Being a middleman is a tough place to be. Distributors often find themselves “caught” between suppliers that want the shortest payment terms possible, and customers who want to take their time paying their bills.
This and other factors can create significant cash crunches for distributorships that don’t pay close attention to margin, inventory levels, sales, and expenses.
"All companies are challenged by cash flow problems, ”said Centennial Revenue Management’s Debra Robinson in tED Magazine’s 5 WAYS TO CLOSE THE MIDDLEMAN CASH FLOW GAP,“ which can be a particularly big hardship on the middleman who is trying to do a good job while being squeezed by two different entities (i.e., customers and suppliers).
Here are four key areas where distributors can leverage analytics to help solve the cash crunch:
- Margin: Defined as the difference between a product or service's selling price and the price that the distributor paid for that product or service, margin plays a critical role in a company’s healthy cash flow. Put simply, when you increase your margins, that money flows right to your bottom line. Analytics integrated with your Enterprise Resource Planning (ERP) and other business systems provides at-a-glance views of margin performance across customers, locations, and products. Dashboards can show if and where your sales reps are unnecessarily discounting pricing or if you are maximizing margin by selling uniformly into a vertical market. Progress can be checked daily to see if you are meeting margin goals. Consider that one percent of extra margin for a company with $10 million in revenue is $100,000 straight to the bottom line with no extra work. How much more could you make with this information easily in hand?
- Inventory: The days when a distributor could afford to let unwanted, obsolete products sit around in the warehouse, gathering dust, are long gone. In today’s just-in-time manufacturing and distribution environment, a combination of effective procurement procedures and getting rid of dead stock can have a significant positive impact on a company’s cash flow. Distributor analytics help you identify which products are making you the most money and which are destined to become a bad investment. Trending analytics show you products that are declining in sales and where to sell them before they get stuck on your shelf. “Inventory reporting from our distributor analytics provider was really impressive and exactly what we have needed for far too long,” says Bob Hoff, Operations/Technology Manager at Chase Plastics. “It allowed us to quickly whittle down our underperforming product groups and reinvest in our ‘hot’ lines.”
- Sales: All companies want to brag that their sales volumes are up for the quarter or the year. While this type of growth only hits your bottom line in the ratio of net margin (typically 2% to 6%), it can still add up to good money. Analytics highlights customers that are growing for you and which are tapering off so you can give both types the proper attention. Helping your sales reps see where to spend their time for the best return can payoff big-time, such as knowing which products a customer has stopped buying so they can get that business back before it’s too late. "It's all about having the right mix of products, deployed to the right places," says Gary Owen, MITS’ president. "Match those up with the right sales opportunities, keep customer payments flowing in, and distributors can be highly effective in today's competitive environment."
- Expenses: Running manual reports is a messy, time-intensive process that no one likes to do. Once they are all compiled, they often only give you a great look into the rear-view mirror with little or no perspective. Distributor analytics help you put an expense into context. For example, you can see how each expense is trending and compare it to previous periods or against sales or gross profit or another branch of your company. Drilling down into the ledger account can show what part of that expense category is the problem—and you can do all this as your month unfolds so you have time to do something about it.