Computer Tune-Up

If you don't maintain your computer system, it can decrease customer service, margins and inventory profitability.

Some electrical wholesalers have spent a fortune on new computer systems only to discover months later that business performance got worse, not better — or at best, didn't increase. Other wholesalers 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 several areas where mistakes and omissions are depressing customer service and profits.

Matrix pricing

Distributors that have recently set up new systems and never changed the matrix settings from in the old systems are leaving money on the table. And wholesalers with older systems that don't regularly review and revise matrix settings are also losing out on 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 products in a family or grouping. A price should depend on several factors, including the “real percentage gross margin” for an item and customer. Real percentage gross margin is the traditional percentage gross margin adjusted for costs of doing business (such as free or subsidized delivery). Fine-tuning matrix pricing can increase gross margin revenue, which should be the growth objective, not increased sales.

Inventory management

When data-entry errors affect customer returns or exchanges, they can impact inventory levels and the customer-service level for the items in question. That's why it's so important to install procedures and controls to minimize those data-entry mistakes, and to detect and correct them before they affect inventory data. Doing this will help improve your inventory levels.

Other mistakes that impact inventory include accepting vendor deals without calculating the financial impact of the deal or its impact on warehouse operations and not maintaining various system parameters that affect the accuracy of system calculations, such as forecasts. Other important system parameters to maintain are those that determine whether the system should even make a calculation. For instance, estimated order quantity (EOQ) should not be used for some items. Key parameters should be reviewed and revised quarterly — especially those that affect all items or all vendors.

One important task that many users neglect or don't know about is reviewing the sales data the system will use to calculate purchasing requirements. Even though most systems filter some data oddities, no system can clean up all distortions in data.

Warehouse operations

Warehouse errors such as incorrectly entering a substitution can have more impact on inventory (via automatic purchasing functions) and customer service than front-office errors. Procedures and controls are needed in the warehouse to minimize product-related errors such as putting a received item in a wrong slot. But unlike the office, this is a place where advanced technology can be used to drastically reduce the level of errors.

Dick Friedman is president of General Business Consultants, Wilmette, Ill., an expert on information technology for electrical wholesalers, and a certified management consultant. He does not sell distribution software systems. He has developed unique ways for using systems to increase customer service, revenue and warehouse productivity and reduce warehouse errors (including statistical and behavioral formulas). For a free consultation, call 847-256-3260, send an e-mail to [email protected], or visit for more information.

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