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Each entity in distribution operations, each piece of the “value stream,” is part of your company’s financial picture. But distribution centers and warehouses tend to be viewed as cost centers – not profit centers – and it becomes a very clear distinction in terms of how you might approach your distribution operations.
Think about it this way: What if you had to outsource your distribution operations and the functionalities you now provide internally? How much would you pay for it? An even better question: How much would you want to pay someone else to do it? How would it affect your profitability?
Your mindset has to change. You have to show what profit a distribution center/warehouse can generate. What is it adding to the bottom line? How do you actually show how much profit it is pulling for the company?
It’s more than just saying: “I want to improve.” Ask yourself what the financial impetus for that investment is. There is none, if you are not playing in the arena that companies are driven by - the financial arena.
A distribution center can absolutely be a profit center, if your definition of profit is retaining more money than you have previously. If you save $1 in the distribution center, you put $1 into your pocket.
You made more money on the same sales and the same margin than you did before – and that's more money to the bottom line.
It begins with changing your mindset. If you start viewing your warehouse as a profit center, you can operate it as one.
I recently released a white paper with tips on how to make your warehouse a profit center. Download it here.
As principal of MCA Associates, a management consulting firm since 1986, Howard Coleman works with wholesale distribution and manufacturing companies that are committed to operational excellence, providing thought-leadership and continuous improvement solutions. Learn more at mcaassociates.com.