The simple answers I thought of were:
1. Distribution is unaware of the new product or the need for it.
a) If a distributor has not been asked for a product or educated on the need for the product, it is impossible to anticipate needs and stock the product.
b) Distributors have many different lines to maintain.
2. The new product is a victim of the sales cycle.
The drilling sales cycle is a simple chain that requires certain key players to keep products available for use in the field. The manufacturers, distributors and drillers all try to keep inventory at correct levels to ensure rigs turn and jobs get done.
Each of these products is assigned an SKU or “stock keeping unit” number. Each number is unique to a single product and size in that product. By tracking an SKU number, the purchasing department can track the product’s inventory turnover.
Inventory turnover is a bean counter term that you may know as “turns.” It is a mathematical equation that measures the number of times a product is sold or ordered in a set period. In many cases, contractors and distributors will look at turns per year. At the plant or manufacturer level we look at quarterly turns and some monthly turns.
The “number crunchers” then put out a slow-moving inventory report. SKUs that land on this report are sometimes doomed as a “stock item” in the future. This is a real problem in the drilling industry; we have some products that are not needed on every job, but when we do need them we need them now! LCMs, or loss circulation materials, are a product in that fits into this category. From the plant to the distributor and then to the drilling contractor it can be a constant battle to keep “slow turning” tools like this in stock. We all have to identify to our accounting department slow movers that have a purpose to ensure those products are handled differently than a bag of drilling gel, a high turn item.
|Slow moving inventory — like polymers specific to certain soils not regularly encountered — can turn quickly from a stock item to a special order item. Source: iStock|
Distributors get paid for stocking products that you use. As I said above, they can’t stock what they don’t know you want to try. As a distributor, I was bombarded with reps and territory folks telling me about the next greatest mouse trap. It was impossible to bring it all in from several different lines.
What did get ordered and stocked were items that a driller requested, something they saw in National Driller or something a factory guy told them about. They would ask me to bring it in and I would, knowing I had a guaranteed sale. Once they tried it and started reordering the product it grew into a stock product. It had turn history and was now a captured item.
Here is one last end-of-the-year thought: Drillers need to reduce their dead inventories too. December is a good time to look at your “slow turns” and determine what products you will use and what might be obsolete. Do you have tooling and parts for a rig you sold three years ago? Are there jugs of polymers that were left out to freeze? Better yet, are you storing old liquid polymers over one, two and, yes, three years old? December is a good time to clean house and prepare for the New Year. Happy Holidays everyone!
Todd Tannehill is a regional manager for CETCO Drilling Products.