Change your company’s mindset on inventory, Jason Bader advised the Pacific-West Fastener Association. The warehouse should be referred to as “the vault.”

What is inventory? Bader asked. “Money,” he answered.

Bader estimated inventory runs “80% to 85% of the money you have” and owners “want a return on their investment.”

Bader, the 2003 president of the Specialty Tools & Fasteners Distributors Association, who subsequently left his family’s Portland, OR-based Acme Construction Supply to be a distribution consultant, termed the warehouse as “stagnant.”

Treating inventory as an “investment” starts with changing verbiage, such as vault instead of storage.  

Bader said losing a $100 on inventory should be equated to “how many bud lites just hit the floor.”  

“Move away from the emphasis on ‘warehouse,’ ” he advised. “Get everyone on board.”

Everyone in your company needs to understand it is not in the storage business.

Measurements include gross margin percentage, gross margin dollars per day, lines per order and gross margin dollars per order.

Bader touted “Price raise Friday,” which can be automatic in your software package.  

“You can do this,” Bader said in calling on distributors to be “relentless about raising prices.”

First he suggested starting customers at higher prices.

A lack of training for salespeople and reps leads to discounting, Bader warned.

Noting that it is “easier to digest small goals,” Bader suggested emphasis on gross margin per day in communication from managers. “Use visual representation,” to explain gross margins, he advised.

Bader challenged Pac-West with questions: Are all customers created equal? Who are your top customers? Who are the most profitable? Who deserves the premium service?

Bader showed table of customers ranked by sales, COGS, gross margin, # of orders, COPO and contributions to net profit. He labeled the top customers  as “cool guys,” middle “OK dudes” and negative customers are “bloodsuckers.”

“Your salespeople should be spending their time on the ‘cool guys’ category,” Bader emphasized. “Don’t lose a profitable customer to ‘neglect’,” Bader advised. Instead look for ways to sell more to them because it is “mining already fertile ground” and “sell them more stuff.”

  • To push salespeople consider removing or reducing commissions on the customers who are not profitable, Bader suggested.
  • As the company owner you should personally know the owners of your most profitable customers and your company should know the best customers “three deep” – owners, managers and salespeople.
  • Salespeople “tend to gravitate to certain products. Education is important because salespeople “tend to gravitate to certain products and not sell products they don’t understand.”

What percent of your customers are negative contributors to profits? Bader asked.

In rating customer profitability, calculate the cost of processing an order, he suggested. There are other factors such as the number of days they take to pay, Bader said.

His strategy includes finding ways to lose less money on those “bloodsucker” customers such as limiting the frequency of delivery or combining smaller orders.

  • How many of you have fired a customer? Bader asked. Required minimum orders? Or raised prices? How many have sent a letter or called up a losing customer?  

“Cultivate your A level customers, adjust your B level customers and fire your C level customers,” Bader urged.