Warm reminder: Click the blue text above “FMCG Distributor Professional Consulting” to learn more about marketing and distributor internal management. Capital turnover rate is influenced by two dynamic variables: capital flow and logistics. These two are almost the core of modern distributor management. Only by starting with management can distributors truly improve their capital turnover rate. This article takes the distributor's workflow as the main line, magnifying the impact of each local process management on capital turnover rate, thereby inspiring distributors to find ways to improve it.
1. Formulating Purchase Plans Many distributor organizations lack detailed operational procedures for purchase planning, and their control processes are quite arbitrary. Some are done by warehouse managers, some by salespeople, and some by financial staff—all of which are inappropriate. Warehouse staff consider their own storage capacity and workload, with little regard for market and finance; salespeople mainly consider the market, thinking more goods is always better; finance uses previous or same-period data as a reference, lacking timeliness and market sense. A reasonable approach is suggested: sales should prepare a forecast of market demand quantity and key customer order frequency for the next cycle (week, ten-day, month, quarter, etc.), warehouse managers adjust some product quantities based on current inventory, finance corrects based on actual sales data from the previous period or same period last year and financial capital status, and finally the head of the distributor organization reviews and approves. (Special reminder: Pay attention to non-normal loading when ordering; sometimes to match the supplier's economic transport quantity, some non-normal goods are added arbitrarily. In reality, these loaded goods eventually become dead stock, causing problems for returns or exchanges.) Ordering too much easily occupies working capital and reduces capital turnover efficiency; ordering too little may lead to terminal customers locking codes or imposing economic penalties, which is not worth the loss. If the purchase plan is not done well, improving capital turnover rate is just a fantasy.
2. Delivery Management In traditional distributors, delivery is an extremely simple task, hardly considered a management item. This is a misconception. Whether delivery management is good or bad directly affects logistics efficiency, thereby affecting capital turnover rate. Orders represent transaction opportunities, but if the delivery time is missed, the opportunity is lost and customer relationships are negatively impacted. Delivery management is not complicated, but because it is underestimated, low efficiency and even chaos frequently occur in distributor organizations.
For example: A distributor's order placement period for a certain KA customer is every Tuesday and Thursday, with delivery the next day. If the Thursday order is delayed once, even without penalty, the next order can only be placed the following Tuesday, with delivery on Wednesday. This delays sales for Saturday, Sunday, Monday, and Tuesday—four days. The theoretical inventory period for these products increases by four days, and in practice it will definitely be more than four days. If it happens to pass the settlement period, these products will be moved to next month's settlement, further reducing capital turnover.
3. Payment Term Management Retail customers' payment terms only extend each year, unlikely to shorten. The feasibility of seeking flexibility in payment terms to improve capital turnover is low. Some retailers allow early settlement, but the distributor's discount cost is high, unless urgent capital turnover is needed and financial cost increase is not considered.
Here, payment term management mainly focuses on whether the actual settlement period is within the normal deviation range from the contract payment term. For example, if the contract stipulates a 45-day payment term, and the terminal's reconciliation period coincides with the National Day holiday, the period from the distributor issuing the tax invoice to the terminal's actual check issuance is 50 days. The 5-day deviation is acceptable; if it exceeds 5 days, there is a problem. A distributor's financial staff, under the author's suggestion, summarized and analyzed the entry and exit payment periods of a certain supermarket for the past year, finding that the average settlement period was 82 days (excluding statutory holidays), while the contract payment term was 60 days. Payment term management should not just stay at contract negotiation; the focus should be on execution. Try to avoid giving retail customers reasons to delay payment, keeping oneself in an active position.
4. Social Inventory Control A distributor boss helplessly told the author that he is very rich, but his money is all in goods. The goods he refers to are what we commonly call social inventory, i.e., products sold on credit to downstream customers. Distributors serving terminals all understand that without a certain level of social inventory, there is no display effect, and thus no increase in sales opportunities. But excessive social inventory is a black hole for capital turnover, making control of social inventory particularly important.
The author has always held this view: only appropriate inventory exists, not reasonable inventory. Business is different from theoretical assumptions; what is reasonable is often not appropriate. For example, with two terminals, A store is 300 square meters and B store is 1000 square meters. From display space, B store's shelf inventory should be larger than A store's to be reasonable. But A store only carries two brands in that category, while B store has seven brands. The sales of the two brands in A store are slightly higher than those in B store. From the distributor's perspective, social inventory given to A store is more valuable than to B store. Distributors are different from powerful manufacturers; they cannot blindly pursue so-called numerical distribution rate, nor focus on so-called total opportunity (which is like a castle in the air; potential exists, but competitive costs are higher).
5. Promotion Execution It is an obvious rule that the faster you sell, the higher the turnover rate. There are many criteria for promotion effectiveness, but for distributor organizations, how much is sold is the hard truth.
- The fundamental purpose of promotion is to boost sales and help distributors create more premium income. The most normal transaction behavior for distributors is markup, although making a profit through markup is increasingly difficult, it is the essence of distribution. The normal result is that the more suitable the promotion, the greater the sales volume, and the higher the capital turnover rate.
- Promotions can maintain the distributor's control over downstream customers. Today's commercial circulation is developed; channel customers can easily buy almost all products, but they cannot get promotional support, which is the distributor's natural advantage. Having loyal and stable downstream customers will invisibly help distributors improve capital efficiency.
- Promotion is one of the few powers distributors have to take the initiative. No downstream customer is not interested in promotions; if the promotion intensity exceeds the norm, even "bad-tempered" retail store buyers will become friendly. This also increases the leeway in payment term management. Despite payment term requirements, if there is a large discount promotion, cash transactions with the store are also very possible.
However, many in the distributor community treat manufacturer promotions as "Tang monk meat" to be kept for themselves. Some treat promotions as a source of profit, constantly applying for promotional expenses from upstream manufacturers or falsely reporting expenses. This upside-down approach ultimately harms others and oneself. The author suggests distributor friends: do not save a cent on promotional investment, do not embezzle a cent of promotional resources, and use good steel on the blade.
6. Handling Slow-Moving and Damaged Inventory Every distributor has slow-moving and damaged inventory; this problem has existed since commerce began, and it can be called a chronic disease. Since it is inevitable, it should be actively and properly handled. The author has visited hundreds of distributors, but few proactively handle it, let alone have a handling system. Slow-moving and damaged inventory is not an asset but a liability. The author suggests that distributor organizations always pay attention to the generation and handling of slow-moving and damaged inventory, do not accumulate it, and do not hope to one day convert it to upstream suppliers at original price. If negotiation with upstream suppliers fails, it is better to dispose of it early and turn it into cash, even if it is "ten cents for a dollar."
7. Customer Management Each customer has different requirements for capital turnover, so distributors should evaluate each customer's capital turnover rate. The proportion of customers with higher turnover rates should be maintained above a certain level, following the business philosophy of "cash is king." Timely eliminate customers with poor settlement credit; not every customer is worth dealing with. Overly demanding customer distribution rates will significantly reduce capital turnover, a result that has been verified countless times.
8. Item Management Item management is no longer an unfamiliar concept. For distributors primarily engaged in trade, item management is imperative. Distributor item management includes the following:
- Brand focus: A distributor often operates several brands, each with different investment returns and capital turnover rates.
- Category division: Divide according to local market consumption level and structure to ensure the effectiveness of capital investment. Not every manufacturer can do well in all categories, so distributors should pay more attention to their regional characteristics.
- Small item adjustment: Turnover rate and gross margin trend in opposite directions; distributors must weigh the choice between profit and turnover rate.
- Seasonal products: The capital demand for seasonal products is uneven; distributors should plan the capital usage for seasonal and regular products, paying attention to both seasonal products and preventing excessive capital occupation of regular products.