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How big a role does distribution play in maintaining your bottom line?

Finding actionable methods that control costs is a crucial component in business operations. Whether your company serves the general public, such as in retail or food service, or you transact the distribution of goods.

However, in a manufacturing or distribution model, controlling operational costs is more complicated. Separate and/or multiple warehouses, third party shipment orchestration, and other supply chain maintenance tasks are so inter-related that it’s often a challenge to differentiate exactly which areas need improvement.

For companies in Ireland that operate warehousing and distribution as part of their business structure, the recovering economic climate makes it doubly important to control wastes in these areas. Even seemingly harmless inefficiencies can compound over time and dwindle your already slim margins into nothing.

Therefore, it’s important to know exactly how big a role your warehouse and distribution processes play in maintaining your healthy bottom line.

The Waiting Is the Hardest Part

Many businesses perform analysis procedures quarterly, or even yearly. But, in today’s mobile marketplace, that type of reporting can quickly spell disaster.

Waiting for performance data is cost-prohibitive. Even if your reports are generated on a monthly basis, the wastes that can occur before you become aware of them can have a big impact on company profits.

According to a recent survey conducted by Warehousing Ireland, “40% of finance professionals said their firms relied almost exclusively on manual or spreadsheet methods to keep track of the business… 30% of managers complain of a lack of integration between internal systems; around a fifth complain of poor integration and communication with suppliers and with distribution partners.”

That kind of inefficiency in performance tracking can equate to huge losses in your company’s bottom line.

Supply Chain Woes

Maintaining inventory is costly. Every day that you house an item at your warehouse facility, holding charges (soft costs) accrue. And although, these costs may seem marginal, they are almost entirely responsible for any gaps between your projected operational costs and your actual costs each year.

Inefficiencies in your supply chain procedures can compound quickly. The most common problems include:

  • Lack of transparency across company departments
  • Sporadic, inaccurate or misleading stock counts
  • Lack of actionable vendor management programmes
  • Poor customer relationship management protocols

Poor communication between your administrators and floor personnel can result in multiple/duplicate purchase order issuances. The subsequent overstock then becomes subject to high shrinkage rates, or stock out situations engender costly rush shipments.

Lack of vendor management planning can also generate labour wastes if replenishment shipments aren’t scheduled precisely.

Warehouse Layout/Stocking and Workflow Constraints

Disorganisation in stocking and workflow designs at your warehouse produce a number of wastes. Every time an employee has to back-track to pick an item for the same order, it creates unnecessary expense.

Moreover, poor workflows generate lengthy lead times. The order takes longer to process and there’s a greater chance for order inaccuracy.

Bottom Line

How important is the role of your warehousing and distribution to your bottom line? Massively. So important that it often represents your entire profit margin.

Consider some benchmark metrics tabulated for the top 20 percent of global distributors by WERC:

  • Distribution costs as a percent of sales are less than 1.6 percent (most other companies range from 2.9 percent to 8.9 percent and more)
  • Distribution costs per unit shipped are less than €0.28 (most other companies range from €0.77 to €10 and more)
  • Days on hand inventory is less than 15 (most other companies range from 30 to 78 and more)
  • Shrink as a percent of total inventory is less than 0.1% (most other companies range from 0.2 percent to 1.8 percent and more)