Ben Franklin is often credited with the statement, “A penny saved is a penny earned”.
When it comes to Warehouse optimization and Inventory optimization, saving expense is very much part of the profit game. In fact, if you can save just 2% of revenues in processing your orders, managing your inventory, and improving staff productivity, then you are actually increasing your profitability by 40% or more. That’s a lot of pennies!
Entrepreneur magazine says that the typical profit margin or gross margin (revenue minus cost of goods) for a wholesale distributor is around 25% (you may be more or less than that, but the principle here remains the same). Then, from that you would deduct your operating expenses. It is typical that the operating expenses of a distribution company can be 20% or more of sales. That leaves just 5% for the bottom line or net income. In fact, CSI Market, a stock and market tracking service, indicates that the average Net Income, or profit for distribution companies is 2.43% of sales.
For our example here, let’s say that after paying for your product, operating, general and administrative expenses, you are left with a 5% profit.
Now, let’s say you found a way to save just 2% of sales through inventory optimization or warehouse optimization. Your profit would go from 5% to 7% for a 40% increase in profits. That’s real cash in your pocket and represents the profit-based value of improving operations.
If you can implement changes that optimize, the result can be a dramatic increase in profits.
What are some of these warehouse optimizations or inventory optimizations? Here’s a short list:
Is it worth trying to save 2% to increase profits by 40%? That is what Zangerine is focused on. Helping you turn your warehouse and inventory operations into a profit center that generates a positive monthly ROI.
By Jim Pack