Guest post by Eric Ryerson, Director, Development, Infor

Have you had a conversation like this with your customers:

Customer: “Are you able to manage my inventory, no matter where it’s stored?”

You: “You mean even if I don’t supply it?”

Customer: “Yes. I don’t have the time or capability to do it, and I want you to handle everything.”

If you have one minute, take a look at this short animated video. I bet you can relate.

http://www.xtranormal.com/watch/7283311/storeroom

As we move into this next decade and put the recession behind us, those that have survived and want to thrive look for ways to gain a competitive advantage.

One topic always near and dear to any distributor’s heart is inventory management. So what does that really mean? The old classic model is easy to understand: The manufacturer makes something and holds it until they sell it to the distributor. When the distributor receives it, title transfers to the distributor and they warehouse it. Once the distributor sells it, title transfers again to the consumer or retailer. There are variations to this with consignment and certain flavors of vendor-managed inventory (VMI).

From a distributor’s perspective, what do you really want? Ideally, you can profitably sell product to your customers without ever having to house it or manage it. You can source it from either the manufacturer or any company further up in the supply chain and bill for it immediately, optimizing return-on-inventory without tying up your cash. Sounds great, and it works in some cases. The problem is, value-add by the distributor is limited to minimal. This method relies on customers that can’t access product directly or who are willing to pay the premium for the convenience of ordering from you.

Distributor value-add comes from doing things that are difficult or that you don’t want to do. That’s why the customer is willing to buy from you. The reality is—for various reasons—inventory still has to be purchased, stored, and shipped when the time is right. Successful companies in any sector meet difficulties by turning them into a competitive advantage. Managing inventory is one of those things where distributors should naturally excel. Now, how can you grow and profit from it?

I contend that opportunistic use of distributor-managed inventory (DMI) can and should be used by the savvy distributor as a competitive advantage. And, it could be if DMI was as easy to use as your ERP is for your own inventory.

DMI for the next decade should mean this: The distributor can manage the inventory that’s needed by its customer anywhere up and down the supply chain, regardless of who owns it. If the customer wants to have title to the inventory while it’s still in the distributor’s warehouse, fine. Think bill-and-hold or 3PL services. If the customer wants to keep distributor inventory on the customer site and get billed when it’s consumed, the distributor should easily accommodate that. Think consignment. If the customer wants the distributor to manage the customer-owned inventory on the customer site, then you need to do that, too—even if you haven’t supplied it. Keep in mind that you might supply it someday, and then you can charge for it.

Back to the value-add. What if the customer wants to combine its inventory with what the distributor provides and have the distributor use its advanced tools and techniques to optimize what the customer needs and when? Do it.

Think of it this way: As a distributor, you should be armed with the tools to walk into any scenario and compete aggressively and profitably for the business. Keep the proposition simple and the service high.

• Inventory storage: Your place or ours.
• Inventory ownership: Keep yours here or we can keep ours there—or both.
• Comingled inventory for burn-off? No problem.
• Manage inventory sourced from other suppliers? Happy to do that. (For a small fee, of course).

Point is, as a distributor, you’re the best in the business at sourcing, tracking demand, optimizing on-site quantities, and providing custodial services for what you hold for the customer. Use your strength as a weapon!

I’d love to hear your thoughts and ideas about inventory management. Please leave a comment to this post.