Are we sure that we have ALL the most demanded products by our customers?
If your company has enough money to be able to incorporate all the products available on the market into their warehouse, you do not have to waste your time reading this blog entry… Wait! Even if you have the necessary resources, maybe your current suppliers do not have all the products you really need to incorporate!
The truth is that if we could truly identify and incorporate in our shelves all the available products of the market, this would have a prohibitive cost for 99% of companies.
The truth is that distributors must continuously expand their product range, but what criteria do they use to select these products?
In fact, no analytical criteria is used. In most cases, the intuition or the recommendations of the supplier(s) determines the selection of the product.
Problem is, that warehouses are traditionally seen as purely cost-centers and not a potential area for value creation.
But let’s return to the initial question: Are we sure that we have ALL the most demanded products by our customers?
Let’s analyze the coverage offered by the main units’ manufacturers (starter motors + alternators) concerning demand in Europe during 2017:
* VALEO covers 61.27% of the demand with 4,828 units * DELCO covers 89.97% of the demand with 7,712 units * BOSCH covers 82.59% of the demand with 8,207 units
Now suppose we are able to buy ALL of these products from VALEO, DELCO and BOSCH, to incorporate them into our warehouse, what coverage would we achieve?
* VALEO+DELCO+BOSCH cover 95.00% of the demand with 20,747 units
We would be talking about buying 20,747 units to cover 95% of the demand!
It is clear that many of these units from these three manufacturers would be repeated products, which would be neither the most intelligent nor the most optimal from an economic point of view.
Indeed, specialist distributors tailor their product range by intelligently combining products from different suppliers, but do they actually achieve to improve the level of demand coverage?
Let’s analyze the coverage offered by a medium-sized wholesaler that works with a range of around 3,000 different products:
We see that with 2,590 units, a coverage of 64.14% is achieved, that is, the same coverage offered by the entire range of VALEO, but with half the units!
Finally, let’s analyze the coverage offered by a large-sized wholesaler that works with a range of about 5,000 different products:
Now we see that with 4,587 units, a coverage of 82.59% is achieved, that is, the same coverage offered by the entire range of BOSCH, but with half the units!
As we have seen, trying to increase the coverage % of the demand based on incorporating complete ranges of manufacturers has a very high cost and is not optimal.
In any case trying to achieve a coverage percentage of the demand higher than 90-95% requires much more than a lot of intuition and money.
Currently there are Big Data tools that enable us to measure market demand with total precision in order to adapt investments and, above all, the product range we have in stock to the real needs of our customers.
Market Expert: demand management platform for automotive aftermarket parts.