Business Automation and Software Blog

Operational Efficiency Crucial for Profitable Distributors

Posted by Linda Baran on Tue, May 21, 2024 @ 11:00 AM

Fork lift operator preparing products for shipment, operational efficiency

In the post-COVID era, many distributors find several factors squeezing their profitability. Hiring and retaining employees continues to be a challenge. Demand for products varies, and as well as lead time to replenish necessary stock varies, leading to shortages. Rising inflation pressures distributors to stay profitable due to consumers' increased demands and higher supply costs. The business environment for all distributors is good news; those focusing on operational efficiency outperform their competition. 

According to a McKinsey and Company survey, approximately 10% of distributors have seen revenues and profits improve over the past five years. 

  • Returns on invested capital have grown by nearly 30%
  • Revenues have increased by close to nine percent per year
  • Profits have grown by approximately five percent
  • As measured by the EBITA margin, core profitability jumped by about seven percent. 

Distributors' Challenges to Operational Efficiency in 2024

Distributors need help in trying to generate revenue and stay profitable. Consider the following examples and solutions that will increase operational efficiency:

  • Employee Turnover Rates

Before COVID-19 became a household word, distributors found attracting warehouse and transportation employees challenging. During the pandemic, it was virtually impossible to find workers. Now that the pandemic is in our rear-view mirrors, finding employees working in the distribution sector is still challenging for many distributors. 

Solutions: Distributors actively seek job candidates externally and offer higher pay rates and benefits to attract prospective employees. Other ways these employers strive to improve employee retention rates include:

  • Renovating the company break room.
  • Improving the facility's air conditioning system.
  • Offering workers flexible schedules. 

Employee training programs are an excellent way to decrease employee turnover. Workers who learn new skills and have a career path with the company are more likely to stay. 

  • Lack of Digital Processes

Large distribution companies must deal with a large amount of data, including a product's source, price, and SKU number. They must also determine how much of each item is in inventory and choose when to reorder. 

Many distributors are still managing their inventory using pen and paper. They rely on an employee to perform data entry to update stock numbers. This method is fraught with opportunities for errors. Employees may record stock numbers and inventory levels incorrectly, and even the best data entry operator occasionally needs to correct a mistake.

Solution: Invest in digital supply chain solutions, such as a warehouse management system (WMS) or an enterprise resource planning (ERP) system. This specialized software allows managers to access inventory data in real-time. The ability to make the right decisions quickly to respond to changing market decisions is more critical than ever, and these software solutions give management the data they need to do so. 

  • Failure to Use "Value Back" Strategy

"Going digital" and making sweeping changes to company operations is a significant undertaking. Distributors should analyze their needs carefully before making this type of investment. Factors such as the impact on the business, the time, and the cost to scale must be considered, along with the value implementing a particular solution will bring to the industry. Any project under consideration must pass the value back test to make it a good decision for the company. 

Let PositiveVision Increase Operational Efficiency in Your Company

PositiveVision has been serving the needs of distributors in Chicago since 2002. Our experts will gladly guide you through your ERP decision-making to help you make an informed choice. Contact us today to speak to one of our product experts about a custom solution for your business. When you reach out, ask about our software training services for your team.

Check out this webinar to discover how to improve warehouse efficiency, accuracy, and more.

Linda Baran

Linda Baran

Linda Baran is in charge of the people side of PositiveVision. Linda’s background includes working in a variety of industries including investment, manufacturing, and information technology.

Topics: operational efficiency