Distribution Strategies to Improve Cost and Cash Flow
Companies that align sales, operations, and supply chains are best positioned for construction market growth.
Need to Know
- Distributors find more success when they connect data, systems, and people to improve operational decisions.
- Strategic inventory placement can reduce travel, increase productivity, and optimize warehouse space.
- Connecting ERP, WMS, forecasting, and other systems can improve inventory, labor, and capacity planning.
- Translating demand into capacity requirements helps distributors plan for growth while controlling costs and protecting service.
As costs rise and interest rates remain elevated, distributors must find opportunities to reduce costs, free up cash, and increase productivity while continuing to provide high levels of customer service. Technology can provide a powerful advantage, but simply adding another system or dashboard will not suffice. Instead, forward-thinking distributors are integrating technology, data, and people to translate demand into meaningful operational decisions.
For example, in working with a distributor with around 45,000 active SKUs, we assessed supply chain opportunities to improve service, reduce costs, increase cash flow, and prepare for growth. The company had extensive data across its ERP, e-commerce, warehouse management (WMS), replenishment, and forecasting systems. Yet the key was to synthesize that data into meaningful information that could be used to make better decisions about inventory, labor, warehouse space, and capacity.
Focus on What Matters Most
With that many SKUs, optimizing every item would have consumed significant resources without a benefit. Instead, we analyzed demand and warehouse activity and found that approximately 80% of volume was concentrated in roughly 1,500 SKUs — around 5% of the items. Thus, if the high-velocity A items were prioritized and positioned closest to the dock doors, it could reduce travel, increase labor productivity, improve service, and better utilize space.
The concept sounds simple. The execution was not. Products varied significantly in size and storage requirements, and demand continued to change. Thus, determining where inventory should be located required more than an ABC analysis. We had to determine future demand, translate that demand into inventory requirements, and convert inventory into the space and locations required to support efficient warehouse flow.
We used a SIOP (Sales Inventory Operations Planning) process to collaborate with Sales and Merchandising to gain insights into the sales forecast by product category and agree on how to translate it into the appropriate level of operational detail. We then aligned the sales forecast with replenishment forecasts and inventory requirements.
From there, we developed a data model that converted the forecast into meaningful information for Operations, including projected space requirements, capacity needs, and where products should be stored to maximize warehouse and labor efficiency.
The results were significant. The percentage of picks coming from the highest-priority warehouse zone increased from 47% to more than 60% in the first few months, picking productivity improved approximately 20%, and space was optimized which extended its life through peak season while remaining efficient.
Turn Disconnected Data into Operational Insights
The distributor did not lack technology or data. In fact, it had plenty of both. The challenge was connecting information across systems and translating it into meaningful insights for decision-making. ERP data alone wasn't enough. Neither was the data from their WMS, e-commerce platform, replenishment system, or forecasting system. Each provided a piece of the puzzle but not the solution.
By integrating, synthesizing, and analyzing data across these platforms and adding the operational logic required to make sense of it, we developed a synchronized view of demand, inventory, space, and labor requirements. This visibility created opportunities beyond warehouse productivity. For example, we analyzed inventory adjustments to identify root causes rather than simply report the financial impact. Thus, inventory adjustments related to manufacturing issues declined 53%.
We also partnered with IT to incorporate the relevant logic and insights into Power BI dashboards. Instead of spending hours collecting and reconciling data, employees could focus on exceptions, root causes, and actions. Technology became an enabler of better decisions instead of another source of data.
Translate Demand into Capacity Decisions
Integrated data also provided visibility into future capacity requirements. As the company looked ahead, executives needed to determine how to support growth. Should they invest in automated vertical storage equipment to better utilize existing space? Should they secure overflow warehouse capacity? Expand an East Coast operation? Or invest in additional strategic capacity to support future growth?
Without a synchronized forecast translated into inventory, space, and operational requirements, these high value decisions would have relied heavily on assumptions. Instead, the company could model future requirements and evaluate alternatives based on projected demand and capacity.
The Bottom Line
As costs increase and capital becomes more expensive, companies cannot afford excess inventory, inefficient labor, underutilized space, or disconnected systems. At the same time, cutting inventory or costs indiscriminately can negatively impact service and growth. Thus, connecting demand with operational execution is key. The companies that turn data into actionable insights will reduce costs and accelerate cash flow while improving service and ensuring predictable, profitable growth.
For more information, contact the author at landerson@lma-consultinggroup.com or visit www.lma-consultinggroup.com.
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