Unless distributors know what inventory is in their warehouses, they are not able to properly determine when to reorder products. For example, if they have more product than what shows up in their computer system, they will reorder the product too soon and will end up with excess inventory. Or, if they have less than the computer’s on-hand quantity, they won’t reorder the product when they should, resulting in stockouts and customer service issues.

Most distributors’ warehouses are filled with two inventory items: “stock” and “stuff.” Stock consists of what distributors need to store in reasonable quantities to meet or exceed customers’ expectations of product availability. Stuff is everything else — dead, excess and unwanted products.

Distributors should separate the stock from the stuff in their warehouse with the goal of liquidating the stuff and arranging the stock items in a way that minimizes the cost of filling customer orders. For example, items pulled the most often should be placed near each other. Slotting software programs can help distributors lay out their warehouses more effectively.
To determine what products should be stocked, distributors can sort the items currently in a warehouse based on each product’s annual hits — the number of times each product was ordered by customers during the past 12 months, regardless of quantity.

“Every single month I expect distributors to run a hits report,” says Jason Bader, president of The Distribution Team, a Portland, Oregon-based consulting firm. “The hits ranking is really just a popularity contest. It’s what products are sold or purchased most frequently. Not quantity, but times purchased. Because that stuff changes every single month, you really have to be on top of trends in the customer base for you to make really good investments in your inventory.” 

For many distributors, 80 percent of hits come from only 10 to 13 percent of the total products stocked. For items that have little to no hits on reports, distributors should have a discussion with their sales staff, if it makes sense for the particular item to remain a stocked item. Schreibfeder says distributors should ask the following questions:
• Is this product profitable?
• Does this item need to be maintained for a highly profitable customer?
• Does this item need to remain in stock in order to sell other highly profitable items?

If, after answering the questions, a distributor determines an item is not generating a profit, it is best to liquidate it.

Liquidation strategies include offering distributor salespeople an incentive to sell the unwanted stock, returning the material to the vendor, reducing the price or bundling the slow-moving items with fast-moving items where appropriate. Once liquidated, distributors can focus on replacing those products with new or known profitable items.

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