GAINS On Podcast Episode 4: Why Distributors Turn to GAINS to Make Better Supply Chain Decisions

Joe Davis (00:01):

Greetings, supply chain fans, business enthusiasts, and the tech curious. Joe Davis here, your friendly neighborhood podcast host, welcoming you to yet another stimulating episode of GAINS On. Think of this show as your reliable guide through the intricate complex and sometimes anxiety producing world of supply chain planning and design. As always, we’re brought to you by GAINS, the powerhouses behind supply chain planning, design and optimization solutions that help our customers keep their promises. If you’ve ever scratched your head wondering how distributors confidently make complex decisions that impact supply chains then you are in for a treat. Today we are going to delve deep into why distributors from industry giants to mid-market distributors supporting all types of industries are turning to GAINS to streamline the decision-making process. To tackle this multi-layered topic, I am elated to introduce my guests today, Steve Arvis. Steve is the senior director of Solutions Consulting at GAINS. He brings a blend of technical expertise and real world experience that is second to none. A person who’s not just about identifying problems but providing holistic solutions that transform the game. Steve, welcome to GAINS On.

Steve Arvis (01:15):

Thank you for having me, Joe.

Joe Davis (01:17):

So the reason I asked you to come on today, other than the fact that I think you’re charming, is that, as I’ve said in past episodes, my idea is sort of to get on the job training. This is sort of my sneaky way to learn more about supply chain. And when I was going through our list of customers, I noticed that we have a lot of folks, who are our customers, who are in the field of distribution. Would you say that’s true?

Steve Arvis (01:42):

Yeah, absolutely. That’s one of the biggest verticals that we serve.

Joe Davis (01:45):

So what is it about the distribution industry that GAINS serves well?

Steve Arvis (01:51):

Yeah, I mean there’s a laundry list of things that I think GAINS does really well for the distribution industry, but I think it starts with I guess the size and the volume or complexity of a distributor’s operations. And so what I mean by that is a lot of times the distributor and their catalog that they sell to their customers is going to be tens of thousands, if not hundreds of thousands of SKUs that they’re making available for their customers, which is not a small problem to solve. And then you think about the number of customers they’re serving, or the number of vendors or suppliers they’re buying from, that can be in the hundreds or thousands of vendors, as well as maybe the number of locations they have in the distribution network, whether that’s branches or warehouses or DCs and whatnot. It adds up really fast in terms of the amount of SKUs that you have to manage and making sure you have them stocked across your network appropriately to meet your customer’s demand. So just having a tool like GAINS can really help you efficiently manage the vast operations of your supply chain.

Joe Davis (02:48):

So the problems that they face, I mean, is a lot of problems. I have some history in retail, so I’m familiar with that. So it is a little bit like the retail problem that they have customers who buy from them directly and they’re also dealing manufacturers. So it sounds like they’ve got a lot of little things to keep track of, a lot of SKUs to keep track of and a lot of different places where it needs to go. Is that fair to say?

Steve Arvis (03:08):

Yeah, absolutely. You could have at a single location, thousands and thousands of customers that you’re serving from and making sure you have the right stuff to serve all of them, because they’re all going to have a different demand profile, a different group of SKUs and products that they want to buy from you. And keeping track of that and building a forecast and making sure you have the right stocking level to meet that demand is really critical to service all those customers while simultaneously then buying from all of the vendors that you need to get the product from–all your manufacturers like you called out. So it’s just a lot to keep track of the basic operations of a distributor. You buy a finished good and you resell to somebody else. That in and of itself isn’t overly complex, but just the volume of doing that thousands and tens of thousands, hundreds of thousands of times is really where you get the complexity.

Joe Davis (03:55):

So it’s more of inventory. It’s very heavily focused on inventory, the distributorships. So I can imagine someplace I know one of our customers is Hillman, right? They do fasteners, so screws and nuts and bolts and that type of stuff. And I imagine just from walking down the aisle of the hardware store, that’s a lot to keep track of and each one of those things has a specific part or each one of those things has a specific SKU and fulfills a certain needs. So being able to keep track of that has got to be really important.

Steve Arvis (04:31):

Yeah, absolutely. And in my mind, at the end of the day, a distributor is really competing on availability, and inventory is key to that availability. So if you don’t have the inventory, you can’t make the sale and you’re going to lose the sale and the customer’s going to go elsewhere. And so something like nuts and bolts and screws almost to a point there where it’s a commodity. And so as the customer, when you go to the hardware store, you may not care if you’re buying this type of nut and bolt or this type of screw, whatever. You buy what’s there. And so making sure that the distributor has what’s needed at the right time is really critical. But the challenge there is yes, you want to have high availability, but you want to do it without breaking the bank and without tying up too much cash in your inventory, in the case where you buy too much stuff that you’re not going to sell and it becomes obsolete and you can’t use it and then you’ve wasted cash. In today’s world with rising interest rates, cash is no longer really free. And so that’s the big challenge with distributors is yes, I need to compete on availability and high service level or high fill rate, but I need to do so in a cost effective manner. And so that’s where I think a tool like GAINS can really help.

Joe Davis (05:34):

Right. So it seems like the availability and the service level is sort of the bread and butter of the distribution industry because again, to your point, if I’m putting together a swing set for my kid and I need to run out and get a bolt, I don’t really care who makes that bolt, sorry to all of our bolt manufacturing listeners. I don’t really care, I just want to, like you said, I want to go in, I want to get it. I want it to be done. And so that seems like to me that’s sort of the chief differentiator is who can get it to the right place at the right time.

Steve Arvis (06:11):

Yeah absolutely. I think especially for the fast moving SKUs, like we talked about Hillman’s example, nuts and bolts, their fastest moving items, the A items in supply chain lexicon, those need to be basically in a never run out type scenario, like the 99.9% stocking level. So 99.9% of the time when Joe walks into the store to buy this, it’s available. Now that’s a little bit different because that’s the retail landscape versus the distributor, but the concept I think remains the same. And so you can’t run out on the things that your customers demand constantly. And then going down the catalog of products and other challenge with the SKU count, it’s not just the fast movers, but a lot of times distributors will have a really long tail of their products where they have C’s and D’s that aren’t fast moving. So it might be maybe a specific size of a nut and bolt to go back to that example, or a product that’s bought from a customer once a year or once a quarter and it’s really sporadically demanded and has very lumpy demand. So that’s another common challenge that the distributors come across. And having tools to plan for those appropriately is really important. And I think GAINS does a great job help with those types of challenges too.

Joe Davis (07:17):

Yeah. And when you say just a couple of things like the A and B and the C products, could you break that down for me?

Steve Arvis (07:24):

Yeah, so typically in supply chains you’ll segment your inventory or your products based on, oftentimes, the volume or the velocity at which they turn. And so faster moving products–so the products you sell the most of and the most often are fast moving and are considered A items. And typically you’ll say, I want 80% of the SKUs that make up 80% of the volume of my business to be considered A items. And then the next 10% of the volume will be B’s, so on and so forth, where your A’s are most important, fastest moving, and C’s and D’s, sometimes even E’s depending on what company you’re working with, those are going to be the slower moving items that you may not sell that often, but you still are expected to have for your customers.

Joe Davis (08:07):

Right so we’ll stick with the fastener example. If I was to stock drywall screws, right? Like a 3/8” drywall screw that, everybody needs that all the time always, right? I’m sure I have buckets of them in my house somewhere. But for something like a stainless steel surgical screw, I’m not going to be selling that all the time, but it is something I do need to have in stock, and it is something that is a sort of a high cost, low demand, but in order to meet that demand, I’ve got to keep it in stock. And I imagine that that can get expensive.

Steve Arvis (08:44):

It can get expensive, and it can just get challenging about making sure how much to stock. And so a lot of traditional supply chain planning techniques don’t do a great job in that of scenario you just described, Joe, whereas GAINS has a few algorithms and techniques that are really geared towards that exact problem where it might be high cost, low volume. So how do you forecast that appropriately? How do you stock the right amount of safety stock to accommodate any variability in your supply chain is a challenge that we solve very well for our distributor customers.

Joe Davis (09:13):

So how does GAINS go about that? I mean, without giving any proprietary information. So what is it? I work at this distributor before this, I’ve been doing everything with spreadsheets and God bless me for running such a complex business using spreadsheets. So I’m able to, I sit down and I come to GAINS. What sort of advantages can I expect to get from that? What is it that GAINS does that would be valuable for me as a distributor?

Steve Arvis (09:47):

Yeah. Well, I think the first thing that jumps to mind is going back to the earlier comment about volume is that Excel maxes out at a certain row count. And so you just think about every SKU location combination that a distributor might have that might exceed the row count very quickly, especially if you’re a fast-growing company. And so just having a tool that can very efficiently take in the volume of your data and automatically generate all of your supply chain recommendations at a granular level within the business. So the SKU location level, generate a forecast, generating a safety stock that’s specific to that SKU location is critical. And a lot of times customers or companies that are planning directly in Excel are applying like a broad brush business rule and say, I’m going to set every forecast to a six month moving average, and I’m going to do that for every single product just because that’s all I can do right now with my limited bandwidth and my limited capabilities in Excel.

Steve Arvis (10:39):

Or I need to set my safety stock to be a certain number of days of supply, which may or may not make sense for every single product in the business. But that’s just the reality of, I guess the limitations, I should say, the constraints of the tools we’re using. And having a tool like GAINS really analyze each SKU location individually and then apply the appropriate forecast algorithm, the appropriate safety stock, accommodating everything related to that specific SKU location is critical. And it’s just something you can’t do at all in Excel. You’re just completely hamstrung in Excel trying to do that sort of problem or solve that sort of problem.

Joe Davis (11:16):

To me, it seems like this is an incredibly complex issue and it just seems to get more complex as years go by. I never thought about running out of cells in Excel. I mean, obviously the type of work that I do and the type of things that I’ve done in Excel I could ever imagine running out of cells, but just thinking about going to my local Home Depot for instance, and walking down the fasteners aisle and thinking, well, yeah, if each one of those things, if I’m Home Depot for instance, I’ve got to keep track of all those little bits of inventory, but then also all the same place, not all the same place too. Because I think for me, a simple way to wrap my head around it would be, Hey, these drywall screws are perfect and everybody loves them, so I’m going to buy as many as I can and put ’em in all my stores. But there’s somewhere where the building code requires a different kind of screw, or maybe in certain environments they’re more susceptible to corrosion or something like that. I might not need all my drywall screws the same amount of drywall screws in all places. And I guess how does one go about figuring that out?

Steve Arvis (12:23):

So I think it’s really just getting back down to doing that analysis at the granular level to make sure that you are assigning a unique plan at that level rather than having a broad brush rule. And so going back to my six month moving average example, that’s not going to work for every single SKU, whether it’s a fast mover or a slow mover, it might work for a fast mover, but for that slow mover, it’s going to fail dramatically. And you might be left either with too much inventory or none at all, and you’re going to be in trouble either way with excess or stockouts left and right.

Joe Davis (12:57):

And it seems like it’s a really delicate balancing act.

Steve Arvis (13:02):

Yeah, I mean, thinking through also some of the limitations of Excel, it’s not just the lack of volume and the lack of being able to calculate appropriately by SKU location, but it’s also how do you properly manage your inbound supply from your vendors? So a common challenge that distributors have to deal with is when they’re buying from their manufacturers or from their vendors, they have to buy a certain minimum threshold.

Steve Arvis (13:25):

Or similar to when you go on Amazon or any site, you have to buy a certain amount of product to qualify for free freight or free shipping. And so there’s a constant trade off too of, well, I need to get this pack of screws for Joe because he needs that and that store needs that, but I’m well below my minimum threshold, so I can’t even place an order with my vendor. So to get my foot in the door, I need to buy, let’s say $10,000 worth of product, and I’m only at a thousand dollars right now. So in Excel, you have to manually think about and analyze how to get to that $10,000 threshold, whereas with GAINS, you’re going to get an optimal order right at the gate, say, this is what you should be buying to hit that threshold without having to manually go line by line and say, well, I think I should go buy this screw, I should go buy this, whatever to get to that threshold.

Steve Arvis (14:11):

I need a tool that can automate that decision and give me the right direction in making that threshold. And then next, does it make sense to actually go up to that free freight amount? So if I get to $10,000 I can get my foot in the door to actually place the order, but if I get to $25,000, I can get free freight that’s can save me 3% of the order, something like that. So do I have enough demand from this vendor to actually support going up to that $25,000 threshold right now, or does it make sense just to just place the $10,000, eat the freight and incur that cost, but tie up less cash in inventory? So that’s a very common challenge that a lot of our buying teams at our customers will actually do within GAINS and use the tool to solve that problem.

Joe Davis (14:53):

It seems like, I mean, it really feels like if I am running a small/medium sized business or even just a distributor with say, five locations, that keeping track of all of that sounds like a nearly impossible task if I was just trying to guess or even make an educated guess. I mean, where would I begin? I guess this is a question that I’ve asked of other guests too is, where would I start? How do I know I have a good understanding of what my customers want, and that would be from sales data, or other data that I collect, historical data, how much they bought in the past, how much they bought this year, and then I kind of make projections based off of that. But then it just seems like there’s a lot of luck in that. And also too, I mean if my responsibility is to make sure as a purchaser or as somebody on the supply chain team, that’s a lot of stuff to keep track of–the cost of freight and the cost of moving freight and retaining inventory and moving inventory and this, I mean, I cannot imagine doing that manually. It blows my mind.

Steve Arvis (16:12):

It really can’t be done. It certainly can’t be done well for the amount of products that you have to do so for a distributor. and it’s not just the inbound cost of that stocking product and whatnot, it’s also costs that are, I guess a little bit more nebulous that you don’t think about such as the cost of a lost sale. So what’s the loss of goodwill if one of my customers comes to me and I don’t have the product available? That’s absolutely a cost, but how do I quantify that? How do I quantify the likelihood of a lost sale if I stock out? Or if you go to a distributor’s warehouse and you try to buy the product, it’s not there, but they have it in a different location, they can ship it to you and that’s fine. You as the customer is still happy, you get your product on time, but the distributor incurs an extra cost of expediting that to you from a non-preferred location.

Steve Arvis (16:58):

And that sort of challenge happens all the time when you’re siloed in a system like Excel or other planning systems that don’t give you full visibility to the entire network to say, this is what the network should look like from a customer assignment standpoint to different locations, and this is what the stocking level should be at each location such that you can support, you use the term luck, but support the luck in the forecast. I think in supply chain terms you’d call that variability. What’s the demand variability of my supply chain, of my forecast? What’s the supply variability for my lead time vendors or my vendors’ lead time, I should say. Some other source of variability or considered as well. But nonetheless, how do I buffer against that variability to make sure that I’m stocking appropriately and not going one way or the other?

Joe Davis (17:42):

It seems like there is a lot falling on the shoulders of distributors’ supply chain crew, there’s a lot going on, a lot of ins and outs, and it seems like there’s a thousand ways to lose money and only a handful of ways to make money. So I’ve seen studies that say that the majority of people are using Excel or spreadsheets to do this type of planning. And just in talking about it, I’m about to break out in hives, and this isn’t even my job. Just thinking about, I’ve got five locations with all of these different SKUs, and then I’ve got to have a spreadsheet for that location and those SKUs and then to make sure that everything’s falling in the right place, I’m going to have to take all these spreadsheets together and correlate them. And then maybe if there aren’t any errors in my spreadsheet then and all things go well, it’ll probably take me, I don’t even know how much time it would take me to do that. And so what I think is kind of a no-brainer is to use something like a sophisticated sort of supply chain planning tool like GAINS to just save the time, energy and worry. Is that sort of the value prop for distributors?

Steve Arvis (18:59):

Well, I think that’s absolutely one of them. I think in general we’re seeing that a lot of distribution companies within GAINS will get a 33% boost in efficiency just by using the system because

Joe Davis (19:11):

33%?!

Steve Arvis (19:13):

Yeah, so you’re going to get just the activity costs around planning products goes down by 33%. That’s the boost I was referring to just because you get better recommendations automatically and you don’t have to do any of that. And you’re just really looking at the exceptional products within your business that actually move the needle. And you can look to automate a good portion of your business. Distribution’s, one of the great industries for automating some of the easier to plan products or the easier decisions to make within supply chain, while then freeing up your time to go focus on the harder decisions within your world and the more strategic decisions. So that’s absolutely a value prop that GAINS brings to the table for distributors.

Joe Davis (19:49):

You mentioned automation, and I think that’s something we should definitely explore in another episode, but to think about just the human capital to make all that happen. And then as wonderful as human beings are, we know that they’re prone to making mistakes. I mean it is clearly evidenced by my haircuts during the nineties, so it makes sense to turn that over to a system that can make those calculations and make ’em in a reasonable amount of time too. Because again, when we talk about costs, not only do you have inventory costs and shipping costs and all of those costs, but also the amount of time that it takes you to do that is also a cost.

Steve Arvis (20:32):

Yeah, absolutely. And if you think about a buyer, who’s a very common role in distributors world, they’re the folks that are working with their suppliers to buy the products they need for their customers. They only have so many hours in the day to buy the stuff they need to do to support the lifeline of their business. And if we think about that nuts and bolts example, if I have a really high volume product that I’m selling to all of my customers and I should never run out on why do I need to look at that every single time I need to buy it, why can’t I just automatically approve that and push it back to and actually push that to my vendor automatically? That’s a no-brainer. I know I’m going to use them. Maybe it’s a relatively cheap product. I don’t need to be flagged to review that every single time I need it, just do it because I know I need that every single time. So don’t even give me that alert, just do it and free up my time to go look at the slower moving product that’s maybe high cost, but maybe high margin, but I need to go take a look at that because that’s more of an unusual decision I need to make versus the fast moving, easier to plan products. So yeah, that’s definitely one of the areas that we can help we help our customers with a lot is automating the replenishment process to really focus in the team on the harder decisions they need to make.

Joe Davis (21:48):

And so it is like, I hate to use the Amazon example, because you know I hate to use the Amazon example, but it is sort of that subscribe and save. So it’s like I know I’m going to need paper towel pretty much every time I order that, so I might as well just set that on refresh. And so when I go down and make my grocery list, I can take a look around and say, well, I’m always going to need paper towel, so just leave that and go. But then if I need something I might not need as often, like

Steve Arvis (22:20):

I always think about car tires versus paper towels. So paper towels, you’re going to use those all the time. You’re going to use them, you buy a pack once a month or whatever your run rate is, but you’re not going to go buy three years worth of car tires for your garage. You’re not going to buy five spares to put in your garage. You might buy one and keep it in your car, and that’s it. Because car tires are slow moving in the Davis household, hopefully. They’re expensive, they’re bulky. I don’t need to stock, I don’t need to kind tie a bunch of cash into car tires that I’m not going to use until five years from now. And so that’s where you might want to take more time to actually analyze which tire you want to buy and from where and when you get the best price work with vendors and get availability and buy the right one for you in that moment versus paper towels you just set it and forget it.

Joe Davis (23:09):

Yeah, that’s an excellent point. And when you talk about run rate, it is like, yes, I’m going to go through tires, but no, I don’t feel the need that I have to stock up on them even if there is a good deal because like you said, they take up space. That’s a lot of money spent on, a lot of money spent perhaps unnecessarily, building up that stockpile inventory. And I may not, it may be years before I need another tire. I mean, during COVID, I didn’t drive my car at all.

 

Steve Arvis (23:43)

Exactly, exactly.

 

Joe Davis (23:44)

So if I had stocked up, said, Hey, I’m going to need new tires next year, and then the pandemic comes along and then yeah, it looks like I got another year’s worth of use out of the tires.

Steve Arvis (23:54):

Absolutely. Absolutely. Yeah, though I will caution the idea of just setting and forget it for automation because a lot of systems will just say, this is my min, this is my max, and that’s how I’m going to buy indefinitely. And that’s fine, but those mins and maxes are oftentimes not being refreshed on a timely manner. So what I mean by that is your customer demand profile could change dramatically. And we saw that during COVID where things shot the moon are dropped off dramatically and static relatively static mins and maxes did not react well enough. And so you’re using now outdated signals to make your potentially automated decisions. And so again, going back to the idea of Excel or basic planning tools versus a tool like GAINS, those basic tools are not going to be reactive enough or proactive enough. Whereas GAINS will in the moment identify demand shifts or supply shifts in your supply chain and adjust your planning parameters accordingly. And so even if you do quote set and forget it, the automation is going to be using better signals from which to buy, in that buying example, because the system’s constantly monitoring how the supply chain is trending, and it’s readjusting and dynamically updating each of those parameters in the moment rather than having to do a quarterly review or a biannual review of your mins and maxes.

Joe Davis (25:11):

Right. So it’s less of a set it and forget it. It’s more of a set it and check it.

Steve Arvis (25:19):

Yeah, I think that’s right. I think with any sort of automation, you do need to check from time to time and actually just reconfirm the machine’s making the right decision. But I think that’s absolutely right. And we always think about planning in an exception-based fashion, where while you might quote set it and forget it for 98% of the business, you still need to keep track of the other 2% to make sure things are trending in the right direction.

Joe Davis (25:41):

Well, we’ve really learned a lot. I feel bad for the folks who have to deal with this every day. My head is swimming and I’ve just talked about it here for a handful of minutes. Well, thank you so much for coming on the show, Steve. We’d love to have you back again soon.

Steve Arvis (25:58):

Great. Well, thank you for having me, Joe. This was a lot of fun and love talking about distribution.

Joe Davis (26:02):

And there you have it, folks. Another insightful episode of GAINS On. Unpacked, neatly folded and carefully placed into your intellectual wardrobe. A big salute to Steve Arvis for joining us today and giving us the lowdown on how GAINS is revolutionizing the decision-making landscape for distributors. The intricacies of supply chain decision-making may appear daunting, but as we’ve discovered today, it doesn’t have to be. With platforms like GAINS, distributors now have a reliable roadmap to guide them through the complex junctions of supply chain management. For those of you hungry to delve deeper into the details of today’s discussion, don’t forget to check out our accompanying blog post loaded with all the information you’ll need. That’s all for today’s episode, so keep innovating, keep learning, and remember that in this ever-changing landscape of supply chain management, we’re all in this together. This is Joe Davis signing off from another enriching episode of GAINS On. Until Next Time.

Joe Davis (27:02):

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