WINTER 2017

102
THE DISTRIBUTOR’S LINK
ROBERT FOOTLIK RE-EXAMINING ‘D ITEMS’ from page 24
Rejected special order materials are another source
of dead items. If many SKU’s are found to share
this origin, programs and procedures for dealing with
these problematic items and/or customers should be
introduced. The last thing that a sales person wants to
say to a customer is: “No, we don’t do special orders.”
The second to the last is: “We will need a deposit on
that special order.” And the third is: “There will be a
restocking charge.” For a customer oriented manufacturer
or distributor all three phrases are forbidden. This does
not mean carte blanc authorization on all specials. What
is fair and equitable is to agree that you are both taking
some risk on the order and the customer should share in
any problems. Defining this in the context of your market
is difficult but not impossible.
In any business, blanket policies will always be
over ridden and rules will always be bent. Therefore stay
flexible. The goal is to get the newly minted “junk” out
of the warehouse as fast as possible. Returning the
product to the supplier, even with a restocking charge is
usually the best. At the opposite extreme is throwing it
in the dumpster. Many creative strategies lie in between.
For example, try selling the item on E-bay by acting as an
agent for your customer.
Returns are also a frequent source of “D items.”
The solution is to deal with the problem at the source.
A high return rate from one sales person or customer
is indicative of a problem in communication that needs
to be addressed. Ignorance or poor catalog descriptions
can be easily overcome once identified. Enhancing
return procedures to get the item back into inventory, or
scrapped, will also eliminate a hidden dead item, one that
is placed on the shelf in unusable condition. “Garbage
in, never out” can be a real problem. If you would not sell
the product to the customer in its current condition, why
did someone put it back on the shelf? Look for these
materials in the warehouse and vow never to allow it to
happen again.
Hidden “D-items” can also be created through
misguided diligence. Cannibalizing parts off an assembly
can satisfy an immediate customer demand but it leaves
a piece of junk on the shelf and the item is still listed in
inventory. Sooner or later this piece will be the last one in
the bin and a future customer will be disappointed. Even
worse an unsuspecting employee gives the now defective
item to a customer and the problem is recycled. Training
and procedures are the only ways to attack this problem.
When all else fails, donations to Good 360 (http://
about.good360.org/) or The National Association for the
Exchange of Industrial Resources (www.naeir.org) can
turn a mistake into a charitable donation. These groups
will take almost anything in reasonable condition and
pass it on to a school, charity or not for profit institution
that might be able to use it.
The real goal of this dead item study is to quantify
the magnitude of the problem. An inventory with 1% to
5% of the items classified as “D” may actually be quite
healthy, especially if the dollars involved with these
products are miniscule in proportion to the total inventory.
Remember if the item count is low but the dollars are high
the problem is that you have too much. Reducing the
total quantity while maintaining some on hand is a very
legitimate strategy.
Dealing With What’s Left
Now that some managerial energy has been focused
on the problem can one get rid of all the dead stuff? No,
not really. There will always be an irreducible minimum
to be retained against contract obligations, projected
future needs or that inevitable customer who comes
in and says: “I suppose you don’t have…” Add to this
the necessity for being a “full line house” and the end
result will be a fairly high number of slow movers in the
warehouse at any time. This is especially true where the
number of SKUs is high (30,000+) but the number of
individual SKU’s touched more than once a day is less
than 1% of the total stock. Don’t believe this? Run a
listing of how many times a year an item is picked and
see where the break point is for 250+ hits (250 working
days per year).
While there is no reason to maintain thousands of
an unproductive SKU, there is a real need to maintain a
representative sample on hand to satisfy an occasional
demand. Most measurements of customer service are
predicated on supplying the full quantity of what the
customer asks for on the first pass. In actuality a better
paradigm for slow moving items is to give the customer
something to get started, followed by the rest of the
order on the second pass. This defines service from the
customer’s perspective; not the distributor’s perception.
Try tracking this and see how you really perform-in your
customer’s eyes.
CONTINUED ON PAGE 148