When the market shrank in 2009 and 2010, many door and hardware distributors adopted a low-price strategy to survive. Sales have improved since then, but profits have not always returned to historical levels. Faced with weak margins, distributors now have three choices to raise profits: lower costs further, raise prices, or shift to a higher-margin business strategy based on better service.
The services most valued by DHI members’ customers are a wide assortment of products, fast delivery, and accuracy in order fulfillment. Quick-ship partnerships help deliver on all three.
1. Lower Your Inventory
By keeping only the fast-moving products in stock, you can lower your inventory significantly. This creates immediate savings by increasing inventory turns and cash flow. Using the 80/20 rule, the distributor keeps the 80% of common fast-moving items in stock and uses a trusted quick-ship partner to supply the slower-moving items.
With lower overhead costs, you have money available to pay for quick-ship frames or doors as needed. Take the one-year big win: reducing your inventory from $500,000 to $300,000 could net you as much as $200,000 in the first year.
2. Reduce Payroll and Shop Expenses
There are a number of ways to reduce payroll and operating expenses without sacrificing service. A hollow metal shop that needs one extra person to ensure 100% service levels costs roughly $30 per hour fully loaded (pay plus benefits and overhead) — about $60,000 annually. Add $100,000 of stocked material, and that same $160,000 can instead go toward a quick-ship custom partner who handles those orders on demand.
Using a smaller shop or routing more volume through an existing shop frees resources for better uses and higher utilization.
3. Reduce Risk and Exposure
Running a large shop carries risks: fluctuating demand, losing key people, absenteeism, equipment failures, and material shortages — not to mention fabrication mistakes, injuries, and product liability. Keep the straightforward work in-house and let the quick-ship partner handle the harder, riskier, or more custom work.
4. Reduce Lead Times and Gain a Competitive Advantage
By keeping a healthy stock of fast-moving items and using a great quick-ship partner for the rest, you can go to market with two- to three-week lead times — or faster — on most projects. This is a genuine competitive advantage over distributors still relying on standard lead times from traditional manufacturers.
5. Streamline Your Ordering Process
On fast-moving projects, pull standard items from stock and order the balance from your quick-ship supplier. A good quick-ship partner gives you fast order confirmations, acknowledgements, shipping notifications, and timely questions — so you can place an order and move on to the next task quickly.
Make sure your quick-ship partner is someone who reviews your orders to make sure you get what you really need, combines orders to save freight costs, and offers a wide array of products from a single source to reduce shipping costs.
About the Author
Steve Adams is a 31-year industry professional and Vice President of Sales at HMF Express. He can be reached through the HMF Express contact page.