This is a real case of a milk powder distributor in Sichuan. The boss started from scratch in 2009, revenue exceeded 50 million in 2011, and he aimed for 100 million in 2013, but the company was deregistered in 2019 and the boss changed careers. The company's rise and fall over a decade offers a glimpse into the broader challenges.

Early on, due to the well-known Sanlu melamine incident, domestic milk powder was overshadowed by imported brands. The distributor quickly rose by representing original imported milk powder from New Zealand and Australia, opening high-end supermarket systems like Ito Yokado and Renhe Spring in Sichuan. He rapidly expanded to over 3,000 maternal and baby chain stores, including Zhongyi Baby, Baby World, Le Beijia, Angel Baby, Hi Baby, Baby Plan, and Guai Baobao. His product range covered infant formula, nutrition, diapers, and more. Starting from delivering a single can of milk powder, he grew into a successful first-generation entrepreneur with revenue approaching 100 million.

However, as the company grew, the hidden dangers of rough management gradually emerged and became the last straw that broke the camel's back, especially his warehouse management, which was a mess!

Chaotic Purchasing Orders Leading to Stockouts and Warehouse Overflows

Initially, when the distributor represented only a few maternal and baby brands and the business volume was not large, the boss personally handled purchasing with his wife and father-in-law, keeping the warehouse inventory balanced and flowing normally.

Later, as the business expanded, the boss's wife was eager to return to family life, and the boss was overwhelmed. They decided that purchasing must be entrusted to a trusted person, so they appointed a young woman who had been with the company since its founding, starting in administration.

This woman was 100% loyal but 0% professional. The boss didn't provide any handover or training, throwing her into direct communication with a brand salesperson. That salesperson was slick, flattering her about her youth and potential, and even promised a 10% rebate. This made her wary, thinking he was unreliable, so she ignored his order requests. Soon, she drove away this "bad character" salesperson, but as the Spring Festival approached, she discovered insufficient stock, causing previously developed county markets to be taken over by other brands due to stockouts—a great loss.

Meanwhile, another manufacturer offered generous promotional policies. The woman calculated that ordering more would lower the unit price, so she signed a large order after a brief discussion. By the time the boss, on a business trip, received the "warehouse overflow" call, it was too late. The woman resigned in disgrace, and the boss had to recruit a professional purchaser, but the loss of hundreds of thousands of yuan in goods was already a done deal.

After all, milk powder has a shelf life of about two years, and it takes half a year from overseas import to arrival. Once orders exceed demand, goods pile up, new stock becomes old, and repeated promotions in the market could disrupt the price system, leaving no profit margin. Some bottom-of-the-barrel stock had to be thrown away or left to rot.

Chaotic Sales Promises Leading to Slow Movement, More Returns, and Accumulation

Logically, after hiring a professional purchaser, the warehouse should have been sorted out. But at this time, more homogeneous competing products appeared in the market, and the sales issues that had not been exposed before erupted.

Some salespeople, when visiting the market, made all sorts of promises to close deals quickly and earn commissions, even promising policies the company didn't have. They would agree to anything first.

After customers stocked up, they made excuses not to fulfill promises and blamed the company, causing customer dissatisfaction and damaging the company's reputation. To maintain credibility, the boss had to personally clean up the mess, even at a loss, to honor promises.

Some salespeople only focused on pushing goods into customer warehouses, ignoring whether the products moved smoothly from warehouse to shelf, from shelf to consumers, and whether babies consumed them steadily month by month.

When customers came to complain about slow sales and request returns, they were caught off guard and urgently demanded the company solve the problem, blaming the company for poor product selection and insufficient policies. For difficult customers, returns had to be accepted, partly leading to inventory accumulation and stale shelf life.

Chaotic Warehouse Display Leading to Waste and Inability to Follow FIFO

Besides purchasing and sales, the warehouse management was also chaotic. Everyone knew the principle of first-in, first-out (FIFO) for product display to maintain a reasonable shelf life and ensure fresh products in the market.

But in practice, when goods arrived—hundreds of cases of milk powder at a time—unloading, stacking, and organizing were done manually. Human nature being what it is, without supervision from the boss's confidants, workers would rush to finish early, ignoring scientific zoning, proper display, and FIFO principles. They didn't handle goods gently, throwing them around and stacking them haphazardly, leading to product damage, dented cans, and powder leaks, causing waste.

Moreover, warehouse efficiency was low, making FIFO difficult. When terminals complained about receiving new shelf life one month and old the next, re-inventorying and counting became a massive task. The warehouse keeper simply resigned, and the boss could only deduct a month's salary, not bothering to sue for compensation.

Chaotic Product Handling Leading to Mismatched Inventory and Financial Headaches

Generally, promotional gifts and products from manufacturers were stored in the warehouse with other goods. Sometimes, marketing staff would submit a request and take items for promotions, heading to the market.

Some promotional items were genuinely given to consumers, but some were not. Honest staff returned them, but others kept them for themselves. Some even took advantage of excess old stock, claiming to help dispose of it, but in reality, they might swap it for normal products. This led to discrepancies between physical inventory and system records, making financial accounting a mess and driving the finance team crazy.

Alas, the boss eventually noticed these management loopholes. He calculated that he was throwing away 150,000 yuan worth of expired products annually, which pained him.

But when someone asked: "Why not use that wasted money to hire a professional warehouse manager with an annual salary of 150,000 yuan?"

The boss said: "You don't understand. As it is now, throwing away 150,000 yuan a year is a fixed cost. If I hire a professional, and they don't manage well, it becomes an uncontrollable cost. Compared to managing money and goods, the hardest thing to manage is people."

But boss, haven't you considered: with such accounting, how can you break through the 100 million mark? You'll always stay the same! If a professional warehouse manager with a 150,000 yuan salary were in charge, in the first year they'd only save you 150,000 yuan, which seems similar, and you'd have one more person to manage. But as the business grows, the efficiency savings from scientific warehouse management would multiply with the business scale.

Solving the Chaos 4 Warehouse Management Tips to Generate Profit

Regarding warehouse management, every distributor has their own insights, as the era of simply adding 20% to brand products and reaping profits is long gone. Today's distributors compete on operational, sales, and business management capabilities, and warehouse management is one of the lifelines for distributors as intermediaries.

Good warehouse management not only ensures continuity in sales, shares ordering costs, and quickly meets customer orders but also genuinely generates profit. If this distributor had realized the importance of inventory management earlier, hired dedicated personnel, and focused on the following four points, perhaps he could have broken through the 100 million mark and reached a new level!

First, implement order classification.

From a distributor's perspective, not all manufacturers' products have the same status and role. According to the Pareto principle, some are general manufacturers, some are important, and some are key. Key manufacturers account for about 20% but contribute 80% of sales.

Although for balance, distributors often don't want one manufacturer to dominate, for management convenience, they still need to apply standard ABC classification to manufacturers.

This classification should ideally be reviewed monthly in meetings involving the boss, purchasing, and sales, evaluating manufacturers based on factors like promotional policies, new product stages, sales volume, and credibility, and implementing order classification management.

A-class orders must be monitored closely to avoid stockouts; B-class orders should be sufficient; C-class orders only need to meet basic needs. But regardless of ABC, no stock should exceed half a year, strictly preventing stockouts and overflows.

Second, shorten the ordering cycle.

Generally, the shorter the lead time, the more accurate the order quantity. According to Walmart's survey data, ordering 26 weeks in advance results in a 40% demand forecast error; 16 weeks in advance, the error is 20%; if you order after sales begin and replenish promptly, the error is only 10%.

Therefore, distributors should negotiate with manufacturers to distribute annual tasks as evenly as possible across months. Even if it's more troublesome, order monthly rather than quarterly or semi-annually for convenience or policies. Promotions may look attractive, but they are less important than dynamic sales balance. Overstocking puts pressure on salespeople and is a sword hanging over your head.

Third, focus on terminal sell-through.

When evaluating salespeople, don't just focus on moving goods from the company warehouse to customer warehouses. Instead, focus on how to assist customers in sell-through. This way, salespeople will naturally value customer service and think about improving terminal sell-through. Only when terminal sell-through is smooth will the entire sales chain be interconnected and unobstructed.

Fourth, manage the warehouse scientifically.

Warehouse management is a professional task. How to divide product areas, how to handle inbound and outbound, how to arrange displays, and how to reconcile physical inventory with records all require dedicated personnel. This person must be trustworthy in character and reliable in professionalism.

The boss could even set up incentive bonuses, allocating a portion of the savings from warehouse management to the warehouse staff as dividends. This way, they can earn more for doing more, fostering a sense of ownership and avoiding a "just doing the job" mentality.

In summary, warehouse management is not just about watching over goods; it requires more thought to link it with sales. What are your thoughts? Feel free to leave a comment and share.

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