Just about all distributors do some portion of their sales via non-stock items. For some, it's very limited and only done when necessary. Others embrace non-stock item sales as a way to provide more value to their customers. On the surface it would appear to be a no-brainer to embrace non-stock item sales. Since you don't have the necessary upfront inventory investment, profitability on non-stock, sales should be higher. You purchase the item after the customer orders it, receive the item, and immediately ship the item to the customer.
Or, even better, you ship the non-stock item directly to the customer. Depending on the customer and vendor terms, you might be even get paid before you have to pay the vendor. Seems like it should be more profitable, right? However, non-stock sales can be difficult: wrong item code, inaccurate costs, improper pricing, and difficulty in handling can all lead to problems that reduce the profitability of non-stock sales. So what's the secret?
Accurate Item Information
All non-stock items aren't created equal. I once had a customer tell me that information about an item was more important than the item itself. It took me a while to get my head around that idea but eventually it sunk in. It's absolutely vital to have accurate item information. In fact, you could argue that the more accurate the item information is, the more likely the sale of the item will be profitable. Looking at it another way, the less accurate the item information is, the more likely a mistake will be made. The mistake could be a wrong item code, resulting in buying the wrong item, which would lead to a return. The mistake could be a costing mistake, resulting in lower than expected margin.
So how can we improve the accuracy non-stock item information? Let's look at the 2 ways non-stock items get added (1) Link to Electronic Catalog (2) Manually by sales staff.
1. Expanded Use of Electronic Catalogs
Most ERP systems allow distributors to create an item catalog that is linked to their stock/standard item file. Catalog items can be set up much the same as stock items. This allows the buyer to build the catalog from vendor price files and pick and choose what data to add. But the catalog is typically separate from the stock/standard item file. During a sales order, a user would search the standard item file, if they can't find the item they need, they can access the item catalog, locate the item they need, and then add the item to the order. All the necessary data is automatically added for the sales staff simply by selecting the correct item. This helps to dramatically improve the accuracy of the data and can actually increase overall gross margins by funneling these items through your pricing structure.
2. Defined Process for Manually Added Items
Many distributors use asterisk items or lump all non-stock into a single miscellaneous sku. Sure the process makes it easy for the sales staff: just enter the MISC-ITEM, change the description, and the vendor, and the cost, and the price. But what happens when those items come in? How can tell one MISC-ITEM from another? The best distributors have a defined processed for manually adding non-stock items. Typically they have a defined item code methodology, often using a 3 or 4 digit code for the vendor, followed by the vendor part number. This ensures all the non-stock items are unique. Next they funnel all these items through a central person or department. Often it's the buyer or purchasing department as any problems will ultimately roll downhill to the buyer so it's better to involve the buyer at this point. The buyer's role is to verify, confirm, and fix the information as early in the process as possible. Typically having a defined process reduces the number of mistakes.
All non-stock items aren't created equal. The more you know about a non-stock item, the higher probability of a profitable sale.
