A recent article in Industrial Distribution Magazine, Stuck in the Middle, outlines the importance of pricing for distributors. The article specifically addresses the need to manage your margins to ensure maximum profitability – for which the appropriate software can be a big help.
A number of factors can impact your bottom line and it is important to keep a close eye on each factor. Direct product costs may increase; pushed along by vendors (be they manufacturers or other distributors). Indirect costs may also rise – such as landed costs or carrying costs. Whatever the reason for thinning margins, the fact remains that to maintain profitability you need to keep a close eye on your margins and this is made much easier with the appropriate software system.
Entry-level software systems may not offer the accurate and granular data obtainable from a sophisticated inventory and accounting system. Ask yourself how long it takes you to get information out of your current software system and add that to the costs we discussed above. Okay, so now you’re thinking that your software system might not cut it. Your next question is “how would an appropriate software system allow me to keep an eye on my costs and appropriately price my products?”
Software features that are vital to these processes include: customer specific pricing / contract pricing on the revenue side and landed cost tracking and automated reports on the cost side.
Customer Specific Pricing / Contract Pricing
Customer specific pricing cannot be more straightforward; it is simply the ability to specify pricing on a per-customer basis. Some customers may receive discounts or specific preferential prices on all products they purchase, while others may receive discounts (or contract prices) on particular items. Pricing rules should also be able to be applied at a per-item level for all customers and for varying volume levels. Appropriate software will also allow you to set prices based on different units of measure (each, box etc.) as well as in different currencies.
Landed Cost Tracking
Landed cost tracking may be most relevant for distributors that import their product, but is still an important part of identifying the true costs associated with a product; right up until it is sitting on your shelf. These costs may include brokerage, duty, freight and more. Without proper landed cost tracking your inventory costs may be inaccurate or may require an abundance of manual work to arrive at accurate costs.
Sophisticated systems will allow for the automated delivery of reports to key decision makers in your organization. These detailed reports can be scheduled to be sent on a daily, weekly or monthly basis and will allow you to pin-down exactly where your money is going and identify problem areas. In particular, exception reports delivered automatically facilitate timely and focused action to deal with these problems.
In this post I have only scratched the surface of how appropriate software can help you manage your business. For more information, read our post on What Distributors Want Out of Their ERP Software.