is for companies to define too many KPIs, making them difficult to monitor and leaving the most important performance indicators to get lost in the general noise. Fewer more focused KPIs are more likely to lead to success and competitive advantage.
It is also important to communicate KPI success stories. Ensuring that corporate KPIs are well known across the organisation along with who is responsible for attaining them allows for recognition when they are achieved. With the right tools in place data can be taken from disparate systems and delivered in a “Dashboard” format such as that available in AGR Inventory Optimiser to display warehouse, inventory and supplier performance. When the right KPI´s are in place the only thing left to do is remembering to celebrate your successes when they happen and you have reached your goals!
Get the management of these three vital elements right and wholesalers will enjoy the benefits of both cost and value management to lower the total cost of inventory while increasing customer service to gain competitive advantage.