The wholesale distribution arena is a difficult environment for a company to operate in. Gross margins tend to be small. This mandates that a company in this business space needs to be well run. The management team should focus on a number of key factors in order to be successful. Several of these factors are as follows:
- The company must focus on the local market. This allows the company to learn the unique aspects of the local business environment. Additionally, it allows the company to focus its sales and marketing forces on a specific region so it can approach new prospects and develop meaningful personal relationships with the customer base in the local market. By focusing on a target market the company will be able to understand the specific needs of the customer base.
- Focusing on the local market will also allow the company to look for those services or product offerings that have better gross margins. The company should ask its customers what additional services or products they would like to see offered. Expanding into these areas should eventually boost profits and allow the company to expand its services or product offerings to new customer relationships.
- The company must consistently review its operating and administrative expenses to determine ways to reduce the cost structure of the company. A major part of this process is controlling inventories so you are not carrying products that are slow moving or have small margins that do not enhance the product line. The company should have an effective inventory control system that is up to date and is well managed. In addition, the company should constantly review the efficiency of its distribution centers and its sales and marketing forces.
The above items are just 3 areas of importance to focus on for the wholesale distribution business.
LSL CPA’s and Business Advisors are actively involved in the areas of accounting, audit and review, consulting and tax services for the wholesale distribution industries. Please contact Greg Lewis for further information at 714.569.1000.
