Fishing for Profits in Product Data …Part 1 of a series

For the last several years I’ve asked distributors what they are netting out at the end of the year. And currently if you said you were netting out around 3%, you are doing better than a CD at your local bank. But the 3% net has been pretty constant over the years. There were some that netted considerably more, up in the 6-9% range, and most were looking for more. There are at least 7 electrical distributors that I know that are netting in the 15%-21% range.

Along with the Net question, I have asked if you spent time and effort with the product data and cleaned it up.  If I told you you could increase your net by an additional 3-6%, would you do it?  Roughly 85% said they didn’t have the time and they didn’t want an outside consultant to help then even if it dropped extra money to the bottom line and out-weighed the consultant’s fee.
As a side thought, you hire people to purchase product, drive your delivery trucks and maybe dive your inventory levels. But you don’t have someone assigned to increase your profit. Just a thought.

Many would say ‘my product data base is fine’ (and essentially say “get way from me”.) The deal was you didn’t have to buy any additional software or hardware. But you did have to commit to a point person who could extract reports from your existing ERP system into Excel or Access.

So, for all the ‘doubting Thomas-es’ that didn’t think there was a bunch of money in that fishing hole, here you go with the basics:

For a single location (or maybe a single branch) this will be a slam dunk.

1. With your existing ERP system and report writer, download a sales history file for one year. You pick the 12 month period. You can do this procedure even if you have Intuit’s QB-Pro and happen to run the add-on warehouse module from Acctivate,  Microsoft Dynamics, or another ERP system with a report writer tool. You’ll want part number, description, cost and sell price by customer, by sales person and then line item by order, by branch. As you increase the number of branches or regions it gets a bit more complicated because you’ll want to look at more historical points of reference for planning your growth.
2. Yes, it is  of data, but start by looking at the descriptions and profit levels for the same items. You’ll see your Rebate’s /SPA’s products and varying levels of profit among other items. It may resemble a bell curve.
3. Then you’ll reach a group of items (maybe scattered out over the year) that have descriptions that you’ve seen before (gibberish with over key stroke over rides).  You’ll want to look at these after you look at the non-stock items that you ordered from the manufacturer or you picked up from a local vendor (manufacturer or friendly competitor).
4. Now for all the folks that use the purchase of non-stocks as a way to determine what to stock, that’s fine. But beware you may be growing the size of your inventory for maybe a one time purchase.