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If I am subjected to the phrase “new normal” one more time, I think I might lose my lunch. The term “unprecedented” is also a stomach-turner. I guess my inner cynic is coming out to play. I am growing very weary of people trying to rationalize the very real experience of change, challenge and unpredictability.
These are just situations we face when we own or lead a small business. The playbook is never written to cover all scenarios. Strategies break down, disruption occurs and creativity emerges.
Is it really that simple? Is my high-paid consulting advice to you, “Just deal with it”? Yes and no. First, we need to get comfortable with the nature of change; then we break out solid strategies to put us in the best position to thrive in the chaos.
In the past several months, we have been introduced to a reasonably new scarcity concept in our personal and professional lives. In the earliest days of the COVID-19 pandemic, we were exposed to empty shelves and a whole lot more space in traditional retail establishments.
I remember an incredibly creepy feeling when the frozen food section of Trader Joe’s was practically empty. Here, in one of the most prosperous nations on earth, we couldn’t buy frozen pork buns or mango chunks. Our paper hygiene products were being hoarded like gold and people were googling “bidet” in record fashion. Personal scarcity is scary and causes irrational behavior — like cooking without a microwave.
In our professional lives, we began to realize that “just in time” might just come to mean “just in trouble” when looking at the products on our shelves. Those in love with spinning inventory at the upper end of the spectrum learned that the generation of a purchase order does not ensure products will appear at the dock. Again, not something most of us have ever experienced. Cut PO, load shelves, deliver to customer. Man, we didn’t know how good we had it.
Enough of the waxing nostalgic and pointless observations on what happened. Yes, it got tougher to run the business. We all need to channel our inner Billy Ocean and remember that “the tough get going.” (You can thank me later for that song running through your head all day!)
Those of us who have been through a couple of business cycles (probably the same crowd who knows who Billy Ocean is) understand that our ability to adapt comes from some lessons we learned while getting our teeth kicked in. These became core fundamentals to getting through difficult situations.
In the remainder of this opinionated document, I want to share a couple of focus areas for distributors to revisit as a means to help them deal with this lack of available product.
Communicate Better with Suppliers
Doesn’t it feel as if the answer to all of life’s challenges is better communication? I could argue that it is, but I would rather get more specific in the way we communicate with our suppliers.
For some reason, many distributors have difficulty communicating their expectations with their suppliers. This is especially true in inventory replenishment and availability of product. In our distribution software packages, we can make educated guesses on the quantities our customers will consume over the next six months. I am not suggesting these predictions will be perfect, but we can get pretty darn close.
If we can do this, why don’t we share it with the companies that will be supplying the product? If you answer my question, “Because they don’t ask for this information,” you deserve to run out of inventory.
Take control of your inventory flow. Share your usage predictions with your key suppliers and help make their crystal ball a little less hazy. Some distributors will even issue purchase orders with specific release dates to better ensure their flow of inventory. News flash to some, old hat to others.
Understand Customers’ Product Expectations
While we are doing a little data mining, the next focus area is predicting what products your customers will most likely be buying in the future. If you agree with the notion that we put inventory on the shelves to satisfy our customers’ needs, then why don’t you take the time to understand what products are most popular with our customer base?
Over the years, many of you have read and heard me rattle on about ranking your inventory by hits versus cost of goods sold. In times of uncertain availability of product, we need to get back to the basics of ensuring that our most popular products will be on the shelf when the customer comes calling. Now is not the time to let fear prevent you from doubling down on the top-ranking products.
If you have not done this before, go back and rank your items by the number of transactions over 12 months. To clarify, an order quantity of 100 has the same weight as an order quantity of 1,000. Each is recorded as one hit. You will find a vast majority of hits occur in a relatively small percentage of your overall stocked items. Don’t run out of these items, period.
Know what is essential in the eyes of your customer and get those products on the shelf. Barren shelves in a wholesale warehouse are just as scary as your favorite grocery store.
Know Who Your Best Customers Are
Beauty is in the eye of the beholder, right? When it comes to our love for certain customers, we often have differing opinions on who the best ones are. Some like them big and loaded with potential. Others prefer those who buy in several of our product categories and carry a healthy average gross margin percentage. I happen to like the ones who pay on time and don’t place orders five minutes before the close of the day, but that’s just me.
Regardless of the various peccadillos, we all love profitable customers. When I say profitable, I am suggesting they contribute to our bottom line positively. Determining the profitability of each customer is an exercise I encourage every distributor to engage it. It isn’t fun. It isn’t glamourous. It will probably reduce a few of you to tears, but it is vital to your organization’s health.
As many of you have discovered, allocation of product is a real thing. We don’t always get what we want from our suppliers in the quantity we want it. From a supplier standpoint, product allocation means that decisions are made to ship inventory to customers they value most. Hate to break it to you, but these suppliers made decisions about who they like the best; you might be on the outside looking in. Fair doesn’t apply when allocating product.
It is time for distributors to start adopting the same exacting standards when allocating scarce products. We do not have to abide by the back-order fill protocol of “oldest orders first.” I say we start rewarding our most profitable customers by filling their orders ahead of those who develop alligator arms when our invoices some due. Those who contribute to our bottom line are just better. Treat them as such.
Although I suspect we will get back to the days of abundance in the next six to eight months, I hope that the lessons of scarcity remain fresh in our minds. Treat your operation as if scarcity was right around the corner. We call these strategies “fundamentals” because they will allow you to thrive in any economic climate. Now go make some changes while I don my mask and wait in line to buy my Trader Joe’s pork buns. Good luck.