Randy MacLean explains distributors’ challenges of big accounts and the financial consequences of servicing them.
It is a familiar story of top-line revenue versus cost-to-serve, fixed-cost conundrums that have long-been prevalent in animal health markets. It is also a situation common to livestock veterinary clinics and retailers that is exacerbated by ongoing consolidation and average herd size increases.
You effectively have personnel and infrastructure dedicated to these accounts, but the accounts are priced as if they’re consuming only the same small fraction as everyone else.
Source: Modern Distribution Management, May 2, 2019. Link.
Accounts with very high ship counts and a low shipment value will be profit-killing accounts.
INSIGHTS: For each reduction in top-line revenues using discounts, we begin migrating the value of the individual market toward the lowest price. Discounts used to achieve gross sales volume or meet a sales quota without a cost-to-serve concession result in ongoing costs to profits and overall market value.
MacLean’s discussion of shipment volume and shipment size is valid. In my experiences:
- Next-day delivery expectations factor into this discussion as do poorly planned inventories, multiple locations and replenishment strategies.
- Suppliers must seek to reduce the number of shipping boxes per order in part by negotiating urgency on every order regardless of account size.
- Customers need to work with suppliers to optimize on-hand inventories to accommodate two- or three-day replenishment timelines instead of using the supplier’s inventory as a J.I.T. solution to poor forecasting