In today's tough business climate, distributors must become low-cost, high-quality service providers to survive. To accomplish this lofty goal, they must maintain strong, long-term relationships with customers by providing them with high-quality products and superior customer service while at the same time aggressively reducing their unit costs of distribution.
It can be done. Many best-in-class supply houses in a variety of distribution trades are re-engineering their operations for efficiency, productivity, quality of services and profitability. They have learned to work smarter, not faster, and to measure their progress against a series of rigid standards designed to continuously improve their performance so they can perform at a higher level than the competition. This includes setting aggressive corporate goals and supporting strategies that will help them continuously improve performance and provide the necessary foundation for their company's success. These goals, such as cutting turnaround time for processing orders in half or increasing inventory turns by 50 percent or more, require detailed action plans and strategies on how to achieve them. Following is a quick review of the key strategies you should consider implementing when you are tuning up your operations.
Lean thinking
Distributors that want to excel need to take a fresh look at their key business processes and identify bottlenecks and redundant activities. They should employ “lean thinking” concepts and methods and target these initiatives to eliminating all non-value-added activities and inventory. Lean thinking can help them re-engineer all key work-flow processes, internal controls and management information systems related to sales and the entire fulfillment process, from the creation of customer orders to the shipment of goods. The objective is to maximize the productivity of all processes, eliminate bottlenecks, improve inventory management capabilities and improve overall systems utilization. To learn more about lean thinking, check out my articles on the subject at www.ewweb.com. Just type “lean thinking” into the search engine in the right column.
Technology
In conjunction with streamlining activities, state-of-the-art technology can help. Consider investing in the following technologies:
Automated picking. Effective utilization of radio frequency (RF) and bar-code scanning technology allows for truly “paperless” warehousing and distribution capabilities. RF allows the computer system to send picking instructions directly to designated pickers through their hand-held devices. The system directs what orders to pick, the sequence in which to pick them and the storage locations to pick the product from. It also ensures correct picking by verifying that the bar code identification specified matches the actual item picked. Companies that have successfully integrated this capability have reported dramatic improvements in overall order accuracy, elimination of shipments not billed, the ability to hire less skilled and less expensive picking labor, dramatic improvements in the time necessary to pick orders and the elimination of the order checking functions.
Packing, staging, loading and logistics management
The use of computer-generated shipping routes, direct staging and loading manifests are critical to the success of the operation. Loading manifests identify all packages/cartons with their assigned carrier/delivery vehicle, carrier staging location and loading sequence. This dramatically reduces the amount of effort required. Consequently, trucks leave earlier while the loading staff can be reduced. Best-in-class distributors also track and analyze their actual costs per delivery to more adequately allocate delivery costs to specific customers. For example, customers that routinely order small quantities of low-margin products, have inefficient receiving docks causing wait time or are in isolated geographic regions are all scrutinized to ensure proper cost allocation in the distributors overall business mix.
Customer invoice processing
Paperless warehousing and distribution allows for the elimination of office copies of all orders. Pickers confirm ship quantities as they scan products. As a result, customers are billed only for the picker's actual pick quantity. This virtually eliminates billing mistakes and the need to archive paper copies of orders. Accordingly, distributors that have implemented paperless environments are significantly reducing invoicing and filing staff.
Product receipt, storage and accounts payable
All products are scanned immediately at point of receipt. The system immediately knows what's in the building, and all internal receiving documents can be eliminated. Back orders are reduced, inventory turns are improved, and paying for product that has not been received is eliminated. Arduous tasks performed by the accounts payable staff such as obtaining paperwork from the receiving department and researching internal support documents is eliminated. Consequently, distributors have reduced headcount in their receiving and accounts payable departments.
Inventory accuracy and cycle counting
Improvements in the recording, tracking and controlling of workflow processes allow for a greater level of inventory accuracy. Distributors no longer perform traditional physical inventory counting. Discrepancies of either count or storage location uncovered during picking or stock put-away activities automatically generate a cycle count check in the system. This allows errors to be corrected on a daily basis, substantially improving inventory accuracy, improving cash flow and inventory turns. When used effectively, distributors report inventory accuracy levels of more than 98 percent.
Supply chain and purchasing management
Best-in-class distributors are utilizing supply chain management techniques to improve their strategic relationships with their suppliers. EDI is utilized to increase efficiency and lower the cost of ordering, price changing, receiving, invoicing, and payment; vendor-managed inventory (VMI) is also popular with these market leaders.
Insides sales/customer service
The role of the inside salesperson has evolved. Customers increasingly want their customer service person to provide a single point of contact for all questions they may have, including product use/application, order status, credit, returns, billing, problem solving and complaints. In order for this to be effective, distributors must ensure that the inside sales/customer service staff is plugged in to the company's strategy and tactics like never before. In poorly managed environments, up to 50 percent of an inside salesperson's time can be spent correcting mistakes and pacifying customers. With distributors committed to operational excellence, 90 percent of the time inside sales/customer service staff can be performing more value-added customer service. And don't forget your outside sales organization. It should utilize a more consultative selling approach consistent among all salespeople, while benefiting from sales force automation tools.
Performance metrics
Activity-based costing and other performance metrics are now widely used to reduce costs and improve customer service. Strive to develop formal measurement systems that measure inventory accuracy, order fill-rates and order-processing costs. This allows management to consistently focus on improvement of the operation's effectiveness.
Optimizing management's role
Historically, management at a distributor was primarily focused on micro-managing line work, creating customer service exceptions for delivery, price and credit, excusing service blunders, and looking for “superstar” personnel with the ability to operate in a hectic environment and meet the increasing service demands of the customer. It's much more productive if managers can focus more on proactively meeting with customers and vendors, coaching to solve problems, leading, planning, staffing and developing more consistent performance results among staff personnel. In short, management roles must be optimized to allow management to spend less time micro-managing and more time directing and leading the efforts of a motivated staff.
Achieving true operational excellence will require a thorough rethinking of your core business processes. But if you are losing market share in this tough business environment, it's a critical exercise that can pay dividends far into the future.
The author is the principal of MCA Associates, Derby, Conn., a management consulting firm founded in 1986. MCA implements continuous improvement solutions focused on business process re-engineering, inventory and supply chain management, sales development and revenue generation, information systems and technology, organizational assessment and development, and succession planning. You can contact him by phone at (203) 732-0603 or by e-mail at [email protected]. Visit his company's website at www.mcaassociates.com. If you are interested in learning more about Lean Thinking, contact the author and ask for his free “Four-Phase Process to A Successful Lean Thinking Initiative” and “Four-Step Problem Solving Process.”