The wholesaling business keeps going faster and faster for many Los Angeles distributors. However, that business acceleration is double-edged.
While it speeds up the rate of business opportunities, the dizzying pace can disguise a number of problems that can sap a distributor’s competitiveness and profitability. To borrow a popular saying, it becomes increasing difficult to see the forest for the trees.
Cost to Serve Getting Out of Hand
Simply stated, cost to serve or CTS is what it costs you to get a product into your reseller’s hands. That, of course, determines how much profit – or loss – your distribution company is making on each deal. What isn’t so obvious is where that cost comes from.
Factors range from the cost of stocking the product to picking and packing, transport costs, and even damages in transit and product return costs. Some distributors are shocked to find out that their biggest customer is, in fact, losing them money.
The first step is to get the data. Start with a basic spreadsheet of costs for example per major product and major customer, and you’ll already get a clearer picture.
Unbalanced Reseller/Customer Base
Los Angeles distributors can often find resellers and end-customers of all sizes. It may be exciting to hook a large fish, but watch out for a lopsided business model. When you depend on just one large customer, you are at the mercy of that customer.
Suppliers to the Sears Catalog found that out to their cost some time ago, until Sears realized that it would be better for all to squeeze less and support more; but unfortunately, not before some suppliers went belly-up.
If you cannot resist the temptation to sign up a mega-customer, then at least grow your business elsewhere to bring back some balance. Different parts of your company, such as your IT department, are likely to come under stress in the process, so plan for internal or third-party help as appropriate.
Firefighting Instead of Forging Ahead
The more your enterprise has to do each day, the more risk there is of upsets and glitches. When these have to be sorted out manually, the effort required escalates rapidly. The answer is to put robust processes in place that minimize problems while alerting you to any exceptional events.
These processes can save you and your staff considerable time. Also, good processes are natural candidates for being supported by IT systems that increase efficiency and reliability yet further. Then you can start thinking more about how to build for the future, and less about reaching for the nearest fire extinguisher.
Confusing Activity with Added Value
It happens to even the best-run Los Angeles distributors. It is just that those companies spot the problem of activity masquerading as value sooner, and take remedial action faster. Sure, to bring your resellers the extra services that bind them to you and justify your margins, your company may need to get busy.
On the other hand, just being very busy is no guarantee of success. Examples include employees manually entering product data and prices into your database or IT workers toiling away to perform everyday maintenance.
As a rule of thumb, if you ever see a task being done manually that could be automated or outsourced, a warning bell should be sounding in your head.
Which tactics have you found the most useful in maintaining the right focus for your distribution company? Share your experience with us in the section for Comments below.
If you own or manage a distribution company in Los Angeles, and you’re looking to stay up to date on the latest technology, be sure to download your free guide, How COOs at Los Angeles Distributors and Manufacturers Get More Done: A Guide to Productivity, Data, Staffing, Delegation, and Making It Home for Dinner Most Nights.