Can earnings in your company be improved - and by how much?

The ability of a spare part wholesaler to create a solid bottom line not only depends on purchase prices, but is significantly influenced by many other factors - including the wholesaler's product portfolios coverage of the car park, order fill, delivery time to the market, stock value, purchase frequency and last but not least interest rate level. 
 
Triscan has developed a calculation model that, based on a spare part wholesaler's key figures, shows where there is potential to improve earnings. We call it the SOLO model (Sales Opportunities and Logistic Optimisation) - and it has been successfully used and subsequently proven its worth by many of our customers. 
 
One of the overlooked potentials for improving earnings often lies in the part of the product portfolio that does not get the same attention - and therefore not so carefully cared for - as the large product groups in terms of revenue. One consequence of this is that the wholesalers within these product groups in the final analysis still have a disproportionate high consumption of resources, because in their efforts to provide customers with a good service and avoid having to say no to an order goes really far.
 
 
The time spent buying the emergency sourced spare part, the often too high purchasing price of the item and the extra high shipping costs for express delivery (all of which are costs that the customer is rarely invoiced), ultimately mean that the wholesaler sells the emergency sourced product at a loss or very low profit. 
 
An alternative to avoiding the above is of course to pass and say no thanks to the order, which is often perceived as poor customer service. 
 
Another alternative is to do something about these product groups through analysis and inventory optimization in order to find out if there is an overlooked potential. 
 
A few examples of product groups where we often find unutilized earning potential are:
 
ABS sensors
Oxygen sensors
EGR valves
Brake hoses
Cables
Thermostats
Gas springs
 
And that is where the SOLO calculation model comes into play. In the calculator the following is stated: 
 IRR (Internal Rate of Return): Your company's internal rate of return
 Contribution ratio: Your company's gross margin
 Profit Margin Change: Is set to “0” which assumes unchanged
 purchase prices when switching suppliers


Subsequently, data for the product groups to be included in the calculation are given for both current suppliers and Triscan, which includes:

  1. Purchase volume/year
  2. Current inventory value
  3. Purchase frequency in days
  4. Suppliers' order fill
  5. Suppliers' coverage of the fleet in the different product groups (TecDoc) 
 
Based on the numbers entered, the SOLO model is able to calculate:
 
  • The minimum saving on inventory value
  • Extra sales profit
  • The overall improvement in earnings
  • The percentage increase in earnings
 
In this way, a good basis is created to estimate the potential for the extent to which earnings can be improved as a minimum. The savings relating to administrative resources are not included because they are based on the customer's own judgement, but most often they represent a relatively large cost amount. Based on reducing the number of suppliers, a lot of time can be saved in connection with:
 
  • Product management and purchase
    - Supplier meetings, -trips and contract negotiations
    - Product data management 
    - Returns
    - Complaint handling
  • Logistics
    - Goods reception
    - Goods returns
  • Accounts department
    - Invoice handling
 
Over time we have seen many examples that the earning potential has proven to be far higher than the SOLO model's assumption. The company that benefitted the most from switching to Triscan, achieved 48% revenue growth for two consecutive years and the following quote speaks for itself: “... The biggest achievement in our business in terms of growth has been with Triscan; our sales have almost doubled”.
 
If you are interested in optimizing your product range and inventory, please contact Steen Ray Pedersen (srp@triscan.dk).