Stuffing Your Warehouse

Historically many manufacturers, after reviewing their current year performance, will send out 2008 price increase notices in November/December, and then send their sales people out to “cut” year end “deals” with the intent to “help” the distributor meet their purchase goals with the manufacturer and to “beat” the price increase. In other words, it’s LOADING TIME!

In fact, some statistics show that 70-80% of all price increases, in a normal year, occur at this time of year (obviously excluding commodity / metals pricing).

And managing these price increases is critical to your 2008 profitability. There are many distributors who are not as diligent as they could be to ensure all price updates are entered into their system on a timely basis. For every order that is sold to a customer with the wrong price, your margins deteriorate. Yes, price updates should be automatic, but…. So make sure that your purchasing and pricing personnel are aware of upcoming changes! And consider looking into software that can show you the perils, and benefits, of price realization.

Regarding “loading”, the “help” from manufacturers frequently includes rebates, dated terms and other types of incentives attached year end deals. And this is a time when a distributor can negotiate well for price and other benefits as the manufacturer has a vested interest to “finish strong” and the salesperson frequently has their own goals (bonus) that they are thinking about! Essentially, this is the perfect WIIFM storm.

The question then becomes, “how do you determine if this is right for your company?” and “which suppliers do you want to ‘support’?” Considering the cost of inventory, warehousing (cost and space), cash flow considerations and back-end financial benefits, your decisions over the next 45 days can help either improve 2008 profitability through lower product acquisition costs or benefit 2007 with higher rebate earnings. The key is thinking about this issue now so that you are positioned to take advantage of opportunities. With a slow growth economy for many and DSOs extending, perhaps cash flow (extended dating) will be a key consideration?

How do you evaluate these decisions?