Invisible Losses in Distribution
Invisible Losses in Distribution: The Problems You Don’t Notice but That Are Destroying Your Business
Losses are a constant challenge in the distribution business. However, sometimes the damage is not limited to financial errors or outstanding debts in stores. Some losses are so "invisible" that companies fail to recognize them, leading to declining profits, customer churn, and competitors gaining market share.
We recently spoke with the head of a long-established distribution company.
"Everything in the warehouse is accounted for, all calculations are correct, but we’re still losing money—our sales and market position are declining."
Following this conversation, we decided to delve deeper into the real causes of these invisible losses in the distribution process. When analyzing a business internally, it becomes clear that beyond the obvious losses, there are many subtle but long-term damaging issues. In this case study, we will identify invisible losses in distribution and provide solutions to address them.
1. Poor Route Planning – Wasted Time and Resources
Many distributors fail to plan delivery routes efficiently. Sales agents and couriers travel unnecessarily long routes between points, resulting in increased fuel consumption, wasted time, and delayed deliveries.
At the company we analyzed, agents visited an average of 17 sales points per day. However, route analysis revealed that they sometimes covered over 24 km unnecessarily or repeatedly visited the same customers due to poor planning.
✅ Solution: Implementing GPS monitoring systems and automated route planning can eliminate this issue. This helps agents find the shortest and most efficient routes, reducing fuel costs, ensuring timely deliveries, and improving customer satisfaction. Additionally, all sales employees can be monitored in real-time:
- Tracking movements in real-time
- Identifying work start and end times
- Monitoring planned vs. missed sales point visits
2. Warehouse Mismanagement – Product Expiry and Wrong Shipments
Products being left in storage too long or being sent to the wrong location is a major issue in distribution companies. Sometimes, this problem goes unnoticed because inventory is recorded as received and shipped, even though it may have expired or never reached the customer.
When analyzing the warehouse system of the company we studied, it was found that every month, 7-10% of products were either expired or sent to the wrong destination, leading to a loss of trust among customers and reduced profitability.
✅ Solution: Implementing the FIFO (First In, First Out) system and tracking product movement with scanning technology. This ensures that older inventory is sold first, preventing expiration. Automated warehouse management systems can also help eliminate shipping errors.
3. Order Entry Errors – Customer Dissatisfaction
Many distributors still rely on manual order entry, which increases the likelihood of human error. This can result in incorrect products being shipped or orders not being delivered at all.
Manual order processing can lead to errors in product type, quantity, and destination, ultimately causing excess stock deliveries and unnecessary transportation costs, which may drive customers away.
✅ Solution: Implementing an automated order system. With an electronic order system, customers can independently select the products they need, significantly reducing errors.
4. Untrained Employees – Declining Service Quality
Another often-overlooked issue in distribution is employees' lack of sufficient knowledge and skills. Agents may struggle to communicate effectively with customers, provide accurate product information, or resolve issues efficiently.
The skill level and service quality of employees are crucial in distribution, as the business is built on relationships. Poorly managed or neglected relationships can lead customers to switch suppliers—most likely to your competitors.
✅ Solution: Conducting regular training sessions for employees. Specialized training should equip agents with the skills to interact properly with customers, present products effectively, and provide high-quality service.
Conclusion
Invisible losses are not just about lost products—they also include wasted time, misused resources, and lost customers. To run a successful distribution business, companies must analyze all processes thoroughly and implement modern technologies. By addressing these issues, your company can improve efficiency, increase profits, and retain customers who will want to continue working with you.
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