Dump the Dead Stock … Increase your Profits!

Michael Wentz Director of Marketing and National Accounts

Activant Solutions Inc

September 21, 2006

Introductions

§ 25 years in Distribution

§ 22 years with Activant - Formerly Prophet 21

Director of Marketing and National Accounts

Activant Solutions

A Leading Technology Provider for Wholesale Distributors

§ Annual Sales >400 Million § Operating Divisions

§ Wholesale Distribution § Automotive § Hardware and Homecenters § Lumber

§ 3,800 Wholesale Distribution Customers § Ranked in the Top 25 § Modern Enterprise Systems

§ Vertical Market Leader

§ Industrial § Electrical § Fasteners § Fluid Power § Medical § Floor Covering § JanSan

The Good Old Days in Distribution

1999…

just 7 years ago!

“So we have a little extra inventory”

Remember when…..?

§ Gasoline $1.00/gallon

§ Phone $40.00/mo.

§ Private College $20,000

§ Cable TV $45/mo.

§ 3 BR Single Home $200,000

§ Notebook PC $5,000

§ Entry level employee $1,500/mo.

$2.50

$200.

$40,000

$110

$400,000

$1,500

$2,000

September 22, 2006

§ Inventory Management Challenges

§ Technology Initiatives

§ Non-Traditional Sourcing § Q & A - Discussion

Increase your Profits with Technology Dump the Dead Stock!

Presentation Outline:

Balancing Service Level and Profitability

§ Cost of Acquisition and Cost of Possession

§ Define Economic Order Quantity § Set Service Level Goals

§ Service Level

§ Right Item every time § Days Supply: A Items – B Items – C Items

C Items are Service or Specialty Items

§ Higher Investment in C’s

§ Increase Service Level

§ Lower Profitability – Higher Carrying Cost

§ Excess Inventory and Dead Stock

C Items often become Dead Stock

§ 20 percent inventory carrying cost § $3,000,000 in inventory § 25 percent of the $3,000,000 is dead § Total dead stock $750,000 § Total carrying cost per year $150,000

§ $750,000 times 20 percent

Dead Stock Issues:

§ Over 80 percent of dead stock is being consumed by someone § One company’s trash is another company’s gold § Regional product trends

§ In your business system you know

§ What inventory you are selling § What inventory is not selling and what is excess or dead

§ Rarely do buyers proactively look for dead stock § Sales people have no idea who might have a need for

their dead stock § Most distributors use different item codes

§ XYZ = ABC

How to Minimize Dead Stock:

§ Education on the cost of dead stock § Pay buyers commission for returns § Pay sales people on gross margin return on

investment (inventory) – GMROI § Promote your slow moving items to other trading

partners

§ Use technology to source broken case quantities

§ Connect with distributors in your supply chain to extend inventory reach and efficiency

Connecting a Typical Supply Chain

End Users

Distributor

Distributor

Manufacturer Distributor

•Inventory Sourcing

•Trading Dead Stock

•Improve Service Levels

Why is Connectivity Important?

1. Competition

2.Competition 3.Competition

Independent Distributors vs. National Chains

Independents

§ 2 - 3 locations (average) § 1 - 3 states (average) § 40,000 SKUs available § 2M – 100M annual sales § Limited Connectivity

National Chains

§ Hundreds of locations § 40 - 50 states § Access to 300,000 items § 1+ billion annual sales § National Connectivity

Challenges of Connecting Independent Trading Partners § Who has the dead stock? § Who needs the dead stock?

§ Item codes

§ Everybody calls a widget by a different code § Getting the information to the right person at the

right time § How can independent distributors get connected?

Traditional Independent Distributor Sourcing

§

Does this look familiar…..

What’s the Real Cost?

§ Acquisition cost § Purchase order process

§ Possession cost § Excess inventory from vendor required minimums

§ Opportunity cost § Sourcing time takes away from selling time

§ Customer service cost § Can you find the right item in time and at what cost § Will you fulfill your service commitment promise

Broken Promises:

§ “The computer says we have one”

§ “I’ll call you back”

§ “Technology can reduce your inventory investment and

improve your customer service ”…circa 1999 § Improve business processes with ebusiness § Maximize your inventory and minimize your investment with

technology

Inventory Trading Networks

§ Like building electronic sidewalks

§ 1999 – Birth of Dot Com’s

§ “Build it and they will come”

2006: Proven Technology

§ Established Distributor Communities are Connected

§ Lower Inventory Investment § Save Time § Improve customer service

§ Maximize Inventory Access § Increase Profitability

Obstacles to more efficient a process § Connectivity

§ How do we get “wired” § Public exchange, VPN, EDI, private network

§ Security – permission-based

§ Communication § Common languages

§ System Integration § Browser based access § Data rationalization (cross reference table)

§ Transaction Cost

§ Established business rules § Mark-up, freight § Service fees

Recommendations

§ Set Modest Goals § Leverage your group relationships

§ Start with Dead Stock and Product Sourcing § Improve customer service § Reduce excess inventory § Eliminate some dead inventory § Gain competitive edge for your community

Potential Partners for Inventory Exchange

§ Association or Group Members

§ Best alternative for maximum benefits “Win – Win” scenario

§ Suppliers

§ Phase 2

Mike Baker, President

Quality Mill Supply – Indiana

Product Sourcing: Is this a better way….

Sourcing and Selling to other Trading Partners - Wholesalers

§ Leverage Group/Association Relationships

§ Target Trusted Partners

§ Established Rules for Trading

Successful Models:

High Participation Rates Software Platform Independent Business Rules Established Commitment from Top Management Trusted Relationships

Benefits of an Inventory Exchange

§ Improve Customer Service

§ Reduce dead stock and excess inventory

§ Save time while sourcing items § Maximize available inventory § Leveraged trusted relationships

§ Optimized Inventory Investment

Consider NAFA Initiative

§ NAFA Inventory Exchange

§ Non-Software Specific

§ Item File Rationalization – Common Language

§ Secure Internet Access

§ Web Based

§ Familiar Trading Partners

Duncan Equipment Company

“Trading Partner Connect really opened my eyes to the potential of Internet trading networks, not only as a means to exchange inventory with fellow distributors, but also as a powerful tool when working with suppliers. A critical mass of trading partners will create a winning situation for everyone involved–distributors, suppliers, and Trading Partner Connect.”

David Ragland, CEO Duncan Equipment Company

Missouri-Kansas Supply Company

“You have to be far ahead of where everyone else is going, instead of just traveling with the pack – or you’ll unquestionably be left behind.”

Pat Adams, President Missouri-Kansas Supply Company

Oliver H. Van Horn Co.

“If you have 10 percent of your stock that’s not moving and Trading Partner Connect lets another distributor move it for you, imagine the kind of extra revenue generation we’re talking about. It’s huge.

Lee Eagan, CEO Oliver H. Van Horn

New Orleans, LA

Bergen Industrial Supply

“With Trading Partner Connect, I see immediate availability and can find the best price – or the closest seller, if we need something immediately.”

Michael LaPorte Vice President

Bergen Industrial Supply New Jersey

Inventory Exchange:

End Users

Member

Member

Manufacturer

NAFA

Server

•Immediate Access

•Permission Based

•Data Rationalization

•Product Usage Reports

•Application Integration

•PO Integration

Browser Interface

Association Web Exchange

Enter Your Product Code and Qty

Application Integration

Sourcing Inventory and

Proactive Usage Reporting

Promise Fulfilled: Optimized Inventory Investment

§ Distributors § Reduce dead and excess stock

§ Largest Distributor $50,000/month

§ Save time sourcing § 25% less time § 15% Improvement in service level

§ Customers § Faster product delivery

Dump the Dead Stock – Establish an Inventory Exchange § Could it work here?

§ What do you have to lose –

§ Dead Stock § Slow Movers § Excess Inventory

Mike.Wentz@activant.com 800-PROPHET, extension 3950

Thank You!

NAFA….where everybody knows your name