New Video Release: Vendor Managed Inventory (2 min 50 sec)

This brief video demonstration is for current and prospective Microsoft Dynamics AX & Microsoft Dynamics 365 customers seeking an enterprise solution to assist vendor managed inventory.

For any warehouse or distribution business dealing with rotating inventory, supply chain management is critical. Being able to properly manage inventory can help your business increase margins and maximize warehouse space – which, you guessed it, boosts profits. This is easier said than done. Vendor managed inventory can be tricky because it isn’t always easy to transfer new inventory to a vendor managed inventory warehouse for future sale. In order to do this, you need a powerful and capable business solution.

AXIO for Distribution powered by Microsoft Dynamics 365/Dynamics AX is that solution. The Advanced Order Management module of AXIO for Distribution makes it easy for your employees to fulfill orders and transfer inventory for future sale and distribution. Warehouse workers can check on the exact product stock and assign a percentage/number of that stock to be moved to a vendor managed warehouse.

Watch as a Distribution expert guides you through the process of vendor managed inventory on AXIO for Distribution.

Flip the Script – “Out Clause” to “In Clause”

In a recent update published by Modern Distribution Management, there was an article  entitled, “Tip: Don’t Let Risk-Aversion Prevent Growth”. The article is a good read and contains important information that will provoke many to do some re-thinking about their business.

One paragraph in particular caught my attention. It caused me to step back and reconsider my approach to day-to-day operations and eventual success:

“In this new competitive environment, customers seem more willing to exercise their ‘out clauses’ if a distributor doesn’t meet their demands 100 percent of the time“, says Bill Moore, president of Industrial Profit Strategies LLC.  (Link)

It is important that an “out clause” in most cases does not represent a contractual obligation but rather an option all our customers have. This “out clause” essentially gives customers the option to stop doing business with your company. Unless you manufacture a product or service that is totally unique with no competition, all customers have an “out clause” and can do business with other vendors at will.

Consider further that today – in a world of instant gratification – the “out clause” option is being applied if you do not meet their demands 100% of the time. That’s right… one mistake and you could be on the outside looking in.

I did not come up with that figure, so we could argue about the actual percentage. However, the percentage is not the issue. The real issue is that customers are much more demanding and less forgiving in today’s distribution landscape. This is across the entire supply chain, not just the supply chain link above or below you. Your customer has to provide the same “out clause” to their customers – meaning they will not allow your errors to affect their customers and sales.

Why would a customer exercise an “out clause”?

• Poor Customer Service (or lack of)
  • Long wait times on the telephone.
  • No computerized order management system for direct view into their orders.
• Late Deliveries
• Quality Issues
  • Product is damaged or not working.
  • Information is inaccurate.
  • Order process is inferior.
    • Invoicing
    • Shipping
    • Packaging
  • Poor Automation/Collaboration
    • EDI
    • Mobility – real time connection
    • Visibility
  • Lack of Shared Vision
    • Are you capable of assisting your customers in achieving their business vision? Or are you standing in their way?

Think of all the issues that cause you to reconsider your vendors – now look in the mirror and what do you see? Be honest!

If you can truly be honest and self-audit your firm’s performance, I would recommend:

1. Make a list of issues for each customer. You will notice that each one has different results.
2. Identify what you believe are the shortcomings – then brainstorm a solution.
3. Be proactive. Schedule a meeting with your customers to compare notes and offer solutions.
4. Apply the agreed upon solution.
5. Build a solid relationship with your customer that goes beyond being a supplier. Truly become a partner in their business by helping them achieve their goals and objectives.

The Other Way Around – Reverse, Reverse

Guess what?! News flash – vendors often employ the “out clause” with their customers. Yes, more and more vendors are dropping difficult customers because they are negatively impacting their performance with other customers.

Divesting difficult customers isn’t new and it isn’t constrained to distributors.  In this Harvard Business Review article going back to 2008, we see examples of companies up and down the supply chain making hard decisions to manage profitability and meet customer service expectations.  “The Right Way to Manage Unprofitable Customers” identified four common reasons why businesses terminate relationships with end users:

• the declining profitability of specific customers
• the lower productivity of employees as they deal with unprofitable customers
• changes in the capacity to serve large volumes of customers
• shifts in a company’s business strategy.

At the time this article was written, the vendors interviewed were all hesitant to admit publicly that they were choosing to divest customers.  They were afraid their company would be perceived as “service-unfriendly” or to be violating ethical or legal obligations to customers.

Today, companies are much more focused on providing the best possible customer experience from day one.  If divesting difficult customers helps them achieve that, then so be it.

As much as we all like to think that we are the most important customer to a business, that is simply just not the case. Vendors have many customers and if one customer is negatively affecting a vendor’s performance, they will reconsider their relationship with that customer. Many vendors’ goal is to protect the majority of their customers and keep them satisfied. They will not risk losing their sales book because a client cannot manage their business.

If the above scenario sounds familiar, you may need to go through the five steps, mentioned previously, and sit down with your vendor to get on the same page.

Is This Process Model Attainable?

You manage a wide range of customers, vendors and products. So, I will try and make this short and sweet. Can you apply this process to every customer, vendor and product? Simple answer – probably not.

The decision to divest specific customers or segments of customers isn’t one that should be made casually.  Identifying these customers and their impact to profitability, customer service levels or long-term loyalty requires accurate data and long-term trending.  Most companies simply don’t have comprehensive software solutions in place that provide the depth of data necessary to look at customers across multiple planes.  Even if they are able to identify patterns of profitability, they find it impossible to manage the divestment process correctly and to ensure proper vetting of new customers.

Do you already have a solution that will allow you to apply and deliver on the revised processes?  Do you have the right infrastructure to support the modern requirements that will be placed on your software system?

Think carefully… Remember, how much revenue/profit/margin the process can help you generate? I bet you would gladly sign up for some of that. However, if you don’t have the proper solution in place, how would you feel not reaching that number because you cannot execute efficiently enough? The cost of inaction can be steep.

AXIO for Distribution is built with template processes that help you manage and apply the changes that will result in these revenue gains. AXIO for Distribution will provide the sound base and direction you need to be successful in avoiding the “out clause.” You can turn the “out clause” into the and the “in clause.” A little cheesy, but the fact is you will have satisfied customers/vendors that will want to do business with you. Not to mention, you will have a stronger negotiating position.

How might that impact your margins?

Dominic Telaro CFPIM, CIRM
Vice President Industry Solutions, SBS Group

Dominic Telaro brings over 35 years of Manufacturing, Distribution, Software and Consulting experience. Half of his professional career has been in Manufacturing and Distribution from shop floor and warehousing positions to management. During this time he implemented ERP, DRP and Logistics solutions as internal Project Leader. The second half of his career has been in consulting, product management, product development and both consulting and software sales. He has held positions as VP Of Industry Solutions, VP of Product Development, VP of Sales and Marketing and Global Practice Leader for companies like IBIS Inc., IBM, Janis Group, Metamor, Marcam Corp. and more. Presently he is responsible for Industry Product Vision for multiple ERP solutions at SBS Group USA.

APICS Fellow and Certified in Integrated Resource Management, Instructor at Universite de Montreal, Vanier College and Granby CEGEP for APICS certification; Lead instructor for internal APICS training at Bell Helicopter, Avon, Le Groupe Hamelin

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Watch how you can use color coding in advanced order management to better track orders and provide customers with real-time status updates!

New Video Release: Color Coding in Advanced Order Management (2 min 43 sec)

This brief video demonstration is for current and prospective Microsoft Dynamics AX seeking an enterprise solution to assist order management and tracking.

Processing and fulfilling orders are two of the main functions of a distribution firm. If distributors cannot properly fulfill a customer’s order, that customer will turn around and take his/her business elsewhere. Thus, why order management, especially tracking, is critical to a successful distribution firm. But, wait… order management isn’t that simple. How do you know which orders are in process, in fulfillment, shipping or on hold? When you have hundreds, even thousands, of orders in your system, an order can easily get ‘lost’. Lost orders make for angry customers; nobody wants that. AXIO for Distribution powered by Microsoft Dynamics AX helps distributors avoid this problem.

AXIO for Distribution has a powerful Advanced Order Management module that allows users to have real-time data at their fingertips. Order inquiries and status updates are able to be answered quicker and more accurately than before through simple color coding. What does that mean? Well, it means that a user can sort orders by the various colors attributed to different stages or order issues. For example, if an order is green, it could mean that the order is currently being shipped. Now just search by green and the user will see all the orders currently out for shipping. No more need for users to go on a wild goose chase trying to find what stage an order is – it’s right there at their fingertips.

Watch how a Microsoft Dynamics AX expert navigates an advanced order management scenario using the AXIO for Distribution module.

 

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Increase Profits with Consignment and Vendor Managed Inventory for Dynamics AX

Few things, if any, make more difference in a distributor’s business model than efficient inventory management.

The right inventory drives your sales. The right inventory to sales ratio makes you profitable (not taking anything else into account). Too much inventory – you lose money. Too little inventory you lose customers and money. So theoretically, ensuring you always have the right amount of inventory is a major key in profitability!

So how do you manage your inventory?

We are familiar with inventory management methods dating back to WW2 logistics such as re-order points, safety stock and so forth all the way to MRP, Gordon Graham Principles, JIT, Lean Methods and more. All of these methods have one purpose in mind – manage your inventory to sales ratio for maximum revenue.

Not so long ago, everyone started working together – collaborate – to keep inventory stock at a minimum but at maximum customer satisfaction and availability. So along comes Consignment Inventory and Vendor Managed Inventory.

Consignment Inventory (CI): The inventory I (distributor) keep at my customer site(s)

Vendor Managed Inventory (VMI): The inventory my vendor keeps at my (distributor) site(s)

Advantages of Utilizing CI and/or VMI

CI – I (distributor) can increase customer satisfaction and reduce costs by agreeing to place inventory in a customer location at no cost to the customer until they use it. There are major advantages for both the vendor and the customer.

• What better way to meet JIT (Just in Time) delivery requirements than by having my inventory on site at the customer location?
• Having inventory on site and available to my customer as they need it – no chance he will order from a competitor.
• The inventory is still owned by me and – after discussing with my customer – I can still move as necessary.
• I have total visibility into usage and can avoid returns due to lack of sales as I will be managing this inventory location as one of my own.
• As part of agreement, ensure that the customer reviews and updates forecasts regularly for more accurate requirements.
• Agree to inventory cycle counts at regular intervals – our customer can perform them or I may send my sales person – direct regular access to my customer’s procurement department.
• Negotiate better margins with customers for 100% inventory availability.
• Negotiate with your vendor to ship replenishments directly to the customer location and save on transportation costs, receiving and stocking costs and pick, pack ship costs to send the inventory to your customer – if the quantities warrant this process. This process alone can make a huge impact on margins for you or a combination of price reduction to your customer and still positive impact your margins.

VMI – I (distributor) can increase customer satisfaction and reduce costs by agreeing to let my vendor place inventory at my location at no cost to me until I use it. There are major advantages for both myself and my vendor that can lead to positive results in my margins and inventory carrying costs and turns for me (distributor).

• Since the inventory is not owned by me – not invoiced yet – until I use it then the inventory carrying costs are not affecting my profitability or are reduced.
• I (distributor) do not reflect this inventory as mine my inventory turn ratio is affected positively.
• Immediate availability will have a positive impact on my lead times.
• Immediate availability will improve my customer satisfaction.
• I can negotiate a better price with my vendor as I am managing the inventory and will commit to certain level of guaranteed usage.

Why is this becoming more prevalent?

It’s easy.  The process itself is logical and simple to understand.  Execution is often another matter altogether.  Taking advantage of CI and/or VMI requires having software in place that is capable of automating much of the process.

• CI – Customer shows usage, distributor system (my system) accepts the usage, creates a SO, created the pick/pack/ship documents to support the shipment and update the distributor inventory, creates an invoice to transfer ownership to customer and request payment, planning system plans to replenish the customer site based on forecast and consumption. Customer now owns the inventory.
• VMI – Distributor advises vendor of usage so vendor forwards invoice. The distributor system (my system) creates a purchase order, a receipt is automatically created and executed on, the distributor (my) system is updated, vendor invoice is now ready to be accepted and paid. The distributor system recognizes the inventory for planning, allocation and consumption. Ownership is now mine.

AXIO for Distribution Supports Both CI and VMI Inventory Management

AXIO for Distribution provides a complete distribution solution that enables and automates standard processes to support both VMI and CI.  These processes have training and implementation documentation to help you roll out both or either one of these inventory management methods.

Of course, AXIO for Distribution is much more than inventory management.  It is an end-to-end advanced supply chain management software for both small and large distributors. We’ve extended the powerful capabilities of Microsoft Dynamics AX to include industry-specific functionalities that cover all the important processes a modern distributor needs: sales and operations planning, demand planning, revenue management, order management, inventory management, business intelligence, procurement management and more.

Built by industry experts, AXIO for Distribution goes beyond traditional enterprise resource planning (ERP) software to tackle the complex needs of today’s distributors and enable business gains.

Please reach out if you would like to learn more about how AXIO for Dynamics AX and Dynamics 365 can help your distribution business operate more efficiently.

Dominic Telaro CFPIM, CIRM
Vice President Industry Solutions, SBS Group

Dominic Telaro brings over 35 years of Manufacturing, Distribution, Software and Consulting experience. Half of his professional career has been in Manufacturing and Distribution from shop floor and warehousing positions to management. During this time he implemented ERP, DRP and Logistics solutions as internal Project Leader. The second half of his career has been in consulting, product management, product development and both consulting and software sales. He has held positions as VP Of Industry Solutions, VP of Product Development, VP of Sales and Marketing and Global Practice Leader for companies like IBIS Inc., IBM, Janis Group, Metamor, Marcam Corp. and more. Presently he is responsible for Industry Product Vision for multiple ERP solutions at SBS Group USA.

APICS Fellow and Certified in Integrated Resource Management, Instructor at Universite de Montreal, Vanier College and Granby CEGEP for APICS certification; Lead instructor for internal APICS training at Bell Helicopter, Avon, Le Groupe Hamelin

 

Omni-Channel Distribution or Just Plain Channibalism?

When is an omni-channel strategy considered cannibalization and when is it not?

Well, to define cannibalization in reference to an omni-channel strategy, we might want to first clarify just what an omni-channel strategy is.  In a nutshell, omni-channel selling is a business model that companies use to improve customer experience and capture additional market share by utilizing multiple customer facing order capture methods. An effective omni-channel strategy provides your buyers with the ability to engage with you wherever they are and whenever they’re ready.

Distributors often seek to increase revenue by providing items for sale online in addition to traditional channels like direct call-center sales, resellers or even brick-n-mortar retail establishments.  Online quickly extends to mobile phones, social media sites or content networks.

What could possibly go wrong?

In an omni-channel strategy, it is vital to not cannibalize your distribution business. Below are a few examples of what is, and isn’t, channel cannibalism (Channibalism).

Channibalism:

At your distribution company, your customer normally purchases an item through their existing channel (like your in-house call center). However, a few months ago, you decided to make items available for purchase online at a lower price than the regular channel. Now, that customer can purchase the item directly online – a good and bad thing. The good? They are still purchasing from you. The bad? They are buying the same item and quantity they used to buy from you, but for less money. Unless you have reviewed and adjusted the process and items based on planned margins this can hurt your distribution company’s revenue. This is channibalism.

When you change the method of ordering without increasing the number of items ordered, you are just shifting the orders from one channel to the next – resulting in zero growth. This approach has proven dangerous and costly to many distribution firms that did not consider the effects of cannibalization.

In the case of a manufacturer who decides to apply omni-channel approaches their distributors end up sourcing new vendors because of their frustration.  The distributor then takes  advantage of their relationship with the end user to sell their new product rather than the original vendor’s product. The original vendor ended up experiencing a major drop in business.

Not Channel Cannibalism:

An item is introduced to end users and you  are giving them options to purchase from your web store at a discount if:

1. they include additional line items on the order
2. they purchase a minimum quantity
3. they pay for freight, etc.
4. there is no pricing competition with your distributors.

If the above is true, this is not channel cannibalism. Instead, it is creative Omni-Channel marketing.

This creative approach allows your channel to keep selling while delivering their value-added to maintain their existing customers and avoid price competition avoiding margin degradation.

The net results are simple: more items are ordered. Thus, allowing you to increase sales through a new channel and avoid channel cannibalization.

Think First – Act Later

You created a web ordering experience that reaches out only to new customer accounts providing discounts and buy one, get one free deals (BOGOs). How do you think this will affect existing customers? Well, this approach usually results in a level of dissatisfaction among existing customers. Existing customers will feel they are being mistreated for being loyal and upset they cannot take advantage of the “promotional” pricing. Talk about an easy way to drive them to another distributor’s website in search of “specials” and potentially better treatment…

I often see this methodology in the cable industry and telephone companies – wireless and landline. The strategy usually requires that you maintain a new department solely responsible for customer retention. In these cases, you are adding costs to manage your customers while creating dissatisfaction among your customer base. Seems counter-intuitive to me, and from my experience the net results are increasingly negative for distribution companies.

What you should do:

Create a web ordering experience for new customers as well as your loyal customers. The discounts and BOGOs should be applied to both parties, especially when loyal customers are in line for renewals. By approaching it in this manner, you will gain new customers while increasing loyalty and satisfaction within your existing customer base.

Channel cannibalism is hard to identify as it is usually a result of unintended consequences. Distribution companies do not intentionally start out wanting to upset a hard earned customer base. Many of these instances are caused by management overreacting to a change in the market.

It is important when considering new customer acquisition methods that you consider not just the positive side of the equation, but the negative potential outcomes. Not everything that sounds good will give you the expected positive results. After all, in the distribution industry, just one mistake will result in the likely lose of customers.

The results of deploying a correct Distribution Omni-Channel strategy can mean the difference between maintaining and increasing your margin and losing or growing your industry foot print.  This type of approach needs to be supported by strong software functionality. You need to be aware of margins at the order level as well as the line level. This type of functionality is not available as a standard solution in all software packages. Advanced Revenue Management and Advanced Order Management modules were specifically developed to protect and maintain your margins to support all your business channels.

Are you engaging in channibalism?

Dominic Telaro CFPIM, CIRM
Vice President Industry Solutions, SBS Group

Dominic Telaro brings over 35 years of Manufacturing, Distribution, Software and Consulting experience. Half of his professional career has been in Manufacturing and Distribution from shop floor and warehousing positions to management. During this time he implemented ERP, DRP and Logistics solutions as internal Project Leader. The second half of his career has been in consulting, product management, product development and both consulting and software sales. He has held positions as VP Of Industry Solutions, VP of Product Development, VP of Sales and Marketing and Global Practice Leader for companies like IBIS Inc., IBM, Janis Group, Metamor, Marcam Corp. and more. Presently he is responsible for Industry Product Vision for multiple ERP solutions at SBS Group USA.

APICS Fellow and Certified in Integrated Resource Management, Instructor at Universite de Montreal, Vanier College and Granby CEGEP for APICS certification; Lead instructor for internal APICS training at Bell Helicopter, Avon, Le Groupe Hamelin

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