Page 17 - UnderstandingJanSanRedistribution_flipbook
P. 17

Chapter 4:  A Case Study in Fill Rate Economics

                   The following article by Bruce Merrifield ( explains how the ability to maintain
                   high fill rates is a key driver of distributor profitability.  The case study illustrates the potential benefit
                   of sourcing via a wholesaler (Master Distributor) in order to consistently drive high fill rates, lower
                   costs, and ensure customer satisfaction and retention.

                                      GO DEEP ON FILL-RATE ECONOMICS; CHANGE STRATEGY

                   In most distribution channels, a distributor’s inventory, fill-rate score is foundational to its basic service
                   value proposition. Fill-rates aside, a company can tune many basic service offerings to the specific needs
                   of a target niche of customers such as:
                          ■ Late cut-off time(s) for placing orders.
                          ■ Faster turn-around times for orders picked up and/or delivered.
                          ■ Knowledgeable, helpful service personnel.
                          ■ Zero errors on filled orders, delivered on time – both guaranteed!
                          ■ Heroic recoveries routines (etc.).
                   But, if we don’t have the full amount of a line item in local stock that a customer needs “now”, all of the
                   other service elements seem, at least in the moment, a bit lacking.

                   “Fill-rates just have to be good enough” many service-minded distributors might reply.
                   “No other competitors can afford to have a 100% guaranteed in-stock, fill-rate level on a broad, slow-
                   turning array of items. With “good” fill-rates, our hustle to get the balance of what the customer needs,
                   we’ll win the satisfaction, retention/defection war.”
                   How many distributors actually measure these claims and look at the cost trade-offs between higher fill-
                   rates and hustle-for-the-balance-of-the-order costs? Read on about how one MRO supply distributor did
                   some deeper thinking about fill-rate economics to gain insights that are transforming their profitability with
                   next-level partnerships with a master distributor.

                   “Deuce” Lawson, a Reluctant Pinch Hitter for An Ailing Relative’s Distribution Business

                   Deuce Lawson, the hero of this story, sold his own manufacturing business in mid-career and was in a
                   relaxing, family-centric, transition stage when his brother-in-law had a serious heart attack. Deuce was
                   then drafted, by his sister, into running a 45-employee, two-location, distribution business (call it ABC
                   Supply) that was losing money for a number of reasons about which Deuce had no initial clue.
                   The veteran managers at ABC assured Deuce that the key to solving ABC’s problems was to hire more
                   sales reps in order to grow sales to spread “fixed costs” until it became profitable. Deuce knew “fixed
                   costs” better than most from his years in manufacturing. He saw ABC as a mostly variable cost business
                   and was not satisfied with the vets’ advice to “try-harder” at “more of the same”. Looking outside the
                   business, he found and partnered with a veteran wholesale industry consultant for fresh advice on how to
                   turn the company around.

                   This new team immediately solved some structural problems like: too many mediocre sales reps calling on
                   too many small accounts generating too many profit losing orders. At the same time, they also re-invented
                   “basic service brilliance” by measuring 8 different metrics.  While many employees were panicked about
                   the counter-intuitive wisdom of downsizing the sales force and solving the small order problem – both
                   which, by the way, worked sensationally – they all embraced the ideas of better, measurable, service value.
                   But, it was the specific challenge of achieving a breakthrough improvement for fill-rates that led to new
                   discoveries and a new business model.

   12   13   14   15   16   17   18   19   20   21   22