Technology: the answer to shrinking margins (Part 4)

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Checking Supplier Inventory and Placing an Order

Typically, if a customer calls and asks for an out-of-stock product, you will put the customer on hold or tell them you'll call them back, while you call your supplier or check their Web site. After you get the information, you call the customer back and get the order. You then process the order in your system and fax it or transmit it using EDI to the supplier.

Now for the hard questions: How often do you call the customer back only to find they bought the product somewhere else, or are upset about how long it took to find the item? How often does the supplier deliver the wrong product because they could not read the fax or the item code on the EDI transaction did not transmit properly? How much time does your payables staff spend reconciling accounts because the invoice price doesn't match the purchase order price?

These are just a few of the issues that cost you real money and reduce your customer service level. Imagine replacing these manual processes with one that does everything right from your business system to your supplier's and vice versa.Sound too good to be true? It's not. It's real and it's today.

Distributors who have embraced this technology cannot only check their own inventory, but their supplier's as well - in real time, right from their business system. Just think, no more picking up the phone or logging onto Web sites. No more putting customers on hold or, worse, hanging up and calling them back.

Once you have the order, you simply hit one key to send it directly into your supplier's system without any costly EDI value added network (VAN) charges. In addition, your transaction is automatically checked to make sure the price and all pertinent information are accurate, eliminating costly errors that could occur later on in the process, such as shipping the wrong product or pricing the invoice incorrectly. Things are done proactively not reactively, eliminating costs and adding value to your customer service offering.

Price Updates

Now let's think about the issue of price updates. After you receive a price update from your supplier, how long does it usually take you to enter the changes into your system? Do yourself a favor; the next time you get a price update, measure that time. Then look at the sales you had for that supplier during that time frame.

For example, let's say you received a price update on January 1 that increased the price of a certain supplier line by 2 percent. Suppose it takes you 30 days to enter that increase into your system and you calculate customer price as 1.43 times the cost. Finally, let's assume your sales during that period were $200,200 with a cost of goods of equaling $140,000. Because the 2 percent price increase was not enacted, your real cost of goods equaled $142,800. If you had updated your prices on January 1, your sales would have been $204,202 instead of $200,200. Your gross profit would have been $61,400 ($204,202 - $142,800) instead of $57,400 ($200,200 - $142,800) - an extra $4,004 in gross margin.

You may argue that the labor costs of entering price updates on time would equal more than the extra profit that comes from using current pricing. That's where technology fits in. Distributors who connect directly with their suppliers can get price updates real time, in one format, machine to machine. So regardless of which supplier the distributor is working with, price updates are received in the same, cleansed format. Rather then looking at people power to solve the issue and protect their profits and margins, these distributors examined their technology and found an answer.

In our next article, we'll discuss even more ways technology can improve the processes between distributors and their suppliers.

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