Clean Up Your Inventory
Now is the time to take stock of your inventory. For the past couple of years, customers have put pressure on your team to add new stuff they might buy. Other customers have shifted their product requirements. Manufacturers have introduced new products and convinced us to put together anticipatory stock orders. One result of all of this is extra inventory.
The dollars may be in line; that’s only part of the issue. The real issue comes via unsold items back in our warehouse. If a SKU hasn’t been sold for 120 days, how likely is it to be sold next week? If a part has lazed around our backroom without being sold for a year, do we really need it?
Now is the time to address the problem. You have a much greater chance of talking a vendor partner into making an exception to their stock rotation program today than in the midst of the recession. If the part isn’t returnable, sell it at a discount or take a write-off today. No matter how painful the situation, you’ll be glad you jettisoned the stuff now instead of later.
Build a Sustainable Pricing Process
What’s a price process have to do with a recession? Work done by clients of David Bauders’ Strategic Pricing Associates demonstrates gross margin gain of two full points at the typical wholesaler. A simple two-point gain builds equity value in the distributor and provides a tool for substantially increasing the bottom line. During good times, the extra profits build a cushion of margin. In the heart of a recession, the extra gross margin might be the difference between survival and extinction.
Evaluate Cash and Credit Reserves
Companies that go into recessions armed with either cash or the strong ability to borrow do better than their competitors. Locking in to lines of credit, which extend through the next recession, will give you an additional competitive advantage. Following the strategies outlined above assists in the creation of cash and better credit reserves.
Finally – The Story of the Ant and the Grasshopper
Remember old Aesop and his fables? While most kids were listening to cool bedtime stories from Dr. Seuss, my dad made sure I got a nightly dose from Aesop’s book. It had otherworldly illustrations of characters from the animal world with human features. One story etched into my four-year-old mind was the ant and the grasshopper. And they were both distributors.
One long-legged distributor (we’ll call him Mr. G. Hopper) enjoyed the good economic times. As a matter of fact, he basked in the warm sunshine – fiddling away his opportunities to prepare for anything other than sunny weather, much less a coming recession. His colleague across town (named Mr. Ant) invested in thinking about the future. He worked his inventory, developed his process and made sure everyone worked according to a plan. When the bitter winds of winter blew in a recession, our friend Mr. Ant used the opportunity to buy the assets of G. Hopper and Company. Or at least that’s how my dad told the story.
Frank Hurtte provides Strategic Insight for New Times. He speaks and consults on the new reality facing distribution in a post-recession world. Contact Hurtte at River Heights Consulting via email at email@example.com or via phone at 563/514-1104.