Effective distribution management is both reactive and proactive in nature. Sadly, reacting to day-to-day challenges may be distracting you from the principles of distribution management.
If you are a distributor who is struggling to meet customer and market demands, you might have needlessly forsaken the rudimentary principles of distribution management. It’s time to go back to the basics and review the top three principles of distribution management to help get you better results. Keeping a deliberate focus on these principles of distribution management will guide you to operational greatness.
Top 3 Principles of Distribution Management
1. View Your Customers as Assets
The first principle of distribution management is to view your customers as assets. Every business must develop customer retention strategies and subsequently measure the outcome. Your success depends on how your business monitors, responds to and stays connected with customers. To nurture and grow your customer base, consider the following:
- Know Your Customers
Customer service should have access to a structured representation of your customers — in one click. Beyond including past sales, open orders and A/R data, capture internal comments/notes on customer interactions. Know the key contacts and their roles. Lastly, and maybe most important of all, understand the markets your customers serve so you can provide opportunities to add value. A few simple questions can yield a wealth of information and your customers will appreciate your interest in their success.
- Segment Your Customers
Segmentation is the process of organizing customers into groups with similar characteristics.
Customers can be grouped using a variety of factors, including revenue, margin, growth potential, the market they serve, region and so on. Choose the factors that make the most sense to you. Explore various pricing strategies per grouping.
- Rank Your Customers
Although every customer deserves good customer care, the best care should be reserved for your most valuable customers. Also, rank your customers: A for strategic customers, B for key customers and C for regular customers. Create an environment where strategic customer account management receives priority through ongoing executive sponsorship.
- Reassess Unprofitable Relationships
Not all customers are equal — some customers are simply more valuable than others. Clearly every customer should generate margins that exceed your cost-to-serve. Aggressive customers that are extremely price sensitive may be simply a drain on resources. Take the time to reassess the relationship and schedule some face-to-face time for an honest conversation. A little tough love may go a long way.
2. Optimize Inventory Investments
The second principle of distribution management involves inventory planning. What, when and how much to buy should be the outcome of careful analysis and planning. Planning using incorrect or incomplete data will never yield optimum inventory levels.
- Measure Inventory Accuracy
Advanced planning systems cannot properly assess inventory requirements when the on-hand quantity is incorrect. If your inventory accuracy is below 99.9%, look closely at warehouse operations. Transition any paper-based processes to barcode technologies and a flexible, fully integrated warehouse management system.
- Capture Historical Demand
Best practice is to capture demand data using quantities ordered and not what was ultimately shipped. However, the buying habits of your customers should guide this decision. For example, small businesses order based on their current needs. Whatever product was not received on their last order is reordered on the next one. In this scenario, demand data based on ordered quantity would be overstated.
- Cleanse Historical Demand
Historical demand is a representation of what might happen in the future, thus cleanse demand data when required. For example, remove a large one-time order or adjust for a new customer.
- Forecast Future Requirements and Reduce Lead Time Inventory
Forecasting inventory depletion at the SKU (stock keeping unit) level coupled with continuous automated replenishment tools allows buyers to issue purchase orders in time to protect safety stock. Savings realized by removing lead time inventory requirements out of safety stock can be redirected toward growth initiatives.
- Look for Opportunities to Improve Forecast Accuracy
Effective inventory management involves measuring forecast accuracy and the steps taken to improve this important metric. Consider a product’s forecast accuracy when determining safety stock. Highly intermittent and erratic demand patterns are extremely difficult to forecast. In this case, safety stock can represent a multiple of the average order quantity.
3. Go Digital
The third principle of distribution management is digital strategy. Ongoing supply chain disruptions are accelerating digitalization efforts as trading partners seek to establish a more agile chain. In distribution management, going digital is your only option for future success.
- Tightly Integrate Internal Operations
The order-to-cash and procure-to-pay processes require cross-functional collaboration hence all departments must be tightly integrated. Continuously look for opportunities to incorporate technology into day-to-day operations to increase efficiencies and grow your business. There should be an understanding that every department has a role to play in achieving an agile supply chain.
- Build a Strong Web Presence
Aim for a website that allows customers to explore your brand and do business with you. Furthermore, you need it to be found when people search. With Google being the dominant player in search, an understanding of search engine optimization (SEO) is critical. Start small and build. Many distributors have broadened their base by developing an e-commerce channel.
- Transact Electronically Using Various Technologies
Effective distribution management requires excellent communication between all links of the supply chain all day, every day. Computer-to-computer exchange of business documents increases productivity and greatly reduces errors introduced when humans interact.
Having trading partners with different IT maturity levels means that there is no one-size-fits-all strategy for processing inbound and outbound transactions. Implementing an integration-ready supply chain solution will not only facilitate on-boarding of trading partners in transacting electronically, but can also enable the exchange of data such as order or shipment status which leads to greater end-to-end visibility.
Why Principles of Distribution Management Are Important
As a distributor, you never want a situation to become a crisis. To be proactive is to act on these principles of distribution management, clearly and continuously communicate long-term objectives and identify actionable items that can be achieved short term. Whether nurturing your customers, monitoring your inventory investments or executing on your digital strategy, short-term wins will lead to long-term success.
