Doing the same thing and expecting different results with non-stock inventory!

Sometimes you have to stop and wonder why you do the same things over and over, expecting different results when it comes to the way you handle inventory. Most distributors have a dollar figure in their head that they don’t want to exceed on a yearly basis. But as many will admit, it is difficult to maintain that dollar size. It goes with the operating ratios they have in mind or even on a business plan or sometimes driven by the bank.

  Project Pick up:

When a distributor agrees to pick up “overage” product from a large project they normally think they are performing a service for their customer. They pay less, say for talking purposes, $0.10 or $0.20 on the dollar, and put it on the shelf if it is serviceable. The rest you probably donate or throw away at some point. The thoughts are ‘You’ve been of service to your customer’.

But the question is how does it get put on the shelf? Is it actually added into your inventory?

Some 6 months or a year down the road you look at this same inventory. Some of it may have sold if you are lucky, or the rest stays on the shelf or maybe hidden. Sure it is only $0.10 on the dollar, but it is still there.

The question is do you donate it, scrap it or forget about it some more?

Non-Stock Cancelled orders:

Your good customer calls with a need for a product you don’t stock. It’s a chance to be of service to your customer. But keep in mind there is a reason you don’t stock the item.

• So you either Say NO we don’t stock it and we are not going to stock it. Your customer goes down the street and buys it from your competitor.
• Or you check your local competitors that you have an agreement with for say 10% off Trade Service Col 3 or some agreement.
• Or you call a master distributor in the industry.
• Or you call your manufacturer/rep and they tell you they can sell them to you in greater quantities than you need plus freight.

Being committed to good customer service you tell your customer that you can get it. At this point one of three things happens:

1. You call your local source and based on word of mouth, you order the part, send your truck to pick up. Your local source either invoices you at pick up time or mails it to you. Your local source either has the product or doesn’t. Let’s assume he doesn’t have it.
2. So, you call the manufacturer and have them ship it to you. You instruct the sales person to tell the customer that since you don’t stock it there will be a freight charge. The customer is not happy but agrees to it. In the background you have worked out how you are going to charge your customer for the odd lot purchase plus freight. It will arrive in three days and this is conveyed to the customer.
3. You walk away thinking that all is well.

The next day your customer calls and cancels the order. Your salesperson calls the manufacturer and cancels the order, which has already shipped.

Sometimes your salespeople cancel the order and other times they don’t. The item(s) arrive and are received, unpacked and put on the shelf if they were not canceled earlier. If they were canceled, they may go into a holding area or may be set up for shipment back to the manufacturer, pending authorization. That authorization may be a problem.

Eventually the items end up on your shelf and is paid for just like a stocked item and you wonder why the dollar size of your inventory continues to grow…….? You may scratch your head or go ahead and bang your head on the wall.

From years of experience this ‘cancelled order’ addition to your planned inventory is usually the most costly and destructive type of inventory addition. Why? Because the items are not the fastest moving, more often than not they are hidden away from you inventory count. Many will say that all the information (data) is there for it to be exposed to your system, but many employees don’t know where or how to handle it. Depending on how your system is setup, you may have a pile of freight bills that you’ve paid, but can not assign them to sales / customers.

Both problems add up to money that negatively affects the bottom line.

So what’s your answer?