---
title: "Annual Review | Six Common Problems in Distributor Operations"
description: "Regularly reviewing business results is key to ensuring effective alignment and implementation of goals, organization, mechanisms, and strategies. This article outlines six common problems distributors face, such as profit loss after price increases, rising costs with falling sales, high handling costs for aged inventory, shrinking profits despite scale growth, finding new growth sources, and determining optimal daily store visits."
author: "高级研究员 海游"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2023-01-06"
language: "en"
canonical: "https://xinjignxiao.com/en/articles/annual-review-six-common-problems-in-distributor-operations-c3e652ab/"
markdown: "https://xinjignxiao.com/en/articles/annual-review-six-common-problems-in-distributor-operations-c3e652ab.md"
original_source: "https://mp.weixin.qq.com/s/YBUjBhq2PtiPYTW48rZ1cw"
translation: "https://xinjignxiao.com/zh/articles/%E5%B9%B4%E5%BA%A6%E5%A4%8D%E7%9B%98-%E7%BB%8F%E9%94%80%E5%95%86%E7%BB%8F%E8%90%A5%E5%B8%B8%E8%A7%81%E7%9A%84%E5%85%AD%E4%B8%AA%E9%97%AE%E9%A2%98-c3e652ab.md"
attribution: "New Distribution — https://xinjignxiao.com/en/articles/annual-review-six-common-problems-in-distributor-operations-c3e652ab/"
usage_policy: "https://xinjignxiao.com/ai-policy.txt"
---

# Annual Review | Six Common Problems in Distributor Operations

> Regularly reviewing business results is key to ensuring effective alignment and implementation of goals, organization, mechanisms, and strategies. This article outlines six common problems distributors face, such as profit loss after price increases, rising costs with falling sales, high handling costs for aged inventory, shrinking profits despite scale growth, finding new growth sources, and determining optimal daily store visits.

**Introduction:** Regularly reviewing your business results is key to ensuring effective alignment and implementation of goals, organization, mechanisms, and strategies.

**Problem 1: Profit Loss After Price Increase**
Case: A distributor felt significant profit pressure and decided to raise prices on terminal products. However, after a period, net profit decreased instead of increasing, leaving the owner puzzled. What caused this counterproductive outcome?
Review: What is the relationship between price increase and profit growth? Profit depends on three main factors: price difference, sales volume, and expenses. Price increase only affects the price difference factor. Many distributors do not fully understand the chain reactions of price adjustments. What adverse effects does price increase have on sales volume? What adverse effects does it have on expenses? These must be thoroughly analyzed with data. If decisions are made impulsively, the consequences can be costly. The simplest approach is to select a few core stores, provide expense subsidies, test the impact of price changes, and act after careful planning.

**Problem 2: Rising Expenses, Falling Sales**
Case: At year-end inventory, a distributor found that operating expenses increased by 5% year-on-year, but sales dropped by 10%. They attributed this to the pandemic, thinking it was normal for everyone to struggle. Is that really the case?
Review: Distributors should pay attention to two expense dimensions. First, the proportion of expense structure. Distributor expenses generally fall into four categories: financial expenses, fixed expenses, sales expenses, and coverage expenses. Among these, sales expenses are most closely related to sales volume. If sales expenses account for less than 50% of the total expense structure, attention should be paid to where money is being spent. Second, the correlation of expenses. Distributors need to analyze the correlation between historical expense data and sales data to see which expenditures stimulate sales. For example, Zhang San finds that spending on displays significantly boosts sales, Li Si finds that spending on promotions is effective, and Wang Wu finds that spending on ordering meetings drives sales. Each distributor's market situation is different, so the correlation between expenses and sales varies. Distributors should focus on the correlation between various expenses and sales, ensuring money is spent reasonably and effectively to drive sales, otherwise expense expectations won't be met.

**Problem 3: High Handling Costs for Aged Inventory**
Case: A distributor found that they primarily dealt with first-tier brands, so product movement should not be a big issue. However, after a year, despite implementing many measures, results were poor, and handling costs surged. Where was the problem?
Review: Fresh product age has become a core competitiveness for FMCG manufacturers, and handling aged inventory is one of the most troublesome issues for distributors. Aged inventory typically arises from three reasons: product movement capability, product shipping rhythm, and unreasonable credit terms. Product movement capability is related to product competitiveness, channel competitiveness, and consumer competitiveness, requiring coordination and effort from both manufacturers and distributors, and is a long-term process. I won't elaborate here; you can refer to my previous articles. Product shipping rhythm is also a significant cause. Brand manufacturers have planned production schedules, usually completing production targets in the first half of the month. Some distributors lag in shipping, often making payments and shipping at the end of the month. For long-shelf-life products, this is less of an issue, but for medium- and short-shelf-life products, batch numbers are under pressure. Goods may sit in the warehouse for a few days, then in the channel, before reaching consumers, directly leading to aged inventory. Unreasonable credit terms are another major cause. On one hand, capital is tied up, preventing distributors from paying and shipping. On the other hand, longer credit periods reduce attention to product age at retail points, leading to thoughts like "I haven't paid yet, so it's okay to sell later," which fosters aged inventory.

**Problem 4: Business Scale Grows, But Profits Shrink**
Case: Many distributors who have expanded are confused: business scale grows, sales volume increases, but profitability declines. Where is the problem?
Review: Essentially, distributors must understand what basic cells make up their business scale. Take one basic cell, the outlet: which outlets are profitable? Can their profit space be expanded? Which outlets are consistently losing money? Are the loss-making ones valuable, bringing brand effects, or are they simply losing money without being noticed or addressed? Here, the concept of break-even point should be introduced for outlets, where the profit created by an outlet (price difference * sales volume) equals the necessary expenses (financial, fixed, sales, coverage).
For outlets at or above break-even, find ways to continuously expand profit space. For outlets below break-even, study the shortcomings in profit contribution, address them according to your own operating characteristics, list improvement plans, and be willing to decisively abandon loss-making outlets that offer no solutions or added value.

**Problem 5: Tasks Keep Growing, Where Does Incremental Growth Come From?**
Case: A distributor complained that last year they barely met their annual target, and this year the target has increased significantly. With such a small population, what can be done? The main concern is that if targets aren't met, year-end rebates are lost, and a year of hard work may be in vain.
Review: Complaining is useless. In today's competitive landscape, sales are like sailing against the current; if you don't advance, you fall back. Distributors need to understand the five dimensions of market growth. **First, the product dimension:** Review sub-brands, categories, specifications, series, etc., to see where there is room for growth and which increments are easier to achieve. Compare vertically with the brand's overall national market, and horizontally with adjacent regions; comparisons reveal opportunities. **Second, the time dimension:** Review which quarter, month, or even week in the past year saw slower sales growth and why, and correct it this year. **Third, the customer dimension:** Review changes in the quantity and quality of downstream customers over the past year; differences are progress points and sales growth points. **Fourth, the organization dimension:** Team quantity and quality, personnel stability, learning ability, work attitude, performance assessment, business skills, etc. Success depends on people, and performance growth relies on organizational efficiency. **Fifth, the regional dimension:** Are regional developments balanced? Where are growth points in weak regions? What opportunities exist in strong regions? These are all factors to consider for sales growth.

**Problem 6: How Many Store Visits Per Day Are Optimal?**
Case: A distributor received feedback from a salesperson: "Boss, I can only visit 25 stores a day. If you insist on 35, either give me overtime pay or I'll quit." The boss then reasoned with them for a long time and had to lower the daily visit requirement.
Review: The debate over daily store visits has been ongoing for years. Bosses want as many visits as possible while ensuring quality, while employees prefer a more relaxed work atmosphere. So what is the most reasonable number of daily visits? Here, a model for daily store visits should be introduced. **First, inventory the quality and quantity of outlets.** For example, a distributor serves 1,000 outlets in their area: 20 hypermarkets, 180 key stores, 300 quality outlets, and 500 ordinary outlets. Outlet classification should be based on sales volume per unit period. **Second, sort out visit frequency, travel time, and in-store time.** For example: hypermarkets need 2 visits per week, 20 minutes travel between stores, and 60 minutes per visit; key stores need 1 visit per week, 20 minutes travel, and 30 minutes per visit; quality outlets need 1 visit per week, 10 minutes travel, and 15 minutes per visit; ordinary outlets need 1 visit every 2 weeks, 10 minutes travel, and 10 minutes per visit. This sorting should be based on actual sales visit situations, not decided by leadership arbitrarily. **Third, analyze staffing and personnel efficiency.** Configure personnel positions based on the above time arrangements, while paying attention to basic data such as sales share, average monthly sales, and output per store for different personnel.

Summary: The purpose of distributor review is to summarize successful experiences and learn from failures from the projects that are ending. The above six problems are high-frequency issues in distributor operations and are also common questions I receive from distributors. I have listed them here to share with you. Finally, I would like to share four review tools from Mr. Liu Run, which I believe will be very helpful to distributor friends.

**1. What to do when assigned tasks have no follow-up? Use the PDCA cycle:** Plan, Do, Check, Act. Everything should be accounted for, every task should have a result, and every matter should have feedback.

**2. What to do when there is disagreement on task understanding and completion standards? Use the SMART principle:** Specific, Measurable, Attainable, Relevant, and Time-Based.

**3. What to do when you and your team lack self-discipline? Use the Scrum method:** Three basic roles (Product Owner, Scrum Master, Team Members), three meetings (Sprint Planning, Daily Stand-up, Sprint Retrospective), and three artifacts (Product Backlog, Sprint Backlog, Burndown Chart).

**4. How to conduct a review? Do three things:** Continue doing, Stop doing, Start doing. Decide what to continue, what to stop, and what to start.

**Extended Reading:**
Hai You: Special author for New Distribution, senior researcher, practitioner of offline channel marketing, designer of enterprise channel coverage models. He has provided channel consulting for more than ten first-tier brands and has earned a good reputation.


---

## Copyright and AI use

This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL.

Contact: zhaobo258@gmail.com · +86 158 5481 7671