How to Incentivize a Distributor Purchasing Professional

The Challenge – How to Incentivize a Distributor

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Purchasing Professional

After writing tons of articles on the sales process in distribution where I brutally vilify purchasing and procurement types, I received an email with the following:

“Frank, you often make sweeping generalizations about purchasing types. As a former sales guy, I tend to agree with most of what you say. However, my organization (a distributor) has a couple of purchasing people. And while I certainly don’t push them to lie, cheat or steal from our vendors, I would like for them to be more proactive in helping our business make money. Do you have any recommendations for points we should intensify them on? Is it possible for them to do more than just enter orders with our suppliers?”

This was a very good question and one I hadn’t thought about for quite some time. There are many purchasing folks working in distribution. These folks are critical to our organization. Most are hardworking, trustworthy and loyal. A good many are also not working at their full potential, vis a vis, generating revenue for their organization.

I decided to create a list of topics I believe should be included in discussions between distributor management and their purchasing groups. This is my first pass. I hope it generates some discussion here and more importantly, in the conference rooms of distributors.

Let’s start off with a few assumptions:
1. Outside of commodity products, most Distributor Purchasing folks do not decide the manufacturers of products which are going to be purchased.
2. Purchasing people are often responsible for setting inventory levels.
3. Purchasing people are responsible for returns to manufacturers.
4. Purchasing people are often charged with keeping dead stock under control.


Discussion Points
Inventory:
• What is the dollar amount of inventory which has not sold in 180/365 days? Are there ways this number can be improved via returns, inventory swaps or some other method?

• When we stock new product offerings from our supply-partners, do we insist on reviewing the quantities and amounts after 60 days? If so, does the review actually take place?

• How do we calculate a good deal when presented with a seasonal or special buy situation?

• How often do you process returns for warranty items and defective returns from customers? How do you handle suppliers who are slow to process these items?

• What is the inspection process for equipment returned from customers? Are the items in first class shape? Are boxes and packaging in “sale ready” condition?

• If we scrap dead stock, who oversees the process to ensure nothing sellable is lost?

• How do you manage purchasing of commodity products? Are there some products which are completely interchangeable in our market?

Freight:
• Which manufacturers offer freight allowance (free shipping) with certain size orders? Are there times when we miss the freight allowance? Have we attempted to negotiate better shipping terms?

• Do we regularly use our own freight accounts for companies who do not allow freight to avoid hidden mark-ups in the freight cost?

• If we do not receive freight allowance for an item, is the cost of freight calculated into our pricing? (In one instance we discovered a line where freight would have added a full 9 percent to the cost of the item. Incidentally, the typical GM on the item hovered in the mid-20s. A big ouch.)

Special Pricing Agreements (SPAs):
• How do we ensure our company takes advantage of all SPAs available to us?

• If a manufacturer uses ship and debit procedures for customer specific SPAs, how do we track them and what safeguards exist to ensure we get our money in a timely fashion?

Don't let this be you or your team!

Networking with other distributors:
• Do you network with other distributors to cultivate sources for hard to find products?

• What do you consider to be a “reasonable” price over cost to buy products from another distributor?

Supplier Relations:
• Do we regularly review and “scorecard” our suppliers?

• Which of our suppliers provide us with back-side rebates on purchases? How do you manage this group to maximize the rebate?

• Which suppliers provide co-op advertising and promotional items as part of their package of value? How do you work with marketing and other departments to ensure we harvest all of the dollars available?

• Which suppliers are “notorious” for missed shipments, poor shipping documents, quantity errors or other actions which make them difficult or costly to deal with?

Non-stock items:
• How often do you review “non-stock special purchases” to determine if they should become “stock items?”

• Who enters the data for non-stock items into our ERP system? Is there a review process to ensure the proper catalog number and description was used in our ERP system?

Technology-based products:
• Do we have products which need to be rotated due to revision, software or other changes? How do we manage the process?

• When new technologies are added, how do you determine the proper part numbers and quantities to add to our stock?

In closing
This is merely a starter list. Your own list should be far more detailed; however, there are a number of folks without any list. If you are one without a list, feel free to use mine until you get yours fine-tuned.