Simple steps to make transfers more efficient
BY JASON BADER
Inventory management specialist
(Editor’s Note: This is the conclusion of a two-part series.)
Back when I was a distributor, I remember how challenging it was to control the transfer process. It seemed like transfers just happened -- in spite of my best efforts. Now don’t get me wrong, not all transfers are evil. It just seemed like we had a lot of product on a permanent tour of the locations.
As the name above implies, this is the second part of this article. If you happened to miss Part 1, I would be happy to send you a copy. In this conclusion, I wanted to share a couple more ideas to help you curb the flow of errant transfers. The fact that we rarely are compensated for this common distribution practice results in a fairly significant drain on net profit. Managed properly, replenishment through transfer can significantly reduce surpluses at the branch level. It just takes a coordinated effort.
Rank your customers
Before making the decision to spend your money to transfer a product, you need to ask yourself, “Is this customer really worth the investment?” This is a touchy subject for most distributors. We have taught our people to treat every customer the same but, ultimately, we know that they have different levels of importance to the company. In order to help your customer service people make good transfer decisions, you need to give them profitability ranking information.
In previous articles, I discussed a method to rank customers based on their contribution to net profit. If you would like more details about the method, contact me and I will discuss it in depth. The crux of the exercise is to establish different service levels based on whether a customer contributes to -- or detracts from -- your net profit.
Once the ranking has been established, you can set up certain guidelines around the transferring of products. With your best customers, you wouldn’t think twice about spending the money. With your worst, you wouldn’t even consider the transfer. Knowing whom you are transferring for will help you reduce the number of items moving among your facilities.
Use a central authority
Many of the companies I have worked with give transfer authority to everyone. It seems like anyone is authorized to spend company money in the name of customer service. This leads to a transfer free-for-all and, invariably, to inventory surpluses throughout the system.
In the scenario I mentioned above, let’s assume that you wipe out the Seattle inventory. One of their best customers calls in and wants some of the product. An apologetic salesperson says, “Sorry, you just missed them. We had to ship them down to Portland.” How happy is this customer? He will probably say something like, “I don’t care what happens down in Portland. When you opened this location, you said you would have what I needed when I needed it. I’m going somewhere else.” Do you think the Seattle location will ever run out of this item again? I see a large transfer in their future.
A central authority can help smooth out these issues. He or she can analyze why the original location was out of inventory and make the necessary system adjustments. This will prevent future problems, but, more importantly, it will prevent knee-jerk reactions. A central buying authority may know that this item can be sourced locally for a reasonable cost. Using a central gatekeeper of inventory removes emotional decision-making.
Examine the current transfer routes
I recently worked with a large hvac supplier with several locations. One of the challenges we looked at were the space constraints in his hub location. He was having a difficult time staging the transfer orders for each location. We worked out a scheme by which he was able to utilize the trailers ahead of the transfer run for storage. This was looking great, and we could have just stopped there.
Feeling rather proud of myself for offering up a workable scheme, I said, “Do we really need to have a dedicated trailer for each location?” I should have kept my mouth shut. Over the next several hours, we analyzed the transfers, the sales volume and the current routes for each location, and finally figured out how to combine a couple of the routes so that they could better utilize the trucks and drivers. It all worked out well, but sometimes you need to quit while you are ahead.
All kidding aside, it was a worthwhile exercise for this distributor. Take a look at the current volumes for your smaller locations. Do weekly transfers make sense? Should you transfer a larger shipment every 10 days instead? With reduced sales volume in the current economic climate, you may be better served by replenishing less frequently.
Take a hard look at the use of your own fleet for transferring product. Common carriers may be a more economic way to move inventory around. They may be more willing to negotiate ltl rates these days. It’s worth the effort. I never won the lottery on the days that I didn’t buy a ticket.
I used to envy my friends who had single location operations. Bigger is not always better. When you become a multi-branch company, the word transfer will come up in every operations meeting you hold. Done well, branch replenishment can reduce inventory across the entire organization. It is still the best way to feed a new location. Look at the various areas I have outlined and see whether you can integrate them into your organization. If you get stuck, just send me a note. My job is to help you get past these barriers to profitability.
Good luck.
Jason Bader is the managing partner of The Distribution Team. The Distribution Team specializes in providing inventory management training, business operations consulting and technology utilization to the wholesale distribution industry. Bader brings more than 20 years of experience working in the distribution field. He can be reached at 503/282-2333, jason@distributionteam.com or on the web at www.thedistributionteam.com.