As more people start shopping online, and more retailers pop up to serve them, wholesale distribution is taking off. However, today’s customers and retailers won’t settle for anything less than the best. In an era of 2-day Prime shipping, anything longer can feel like a lifetime. Running a wholesale distribution organization has always been a balancing act between demand and stock on hand, but the margin for error is quickly becoming razor thin. To stay ahead of it all, many wholesale distribution companies turn to analytics, but without the right KPIs, one may find themselves just as lost as before. Here are the KPIs that matter most to Wholesale distribution companies…
Current stock / orders
What percentage of demand can you fulfill with the stock you have on hand? With this metric, you’ll know if you’re stocking inventory properly. It will also help you analyze stock-outs and identify inventory availability based on a number of variables like region, sales line, and promotions. The ideal fill rate will depend on your approach to distribution. For example, with a just-in-time model, you’ll want a lower fill rate, but if your approach is more inventory focused, you would want to see a higher fill rate.
Total storage overhead
How much does it cost to store your inventory? Storage costs can be easy to overlook, but they’re a big factor on your bottom line. Aside from costs like warehouse space, your overhead may include things like refrigeration, especially if your inventory is perishable or fragile in some way. If the costs are significant enough, you many want to rethink your inventory strategy. This metric will help you keep an eye on hidden overhead costs.
Stock Turnover Time
Time between receipt and shipping of product
This is a crucial metric for assessing your inventory strategy. If your turnover time is too long, you may be wasting money storing product. If turnover time is too short, you risk running out of products if there’s a surge in orders.
Pick to Ship Time
Time between orders coming in and orders going out
If it’s taking awhile for orders to get out the door, you have a problem. It could be with staff, or it could be with how your warehouse is set up, but it’s a problem worth investigating.
Total Demand by Product
Which of your products are most popular? With this metric, you’ll know if you need to carry more stock of a certain product. This information is also useful when planning the floorplan of your warehouse. By keeping popular products closer to pickers, you can reduce your Pick to Ship time. On the flip side, if you notice all your popular products are in one place, you may want to spread them out in order to avoid traffic jams.
Number of backorders / Total number of orders
If a product is frequently on backorder, it’s a good sign you need to order more next time. If an item is on backorder, customers may want to look somewhere else rather than wait, so keep a close eye on this metric.
How much inventory do you have? While it’s hard to imagine a distributor that doesn’t measure inventory levels, how you measure it can make a big difference. Modern analytics and reporting tools give you the ability to monitor inventory in real time, which can be a game changer when it comes to making sure your inventory levels are healthy.
Primary Item Inventory Levels
Are there any products you can’t do without? If you’re known for a certain product, you can’t afford to run out of inventory. By monitoring your inventory for key items, you can make sure you have a healthy stock of your core items.
Safety Stock Reporting
How much stock do you need to keep on hand to avoid selling out? While there’s no way to predict the future, safety stock reporting can help you prepare for the worst (or the best) of times. The way you calculate your safety stock will depend on your line of business, but most organizations consider factors like average demand, how long reorders will take (or fill rate), and an estimation of how demand might fluctuate. From there, one merely needs to decide the level of risk they’re comfortable with. Less stock is cheaper to store, but could leave you out of product.
Inventory Turnover Ratio
Net Sales per Period / Average Inventory Per Period
How often do you cycle through your inventory? If you’re a high volume distribution organization with tons of product coming in and going out, you would expect a higher turnover ratio. For example, if you’re distributing soda, you might measure turnover ratios by month, and expect to cycle through all your stock multiple times. Inventory turnover ratios are especially important for businesses that stock perishable goods.
(Selling price per unit – Variable costs per unit) – Fixed costs per unit
How much money do you make on each sale of each product? By subtracting the total cost per unit from the selling price, you’ll have an idea of how much money each item makes. However, for deeper insights, it helps to differentiate between variable costs and fixed costs. For a wholesale distribution company, fixed costs would be the wholesale price, while variable costs would be the cost of storing and procuring the item (floor space, refrigeration, landed cost, etc.). By differentiating the two, you can find ways to adjust your strategy to minimize variable costs and maximize the contribution margin.
While no organization is the same as the last, these KPIs should give you a solid footing for analyzing a wholesale distribution operation. Thanks to The Vested Group for helping us identify the KPIs that matter. For more information on how to choose the right KPIs and metrics for your organization, along with tips for making the most of analytics, head to the iCharts Resources Page.