This month we have been on the road promoting our software company (Schmitt ProfiTools, Inc.) and subsequently spending time with many wholesalers throughout the country. Many of you saw January’s reprisal of Joe’s column from 20 years ago. This column has prompted conversations about some of Joe’s other nuggets of wisdom and consulting tricks. One of his favorite “tricks” was to walk into a wholesaler’s stockroom and pick out the dustiest looking product he could find in a remote corner of the warehouse. He would then call on a lucky salesman for an order of this product only to be told that this would be a special order item. There are many problems with this transaction: 1. The wholesalers’ team does not know this product exists. 2. The wholesalers’ team likely did not charge for special handling for this one-off sale. 3. The product somehow ended up in the wholesalers’ inventory. We would call this shooting yourself in both feet, if we had 3 feet. (We would love to hear more of your memories of Joe, write us at email@example.com or firstname.lastname@example.org)
Every couple years we try to provide a punch list for wholesalers discussing the need for a disciplined stocking list. For years we have preached the need for wholesalers to manage their inventory and stocking list in a "high performance" mode.
You need a stocking list — How do you review what you are stocking? Most wholesalers have no process to review what is supposed to be in stock. For years we have suggested that a simple way is to use your catalog to communicate what the company is selling. With some specific exceptions the directive is, “If it is in the catalog we stock it.” The exceptions being certain specialty items like high-end whirlpools or specialized equipment that are certainly in the catalog and marked clearly as non-stock. The catalog becomes the single definitive document that visually communicates the stocking list to management, sales, marketing, operations and customers. Everyone is singing from the same hymnal. We’ve seen other approaches, involving four-inch-thick computer listings and Excel spreadsheets, but a catalog seems to be one that works most often.
When salespeople don’t know you have it, they don’t sell it — we tend to be tough on sales people in our industry because some have devolved into price prostituting order takers. However, even the most dedicated sales professional is challenged to properly promote and sell the 10,000 to 50,000 items stocked by wholesalers in this industry. In addition to the challenges of selling so many items, the items are changing at a rate far higher than we have ever experienced in our industry. Where 70 years ago most new installs were simply threaded galvanized steel pipe and fittings with cast iron DVW. Today a single project might include copper, PVC, CPVC, pex, cast iron, pressed and “fish-bite” style fittings. The item count has gone up while the product complexity has increased.
Any decision to change the stocking list must include a process for communicating the change to the sales team, training the sales team to sell the new product and, critically important, getting commitments from them to sell the product. Some sales people will promise on a stack of catalogs to sell a product if you stock it but without quotas, you can file the pledge with others like: “I’ll respect you in the morning” and “the check is in the mail.”
When customers don’t think you have it, they don’t call you when they need it — Customers may love you and buy from you but if they don’t know you stock it, they may not call you when they need it. Better than any other sales tool, catalogs quickly communicate the depth and breadth of your offering in a way that no website ever can. Webstores are fast at finding a specific product but catalogs are the most efficient way to show all your products.
Develop a team of professionals — just like you don’t want your legal affairs, your medical care or your children’s education handled by amateurs, you should strive to have your inventory managed by professionals. We hear a lot superheated steam about inventory control from self-proclaimed inventory experts who are a lot better at proclaiming than properly managing inventory. In our experience, a very small number of these folks are really the “zen master” inventory gurus that they claim to be.
There are high-quality programs to train your team in the art of inventory management. These address the theory and processes that are involved in high-performance inventory management.
When combined with training in how to properly utilize the inventory management tools in your computer system, you get the best outcomes of high in-stock percentages/service levels at a reasonable inventory investment. Most wholesalers use a fraction of the tools and analytics that are available in their current computer software. When an inventory guy doesn’t understand what EOQ is, they tend not to use it in their replenishment activities.
Maintain your stocking list
Develop a process for the ongoing maintenance of the company stocking list — the addition of products to a company’s stocking list is often done much too casually. Some of the insidious ways that items get added to inventory:
1. A manufacturer’s rep visits the owner, takes him to an expensive lunch and gets him to try a new product line.
2. A purchasing guy attends a buying group meeting and signs up a new vendor or two or three.
3. Inside sales guy is putting together a special order for a customer who needs a widget. The minimum order is for 3. The customer needs 1 so he orders 3 and 2 go to inventory as a newly stocked product. A year from now the items will show up on a slow-moving inventory list. In two years, they will show up on the dead stock list. In three years, they will be moved to (hidden in) a remote corner of the warehouse to provide room for the same sales guy’s latest “minimum order to inventory” debacle.
4. The showroom manager decides to show another faucet line (bringing the count to 46) and adds a couple interesting but unsellable faucets into stock.
5. The manufacturer messes up and sends the wrong product. The warehouse knows it’s simpler to add an item to inventory than to do all of the RMA paperwork.
6. We are certain that there are other, even more creative, ways that products end up as stocked products in your inventory. The point is that these ways assume that stocking is a simple one-department localized deal and that no other areas of the company are involved in the process. Dead wrong!
Most wholesalers have limits — good stocking lists consider these limits
1. Cash – while interest rates are rock-bottom, building an inventory stocking strategy predicated on these low interest rates invites a disaster when they begin to rise again to even moderate rates.
2. Warehouse space – a warehouse packed to the brim with slow moving products is an operational nightmare.
3. Each new line or item in a line spreads sales and marketing thinner and thinner – even with the best catalog, webstore and staff, there is a limited time in front of each customer
Inventory and the stocking thereof is a family affair — the entire corporate family is involved. Develop a professional process for the introduction and, as needed, the discontinuance of products into and out of your stockings. Each functional area has a role to play regarding the product stocking list.
1. Sales and marketing – Understanding customer needs, assessing the competitive situation, making a commitment to sell, creating programs to introduce and promote the product
2. Inventory management (purchasing and warehousing) – procuring and warehousing
3. Finance – budgeting and providing cash to acquire the product, through borrowing if necessary.
Start with the customer’s needs — We feel that the stocking process starts with the needs of the customers that you intend to serve. High-performance wholesalers seem to have an implicit or explicit list of the types of customers that they are pursuing. The list of target customers should describe the types of work that these customers perform or projects that they go after. This, in turn, expands into a list of products that these customers will use in completing their projects.
One-stop service is a big deal — Another objective of many high-performance wholesalers is to be a one-stop shop wherein their target customers are never forced to go to another wholesaler in order to procure materials for one of their normal projects. While customers may opt to purchase materials from another wholesaler, high-performance wholesalers work diligently to persuade their customers to buy all of the materials required for all of their projects. Being a one-stop service provider is an important first step. However, customer buying habits do not change until they perceive you to be a dependable, one-stop wholesaler. It is critically important for wholesalers to implement and then promote their one-stop service so that customers buying habits include coming to your store first or calling you first. One wholesaler we ran into touts an outdoor ice machine (to fill your cooler) and wash basin (to rinse your cooler and boots), as some of the many ways they attract contractors to their one-stop shop (they also, conveniently, sell Gatorade to fill the cooler).
Double-down on the basics — For years we have preached that customers won’t think of you as a legitimate one-stop supplier if you routinely stock out of 1/2" 90s. We call these basic products NBOO (never be out of) items. There are 300-500 items that you must never, ever be out of. Customers want to be confident that they don’t need to call ahead to see if you have a white, round-front toilet. Figure out what your NBOO items are and consider adding safety stock into your computer, tagging the bins specially and training your team in how to manage them so you never, ever have to tell a customer that you are out. When a plumber drives extra miles to your store and you disappoint them on a basic item, it damages or destroys their trust in your “one-stop” competence.
Not all products are needed today — proper inventory management considers customer needs and usage combined with supplier lead times. A one-stop must have all the NBOOs all the time and a healthy stock of products normally used by the target customers. For many wholesalers, this boils down to 2,000 to 2,500 items that will cover 80% of stock sales. Lack of stock for odd colors and finishes will not tarnish your “one-stop” reputation if they can be delivered in a reasonable timeframe. Grainger sells a lot of product that is delivered in a day or two. Quick ship programs by manufacturers and master distributors often provide adequate service without actually having to stock the product. Modern webstores, like ours, can reach into the manufacturer’s or master distributor’s inventory systems (in our store this is in addition to your own stock) to provide the customer with availability and pricing seamlessly as if the product was stocked in the wholesaler’s warehouse. (We would be remiss if we did not mention that we are happy to provide more information on our webstore solution. Contact us at email@example.com or firstname.lastname@example.org).
It seems that the Amazon Supply strategy might be: “Be all things to all people.” If they succeed, they will be the first company, we know of, to implement this strategy successfully. We think a more viable strategy is for you to earn the role of being the day-in and day-out supplier-of-choice to a specific set of targeted, profitable customers. This strategy demands that you create, maintain and communicate a definitive list of products that you reliably stock and sell.