Carrying Costs of Inventory (What It Is & How to Calculate It)
Gaining a deeper understanding of your carrying costs of inventory can increase profits overall, but the task is easier said ...Read Post
Consignment inventory, when distributors stock and manage inventory at a customer’s site, is a fantastic way for a distributor to make themselves indispensable to a customer. It can also be a profitable strategy if managed with technology that ensures you are not stocking too much inventory and that you are billing efficiently.
Yet, most distributors are reluctant to expand their consigned-inventory business because they think that consignment is too expensive. They believe it would require them to stock too much inventory at customers’ locations, tying up cash and increasing business risk. After all, some distributors have had to stock tens of thousands of dollars’ worth of unused or rarely-used consigned inventory at a customer’s location.
But there’s an app that changes all that. There’s no need to keep that money tied up. In fact, the eTurns TrackStock App offers automated inventory replenishment that can identify the ideal minimum and maximum inventory levels at a customer site, as well as which products don’t need to be stocked onsite -- all based on a customer's actual usage.
Distributors overstock customer stockrooms because they are afraid of not having what the customer needs when they need it. While you want to service your customer’s needs, acting out of fear isn’t effective. It’s a stressful guessing game that doesn’t accurately reflect your customers’ actual usage habits and can lead to inefficient stocking choices. After all, there are risks associated with keeping product on the shelves for long periods of time. The longer an item sits, the greater the risk of damage, theft or obsolescence.
How can distributors be confident that they can offer what the customer needs while stocking less product?
It’s a fair question. The answer is: You need an app that tracks actual usage. And the result is that consignment isn’t as expensive as you may think.
Within just 45 days of tracking a customer’s usage with eTurns, a distributor can use the eTurns Min/Max Tuning Dashboard to see what cash they can remove from inventory for one-time savings, and how much they can save annually on inventory carrying costs.
Here’s a real example: A distributor in Canada has $45,000 in consignment inventory at a customer location. We ran the numbers using eTurns’ optimum min/max settings in their eTurns TrackStock automated inventory replenishment app and found that they actually only need $10,000 in inventory at that site to serve their customers’ needs. The numbers show that the remaining goods simply aren’t being used frequently enough or at all to justify the cost of stocking it at the point-of-use. That means that based on actual usage over time by the customer, the distributor can remove $35,000 from their consigned, stocked items for that customer and spread the savings over three or so more consignment opportunities.
Does your current ERP system have any way today to determine how much cash you can save in your consigned customers’ inventories? Nope. ERP software doesn’t track on-hand quantities in your customers’ stockrooms or service trucks, and it doesn’t track your customers' consumption in real-time.
Distributors can now offer consignment inventory to customers and be assured they have optimized supply levels and accurate billing.
As a result, you will be able to push the service out to other customers, who will reward you with increased customer spend, improved loyalty and greater profitability.