Maintaining Profitability—Part 1
The news of a well-known supplier with a long history closing their doors stunned the industry recently. This isn’t the first of such casualties and it certainly won’t be the last. There also will be losses of distributors and more consolidation. Strong suppliers will buy smaller suppliers and strong distributors will absorb smaller distributors. Some companies will just close their doors.
I’ve been a part of some interesting discussions on issues that affect the profitability of our industry. I was shocked to discover that up to 70 percent of orders that come in to suppliers are lacking details for them to be efficiently processed.
That’s a huge number! POs don’t have style numbers, the correct color for the item and imprint. They have incomplete ship-to addresses, bad art and on it goes. The discussion has led to the need for orders to be processed more efficiently. The idea of an industry standard in ordering is not new. It’s been discussed and tried in various ways through the years.
The latest discussion is on implementing some form of Electronic Data Interchange (EDI), an electronic communication system that provides standards for exchanging data via any electronic means. By adhering to the same standard, two different companies—even in two different countries—can electronically exchange documents (such as purchase orders, invoices, shipping notices, and many others).
I’m hardly an expert on EDI, but before you tune out this topic as being irrelevant, please understand that this is important for businesses of all sizes. It affects both suppliers and distributors. Efficient processing of orders affects our ability to maximize profitability.
The move to a standardized order processing system is difficult because our industry is so fragmented. Large distributors have their own proprietary order processing systems and small distributors are all so different. On top of that, we don’t embrace change well.
Roger Burnett, the president and co-founder of Order Commander is a seasoned industry veteran who has worked on both the distributor and supplier side of the business. I’ve asked him to share his take on this issue:
"The problem here has to do with communication between suppliers and distributors. I recently placed an order with a supplier that went through much iteration. It had a change in quantity by me after I'd already submitted the PO. The speed and effectiveness of the supplier’s communication back to me was horrible. Did I cause part of the problem? Yes, I did, but a day or more would go by without me getting a response to almost all of the questions that I asked in the process.
"Would an electronic standard improve the speed of information travel? I believe it would. That being said, people will still be receiving those electronic messages and need to deal with the order details. Until every industry participant is willing to adhere to a communication standard, you're going to continue to have problems on both sides of the fence.
"Having worked for a supplier, I will agree that there is a lot to be desired with respect to what we'd get for POs from distributors. I'm not exactly sure about most of the reasons behind why that happens. From my time as a distributor, I see that in some cases, the problem has to do with incomplete information from the end-buyer. The distributor may [be] trying to get an order in to a supplier to meet production timelines necessary to meet a required-in-hands date.
"That’s not a good idea. This flawed thinking is like, "I know it’s not a complete order, but at least I'll be in the queue and I hope that my client gives me everything I need in time to make the production deadline, but let me at least get the PO rolling." Of course this is ridiculous, but suppliers abet this by often bending over backward to make things happen for those incomplete orders, including an ever-moving production schedule, which is extremely expensive and difficult to do.
"Without a standard, this problem will not fix itself. This would require the largest of suppliers and distributors to create standards and then require everyone else to comply."
Technology solutions for an Industry standard order processing may seem out of reach for some. This idea may also push us out of our comfort zone. We need to understand, however, that efficient order processing enables distributors and suppliers to maintain profitability. This is a topic that will not go away, which is why I’ve titled this "Maintaining Profitability–Part 1." We will continue this discussion with relevant content in the future.
Jeff Solomon, MAS, is a distributor affiliated with a top 10 distributor company. The FreePromoTips.com website and e-newsletters he publishes are packed with beneficial information. On the website, you can opt-in to receive these informative twice-a-month e-newsletters! Check out what’s new in the GP2: Good Products—Good Prices section of the site. Take advantage of free end-user safe product videos you can share from the http://yourpromotionsolution.com website. Like the FreePromoTips.com page on Facebook, follow it on Twitter and Pinterest, and connect with Jeff on LinkedIn.