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COUNTER INTELLIGENCE (March 2008) |
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Wednesday, 19 March 2008 |
Inventory transitions, or “Where the heck are my udon noodles?”
By Oliver Post
There are all kinds of ways to run a distribution business, but most distributors will say that success or failure rides on their ability to have the right products on the shelf. The number of SKUs you’re expected to have is increasing, as is the amount of information about those products—not to mention when they can and cannot be used.
With all the new challenges you face, it is unreasonable to expect your computer system (which you may have had for five or even 10 years) to be able to handle what today’s market throws at you.
One of
the biggest differences with newer inventory systems is the way they
handle data; old ‘flat file’ databases don’t allow for much more than
knowing: what you have; what you sold and when; and what you sold it
for. ‘Relational’ databases that populate newer systems allow you to
really look at the details behind sales, mix and match variables, and
drill down to specific customer trends. That’s their beauty: they help
you serve your customers better by providing counter staff with access
to much more detailed data on those customers—even when they haven’t
had much personal experience with them.
Modern system benefits
There
are certain areas of functionality you should explore in a relational
system that are specific to your electrical distribution business.
Naturally, the system must include: order and inventory management;
purchasing; pricing; financial and customer management; business
reporting and analysis; and Web-based connectivity to your suppliers
and customers. But there are still other useful things to consider.
Wire
reel tracking You may have 100 metres of 16-ga wire in inventory, but
is it on one reel, or three? And what good is it when you can’t give a
customer what he needs in single lengths, or take a short length from a
full reel when you have enough on another reel?
Pricing
updates Sometimes prices go up, sometimes down. Either way, being
behind on pricing updates can hurt your business because it hurts your
ability to serve customers.
Rebate
handling How much time do you spend tracking your vendor rebates? How
much do you miss out on? Some systems now available track each element
of the sale—from negotiation to receipt. Being able to incorporate
rebates into your pricing strategy allows you to accurately offer
competitive pricing to customers.
System selection
Of
course, if you’re about to embark on a truly wholesale replacement of
your business enterprise system (they’re more than just inventory
systems now) you need to consider whether to go for a Windows or
Unix-based system. You may be partial to the familiar big-box operating
systems, but don’t sell Windows short. Judge each system on its own
merits.
You can
also opt to have a stand-alone system or use an ASP model that connects
you to the software functionality via the Internet. The advantage is
cost; should you lose your connection for an extended period, the
disadvantage becomes obvious. Whatever you should choose, do not forget
the most important component of any new system: the human component.
The human element
It is
critical for everyone in the operation to be involved in such an
important changeover. Under no circumstances should management leave it
all to the IT department; they need to be involved at all stages, as
does the guy on the loading dock and everyone in between. Ensure that
any prospective computer systems supplier includes ongoing training in
their proposal—and not just in a classroom.
More
implementations fail due to a lack of buy-in by rank-and-file staff
members, as well as a lack of attention to training, than because of
something the system could not do.
For
example, consider a system that uses shelf locations in a flexible
manner; it puts pallets of components wherever there is space, possibly
in a different location each time. This is very efficient, but when
shipping and receiving staff don’t understand the logic, or can’t read
well enough to put that pallet where it should go, and put it “over
there where it really belongs”, a subsequent pick order will send
warehouse staff to an empty location. In fact, you may never be able to
find that inventory.
Just
such a case occurred in the automotive sector some years ago. Staff
weren’t brought into the process and became suspicious of the real
motivations behind the change. Animosity took hold and an active
rebellion by the warehouse staff followed. While other factors were
also involved, that warehouse location was eventually closed and moved
to another community almost an hour away.
A major
national grocery chain continues to struggle with inventory issues
three years after embarking on a major overhaul. One day the shelves
are crammed with too much product; another day (and this is more
common) little red tags announcing Out Of Stock litter the retail
shelves. You don’t have to be an inventory expert to know that the
sound of customers bleating about not being able to find their
favourite dinner items is bad for business. Somewhere, something is
going wrong and it will take people to fix it.
When
plans do go well, however, the results can be nothing short of
spectacular: Out Of Stock situations can plummet, customer service can
skyrocket, panic and scrambling can be replaced by a professional,
business-like, almost calm work environment and, of course, the profit
left to reinvest into improving what you do for customers can also grow.
Take the
right approach, and eat well Here’s an example of what happens with the
right approach: an electrical distributor south of the border made the
change to a modern inventory system and, two years later (not
overnight), saw a 15% reduction in inventory levels. It also logged a
50% decrease in dead stock and a 24% decrease in direct labour costs.
For that distributor, this amounted to millions of dollars.
What
distributor (heck, what customer) doesn’t want a supplier to use that
same money to have more of the right products available? You simply
cannot jam unwanted items down a customer’s throat. If I, for one, have
a hankering for my special udon noodle stir fry, I won’t care how many
packages of rice noodles are on the shelf... I’m not buying them. Not
at any price.
Get a system in place that puts the right products on the shelf and everyone eats better.
Oliver Post can be reached at
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