Service Frequency Analytics: The New Key to Distributor Profitability

Most distributors that are serious about maximizing profitability in these uncertain economic times are focusing on optimizing their service frequency. In case you’re unfamiliar with that term, here’s an overview.

As a distributor, you’re trying to sell as much product as you can each year. But it’s not all about sheer volume—the way you’re delivering those products can have a huge impact on your margins. Consider the fact that cost per mile has risen by 18 percent over the past five years, reaching an all-time high of $1.86 in 2021. Driver Cost per hour went up 19 percent to $74.65, also a record. You don’t have to be an actuary to understand that it’s essential to minimize miles and understand your service policy as you maximize volume.

With inflation pushing costs even higher, it’s no wonder distributors are looking for ways to deliver the same amount of product more efficiently. That’s why they’re scrutinizing their service frequency. Based on the amount of product each customer is purchasing, distributors are trying to figure out the most optimal delivery schedule each week and decide which customers are profitable—and which ones may not be worth the current service frequency.

Why Service Frequency Matters More Than Ever

It’s easy to see how service frequency impacts the bottom line for distributors. Customer A is 30 miles away from the distributor and only buys 10 cases of product per week but requires it in two separate deliveries. Customer B is five miles away, buys 30 cases of product, and takes it all in one delivery. Which relationship is better for the bottom line?

What if we also told you that each delivery at Customer A’s inefficient loading dock takes 45 minutes, whereas each visit to Customer B results in a headache-free 15-minute delivery? The picture only becomes clearer.

Now, what can a distributor do when faced with an account like Customer A? It all depends on leverage. If Customer A is a relatively small operation, the distributor may feel confident saying, “We’re going to have to cut you back to one delivery per week and deliver on a different day.”
On the other hand, if the customer is a national account, they may have the power to tell the distributor when and how often the deliveries need to be made. This may hold true even if the customer isn’t making large purchases.

Customers like these see their distributors as proxy inventory managers. That’s neither good nor bad—but there’s a definite cost and profit margin to these relationships, and each distributor must decide what’s working and what’s not.

Many distributors also face internal pressure from the sales organization. In some companies, the sales organization just wants to move as many cases of product as possible and doesn’t care how it happens. They’ll push operations to honor any delivery schedule their customers request.

But in most cases, distributors can and should analyze the cost of each customer delivery to see how much each account is helping or hurting the bottom line. It’s possible with the right tools.

Where Technology Enters the Picture

To make smart decisions about service frequency, distributors need route analytics software that exposes route execution issues by comparing plan vs actual. Armed with this information, distributors can start analyzing how much it’s costing them to serve each customer and optimizing their delivery schedules. They might ask smaller accounts to take their weekly or biweekly supply in one delivery rather than two, set a minimum order size for each delivery, or even impose a service charge on customers who insist on multiple deliveries per week.

Service frequency analysis makes so much sense that it’s hard to understand why more distributors haven’t already embraced it. But remember, the traditional mindset is that the customer is king. Distributors did and still often still do whatever it takes to make customers happy. It’s all about getting products onto the shelves.

Times have changed. More and more distributors are fighting shrinking profit margins by holding their customers to a service policy. They’re putting responsibility for inventory management back on their customers, warning them that if they don’t want to run out of product mid-week, they need to make larger orders and hold some stock.

But this new mindset isn’t all about gaining leverage over customers—it’s also about providing better service. A distributor that uses route analytics software to optimize its service frequency may find it hits close to 100 percent of its delivery windows in a year. That distributor can then show its retailers proof of its outstanding performance and ask for featured displays or more optimal shelf space. In this scenario, the retailer and distributor can both increase profits based on a trust that comes from reliable deliveries.

Let’s Talk More About Service Frequency

If you’re ready to get serious about optimizing your delivery schedule with route execution and maximizing your profits, consider what Gridline Last Mile has to offer. This route execution solution will highlight all your route plan deviations and inefficiencies so that you can determine what’s causing the wasted fuel or loss of productivity—and make changes to protect your margins.

Learn more about Gridline Last Mile. And schedule a call with us to discuss service frequency.