TECH TIPS BY FRIEDMAN: Why Some Systems are Decreasing Customer Service, Margins and Inventory Profitability
Some distributors have spent a fortune on new systems, only to discover months later that the business performance got worse, not better - or at best, didn’t increase. Other distributors have been using the same systems for many years, but still aren’t getting “the numbers” they want, and wonder why. This article looks at a few functional areas where mistakes and omissions are depressing customer service and profits.
Even the largest customers should not be given the largest discount or smallest markup on all items they buy. Almost as bad for profits is giving the best deal on all the items in a family or grouping. A price should depend on several factors, including the “real % GM” for an item and customer. Real % GM is the traditional % GM adjusted for costs of doing business (such as free or subsidized delivery). Fine-tuning matrix pricing usually results in increased gross margin revenue - which should be the growth objective, not increased sales.
Accepting vendor deals without calculating the financial impact of the deal and the impact on warehouse operations is another kind of “mistake” that impacts inventory.
The maintenance of various system “parameters” that affect the accuracy of system-calculations, such as forecasts, is an important task that gets back-burnered to time pressures. Other important parameters determine whether the system should even make a calculation; EOQ should not be used for some items. Key parameters should be reviewed/revised quarterly, especially those that affect all items, all vendors, etc.
An important task that many users don’t know about is the review of sales data that will be used by the system to calculate purchasing requirements. Even though most systems do some filtering of data oddities, no system can clean up all distortions in data.