ERP for distribution: where the margin actually leaks
In wholesale, margin is rarely lost on price. It is lost on a discount nobody tracks, a rebate calculated later, and a landed cost that never reaches the item.
- Published
- Author
- Konis Software
A distribution business as a rule knows its turnover well and its margin rather badly. The reason is structural: turnover is one number printed on the invoice, while margin is the difference between two numbers, one of which — purchase price including all landed costs — is usually incomplete at the moment of sale.
Hence the familiar situation: the year closes with healthy turnover and a margin smaller than anyone expected, and the analysis shows everyone acted correctly under the rules they had. The rules were incomplete, not the people.
Four places where margin leaks
- 1
Landed costs never reach the item
Duty, freight, forwarding and insurance on imports must be allocated to customs declaration lines by a key — weight, value or quantity. If they are posted in aggregate to expense, the item's purchase price is lower than the real one, and margin on every sale looks better than it is.
- 2
Discounts get approved outside policy
When discount policy lives in an understanding rather than in the system, every salesperson has their own. The approval threshold has to sit on the line: above a given percentage the order needs approval, below it passes on its own.
- 3
Rebates are calculated afterwards
A retroactive rebate on annual turnover is a cost incurred today and posted eleven months later. A system that does not accrue it through the year shows a margin that is certain to shrink — only the date is unknown.
- 4
Returns are tracked separately
If a return does not reduce margin on the line where it arose, selling looks more profitable than delivering. On items with a high return rate the difference is not small.
Stock: available is not the same as on hand
The most expensive mistake in distribution is not an empty warehouse but promising goods that are already promised. A system that keeps only on-hand stock, without reservations, allows the same pallet to be sold twice — and that surfaces only at dispatch.
| Category | What it means | Why it is kept separately |
|---|---|---|
| Physical stock | What is actually in the warehouse | A basis for stocktaking, not for promising a customer |
| Reserved | Committed against confirmed orders | Without it the same goods get sold twice |
| Available | On hand minus reserved | The only number sales should ever see |
| Incoming | Ordered from suppliers, with an expected date | Allows selling against arriving stock, with a date |
| Blocked | Damaged, quarantined or expired | Must leave availability automatically |
Customers: a credit limit that actually works
A credit limit only means something if the system applies it as the order is entered, not in a receivables report. A limit checked afterwards is a record, not a control.
- The limit must account for both open invoices and orders not yet invoiced — otherwise it is breached through goods that have already left.
- Exceeding it should require a named approval rather than merely warn — a warning that can be dismissed is not a control.
- Payment terms of 45 and 60 days must sit on the partner and trigger reminders automatically, because sending reminders by hand stops the first busy week.
- Set-offs and assignments of receivables are daily business here and must exist as documents, not as manual postings.
NG One carries landed costs through the customs declaration down to the line, discount thresholds as rules with approval, and reservations as a category alongside stock — so availability is a number sales sees rather than one it computes. These are architectural decisions rather than settings, which is why they are worth checking before choosing rather than after.