Warehouse Inventory ControlThe worst fear for many merchants is that their customers will go to a store; ask for an item and it won't be in stock. To play it safe, wholesalers and retailers inflate their warehouse inventory management and overstock goods at every step of the process. To solve this dilemma, Lee came up with a new approach called "demand chain optimization" that is based on more than 100 pages of proprietary algorithms. Nonstop's software-based service uses data supplied by its customers to analyze the relationship of critical costs, including inventory, transportation, handling and administration.
It then tailors a daily report that spells out how to deliver thousands of products to hundreds of stores in a way that maximizes profits and meets customer demand. "We do a very detailed analysis of the characteristics of every item one is managing," said Lee. "No drug is the same. We look at demand variables like whether consumers buy at a certain time each week, month or season. We then massage the data to find the best way to replenish each product, location by location, at the lowest overall cost at a targeted level of service." For example, Nonstop may suggest delivering an expensive drug like Prozac a few times a week because the cost of stocking the pills is higher than the additional shipping costs. Conversely, it might make sense to keep a larger inventory of inexpensive generic drugs. Nonstop Solutions is so confident in its prescription for helping drug wholesalers and retailers slash inventory and reduce distribution costs that it guarantees major savings before it charges clients a monthly fee. While Lee provided the technological know-how, Nonstop's other co-founder, Homer Dunn, provided managerial expertise. Dunn started out in marketing at IBM and subsequently helped start three other high-tech companies. Better inventory management is important in the pharmaceutical industry. It typically takes a drug 150 days to reach the customer from the time it is manufactured, with the financial cost of keeping inventory accounting for 71 percent of the total delivery expense. Since Nonstop does not sell or license its sophisticated software, but offers its service on a five-year contract, clients do not have to hire experts. And beyond a $100,000 "opportunity assessment" charge that Nonstop bills new clients to identify areas of improvement, customers don't pay a dime until they get results. Roath said Longs is happy to pay Nonstop around $45,000 a month in fees since that is only a small fraction of what the drug store chain has realized in savings. However, Nonstop's start was hardly auspicious. The first incarnation of the business as Nonstop Logistics in 2005 was a flop. The company initially planned to serve supermarket suppliers. It raised about $6 million from major trucking and warehousing companies with the aim of creating a Federal Express-type hub-and-spoke distribution center that would send trucks loaded with just the right mix of goods to stores. That approach ran aground when existing wholesalers who deliver goods from individual suppliers felt seriously threatened by this new service model and persuaded several supermarket chains to withdraw their support of Nonstop. |