88. Amazon Promotes Long-Tail Spending Cost Reduction: You Can Beat Them

According to an Amazon Business (AMZ-BIZ) funded study, reported in the December 2017 issue of Spend Matters magazine, procurement pros increasingly want to reduce long-tail spending costs.

The big-spend items have been automated and integrated, but the pesky bottom 35% of items eat 1% of the spend dollars, take over 50% of purchasing’s time, and are a pain for everyone to easily buy. Corporate citizens want Amazon’s B2C shopping experience in their B2B world, but purchasing wants controls. So, AMZ-BIZ continues to invent cloud tools for purchasing control and analytics and continues to win sales.  

Distributors Can One-Up AMZ! 

But, AMZ-BIZ does not have people visiting customer sites. At least, not yet. Nor, do they have the targeted historical, statistical, SKU-based spend data that you should have for your best customers. Why not combine feet, targeted analytics and onsite creativity to reduce both long-tail activity costs and increase the uptime productivity of the SKUs’ users?  Here’s a case study of a company that did just that.

A How-To Case Study

A $500MM distributor with 8% operating profit subscribes to a line-item profit analytics cloud service (Waypointanalytics.net). With this service, they can rank all customers by the total number of line-item picks. Then, they can zone in on customers with low profit-dollar/pick averages, which suggests too many small-dollar picks.

Here is some average data for an integrated-supply customer:

  • Over 90K picks for 12 months
  • Annual net profits: $295K
  • Average profit-dollars/pick is one third of the median for all accounts
  • Deep-dive tools revealed a wide range in net-profitability for 50 locations
  • The biggest losing location (#50) lost $150K, while ordering over 1000 different SKUs
  • Ranking of location #50’s SKUs by profit contribution revealed 40 SKUs that were ordered an average 40 times/year with about $3 in gross profit-dollars/pick
  • The distributor’s cost per pick for just order entry and warehouse activity costs was $5

These are not good numbers. The solution? Visit location #50 to investigate:

  • How did their physical replenishment systems differ with other more profitable locations? Take pictures of storage effectiveness and ask questions.
  • Are there any best practices from the best locations that can be shared?
  • Were there any stockouts on the 40 big-losing, highly-reordered SKUs that caused downtime and small emergency orders? Most likely the answer will be yes, so investigate ideas for how to reduce picks/SKU to one or two rebuys due to higher stock levels.
  • Think about the tradeoff math: more inventory cost versus 800 fewer rebuy activity-cost events for both parties, plus zero stockout uptime benefits

Call to Action

Wouldn’t you invent, install, pay for and measure the benefits of a storage reorder solution for #50? Then, do the same for the next biggest-losing locations?  Cost-to-service savings will exceed investments. You will increase your profits, their total value, and your odds for renewing the contract.

AMZ is endlessly innovating and experimenting. So, don’t wait. You can beat AMZ by using the right analytics, feet, and some imaginative systems re-tunings.