Analysis: 62% of Small Order Are Money Losers
Looking for Larger-Order Solutions? Here’s an eye opener. Calculate the average cost of processing an order at your distributorship. (Annual operating expenses divided by all transactions.) Then, skim the daily transaction log for all orders with gross margin dollars less than your average dollar-cost per order.
Don’t panic at the number you see! The average Waypoint Analytics’ client starts out with 62% of all orders being losers. But, don’t comfort yourself by using incremental cost per order logic. Sixty percent of your orders isn’t “just one more order”; overhead costs must be assigned!
But, Big Customers Lose on Small Orders Too!
A quick search on Google for “Purchase to Pay KPIs” shows that purchasing paperwork for small orders is high. But, your customers don’t understand and don’t typically have the data to show the problem. That’s where analytics comes in, helping you to find and resolve the root causes for unintended small orders.
Besides purchase-to-pay (P2P) KPI costs, there can be more. Small orders are often for emergency, out-of-stock events. They add huge costs for expediting, downtime, and ultimately late-delivery, leading to customer dissatisfaction.
A common solution to this problem is to sell customers a just-in-case, at-hand inventory kit. The kit is customized based on the customer’s purchase history and includes peculiar or frequently-used small-dollar items that grind the business to halt. They trade off negligible inventory-dollar increases for big savings on repetitive small-dollar line ordering and zero downtime. Plus, they get big value gains from being always up and on time.
Big Customers Range Widely on Replenishment Effectiveness
Waypoint’s Line-Item-Profit-Analytics service measures and ranks every customer’s buying effectiveness score. For low scorers, tools exist to identify the specific items and invoices involved, so you can tune the customer’s replenishment process. Save customers 5% –30%+ of their annual spend dollars with simple consolidation fixes. The results are clear:
- Average order size goes up
- Annual volume goes up (who else is saving them an extra 5%–30%+?)
- You save the same 5%–30%+ by reducing your parallel service activity costs
For more on growing key account sales and loyalty with fatter profit margins, take a look at this video clip.
But, It Sounds Daunting!
Have no fear! Many distributors have preceded you down this profitable path, and you can do it too. Learn more by: