Distribution operations

A distributor makes money on thin margins and fast-moving stock, so small errors in how you measure inventory, service and cash add up quickly. These guides work for any ERP system. They define each metric, show the formula, walk through an invented worked example and explain the ways the number misleads.

For a one-page summary, use the KPI formula sheet.

1. Wholesale distribution at a glanceWhat wholesale distribution is, how NAICS sector 42 is organized, its size in Census and BLS data, how distributors make money and why the ERP is central.Explanation · Introductory · 7 min read
2. Inventory turns, days on hand and GMROIHow to calculate and read inventory turns, days on hand, the Census inventory-to-sales ratio and GMROI, with worked examples and the ways each misleads.Explanation · Introductory · 7 min read
3. Fill rate, OTIF and backorder rateLine, unit and order fill rates, what on-time in-full measures, why trading partners define it differently and how fill rate relates to service level.Explanation · Introductory · 8 min read
4. The cash conversion cycleHow DSO, DIO and DPO combine into the cash conversion cycle, why distributors fund the gap before customers pay and what early-pay discounts cost.Explanation · Intermediate · 5 min read
5. Safety stock, reorder point and EOQHow the reorder point, safety stock for demand and lead-time variability, service-level z values and EOQ fit together, and why EOQ is only a starting point.Explanation · Intermediate · 8 min read
6. ABC analysis and cycle countingRank items by annual usage value, set ABC cutoffs, add XYZ demand classes and run a cycle count program that raises inventory record accuracy.How-to · Introductory · 8 min read
7. Landed cost, freight terms and IncotermsWhat landed cost includes, four ways to spread freight across receipt lines, how late freight bills skew margin and what FOB terms and Incoterms 2020 decide.Explanation · Intermediate · 10 min read
8. Units of measure and packaging levelsHow base, purchasing, stocking, selling and pricing units relate, where conversion factors go wrong and how GS1 identifiers and NIST handbooks fit in.Explanation · Introductory · 6 min read
9. Pricing and margin in distributionMargin versus markup, the pricing methods distributors use, where pricing leaks margin and how invoice margin differs from pocket margin, with examples.Explanation · Intermediate · 9 min read
10. Demand forecasting basics for distributorsMoving averages, weighted averages and exponential smoothing by item and location, plus seasonal and lumpy demand and how to measure forecast error.Explanation · Intermediate · 7 min read
11. Lot and serial traceabilityLot versus serial tracking, forward and backward traces, the data to capture at receipt and shipment, a mock recall drill and the FDA food traceability rule.Explanation · Introductory · 8 min read
12. Returns and RMAsHow a distributor runs return merchandise authorizations, from reason codes and restocking fees to inspection, vendor returns and effects on margin.Explanation · Introductory · 8 min read
13. Inventory adjustments and shrinkThe inventory adjustments a distributor posts, reason codes and approvals, the ledger impact, how to measure shrink and lower of cost and net realizable value.Explanation · Intermediate · 7 min read
14. Vendor rebates and special pricingHow supplier rebates, special pricing agreements and ship-and-debit claims work for distributors, and how to claim, reconcile and accrue them correctly.Explanation · Intermediate · 8 min read
15. EDI for distributorsThe X12 documents a distributor exchanges most, VANs versus AS2 versus APIs, partner onboarding, ASN and label chargebacks and how EDI lands in the ERP.Explanation · Introductory · 8 min read
16. Sales tax for distributorsHow US sales and use tax works for a wholesale distributor, covering resale certificates, economic nexus after Wayfair, sourcing, drop ships and tax engines.Explanation · Introductory · 8 min read
17. Credit card fees and surchargesWhat card acceptance costs a B2B distributor, how enhanced card data lowers it and how to choose between absorbing, surcharging and discounting.Decision guide · Intermediate · 9 min read