When Service and Profit Counts

Last month Dick Friedman shared some ideas on how to ensure sales operations and customer satisfaction. Distributors know that operations is the key to profitability.  This can relate to managing what sales is allowed to order to ensure they don’t inadvertently decrease organizational margin on selected margins to making sure that pickers pick what they are supposed to and orders are accurately delivered to customers thereby ensuring satisfaction AND eliminating rework (restocking).

This month Dick shares a few more tips to help improve customer service and maintain, or improve, profitability (while also better managing your inventory:

Part one of this series described two distributor problems that prevent CL/SCM (customer logistics  supply chain management) from being successful. This follow-up article describes two more warehouse and inventory problems to avoid.

Very High Productivity Hurt Customers

 A distributor was experiencing a high rate of miss-picks, all of which were being reported by angry customers who received the wrong products and/or quantities of correct products. Sales were down slightly, but head count was not. The warehouse was arranged by velocity, so productivity was very high – if no one counted the time spent putting away the wrong products that were returned, and the time spent picking and packing the right products to replace those returns.

An investigation determined that about 10% of the products being put away were not put in the slots designated for them; they were being put in adjacent slots meant for very similar products. Most pickers assumed that all products in a slot belonged in that slot, and so did not verify that all boxes were the right ones. Some pickers spot checked while picking, and made sure to get the right boxes – but did not inform the warehouse manager of the problems they were finding and correcting. The people doing the packing compared the number of boxes picked to the data on the pick list, but did not verify that all boxes were the right ones; boxes of very similar items looked the same.

TIP – Store similar products at least three slots away from each other.  Have pickers record (on the pick list) incorrect storage locations that they find, and have packers spot check boxes and record (on the pick list) mistakes they find. The warehouse manager should scan all pick tickets for information about mistakes, and track those mistakes over time.  Distributors who implement these recommendations can attain warehouse accuracy of 99% or more. (and if need to, incent / recognize the pickers to record the incorrect storage locations.  You’re trying to change behavior and increase accountability.  Short-term rewards can drive the behavior you want.)

A Lower Cost That Wasn’t  A very large customer order was taken, and was supposed to be filled by placing a PO and requesting the factory to ship it direct to the customer. But the sales rep recognized that the unit purchase cost was so low that he/she asked someone in purchasing to increase the quantity of the purchase and bring it into the warehouse. The extra quantity would be kept in stock, and the remainder shipped to the customer. (and you wonder why inventory increases!)

When the PO was received and the data was entered into the ERP system, the system stored a new last cost and recomputed a new average cost. If pricing is based on average cost or last cost, the system would compute new, lower, prices for these products, even though most of what will be sold to other customers was in stock prior to the receipt of the very large quantity, and is in stock at higher costs. True gross margins would be less than that shown on profitability reports.

TIP – Establish a policy for sales and purchasing personnel that orders that are supposed to be direct-ship cannot be changed to come in-house without approval from top management (or someone) who understands optimizing profitability and can arrange for adjustments to system data so that costs remain accurate.

Dick Friedman has been helping electrical distributors prevent inventory shortages and warehouse mistakes that lose sales and customers; and helping select ERP, E-commerce and WMS systems, while avoiding the problems and pitfalls. He can be reached at 847 256-1410 for a FREE consultation. Or visit www.GenBusCon.com  for more information.  And ask, or email, him for his latest distributor guide, “”The Distributors Guide To Surviving Amazon Business While Thriving“.

As business for many starts to improve, inevitably processes get ignored in the “heat of the battle”, everyone becomes too busy and while revenue grows, net profitability may not and customer complaints (or defections) increase.  Keeping focused on your operations will ensure top line and bottom line growth.