01 — Programme Outcome Map & Business Diagnostic
1. What you will learn
This lesson turns distribution into three outcomes for ninety days and gives you a diagnostic for choosing them. You will learn to read your baseline for which of four problems dominates, because the remedies for a stock problem, a service problem, a coverage problem and a collection problem are entirely different.
2. The idea explained
Four patterns.
The stock problem. Too much money in stock, concentrated in slow lines, with low overall turns. The symptom is stock days far above your ordering cycle and a large value beyond normal age. The remedy is reallocation and clearance, and it releases cash rather than earning margin.
The service problem. Low fill rate, shortages on fast lines, orders delivered incomplete. The symptom is a fill rate below about ninety per cent with shortfalls concentrated in fast movers. The remedy is stocking policy and warehouse process, and it earns margin through sales you were losing.
The coverage problem. Too few retailers buying, or too many buying too little. The symptom is a large gap between retailers listed and retailers billed, or a falling average order value. The remedy is route and call planning, and it is usually the largest single opportunity in a small distribution business.
The collection problem. Money owed too long, or bad debts. The symptom is receivables beyond terms exceeding a manageable proportion. The remedy is credit policy and discipline, and it releases cash and prevents loss.
The diagnostic is your baseline read in order: stock days and aged stock; fill rate and where the shortfalls sit; retailers billed against retailers listed; receivables aged. Quantify each in rupees, then rank.
Quantify carefully. A stock problem releases cash, which you value at your funding cost, not at its face value. A coverage problem earns margin, which you value at gross margin on the additional sales you can realistically expect. A collection problem does both. Comparing a cash release against a margin gain without converting them to the same basis is the commonest error in this diagnostic.
Three outcomes, each with a baseline, a target, a deadline, an owner and a review date. And expect at least one not to be achieved, because retailers, competitors and your principal all have their own intentions.
Apply it
3. How to apply it in your own business
Read your baseline in the four-pattern order and write the symptom figure for each.
Quantify: aged stock at your funding cost; fill rate shortfall at gross margin on the sales you would realistically recover; coverage gap at gross margin on realistic reactivation; overdue receivables at funding cost plus an estimate of what will not be recovered.
Rank them and write three outcomes addressing the largest.
Put review dates in the calendar immediately.
Where an outcome involves changing credit terms with retailers, take qualified advice before implementing it.
Worked example
4. Worked example
A distributor of hardware and tools runs the diagnostic.
Stock. Total one million six hundred thousand rupees; annual cost of goods eight million four hundred thousand, so average daily cost twenty-three thousand rupees, giving about seventy stock days against an ordering cycle of twenty-one days. Aged stock beyond ninety days: four hundred and eighty thousand rupees. If he cleared it at seventy per cent recovery, three hundred and thirty-six thousand rupees returns to use, saving funding of about four thousand two hundred rupees a month, or fifty thousand four hundred a year.
Service. Fill rate eighty-three per cent, with shortfalls concentrated in his eight fastest lines. He estimates, from his own observation of which shortfalls sent retailers elsewhere, that about forty per cent of unfilled demand is lost. His annual sales are nine million two hundred thousand rupees; a seventeen point shortfall on the fast lines, which are about sixty per cent of sales, is roughly nine hundred and thirty-nine thousand rupees of demand, of which forty per cent lost is three hundred and seventy-six thousand rupees, worth about thirty-four thousand rupees of gross margin at nine per cent.
Coverage. Two hundred and twenty retailers listed, one hundred and twenty-six billed last month. Average annual sale per active retailer about seventy-three thousand rupees. Reactivating thirty at half that rate is about one million ninety-five thousand rupees of sales, worth about ninety-eight thousand rupees of margin.
Collection. Receivables five hundred and forty thousand, of which one hundred and seventy thousand beyond sixty days. Funding cost on the overdue portion is about two thousand one hundred rupees a month, twenty-five thousand a year, and he estimates about forty thousand rupees will not be recovered.
Ranking by annual value: coverage ninety-eight thousand, collection sixty-five thousand, stock fifty thousand four hundred, service thirty-four thousand.
Coverage is the largest and it is also the one he has never worked on, because it requires route planning and calling rather than anything in the warehouse. His three outcomes address it, and he notes that clearing aged stock would fund the working capital that additional retailers will require, so the stock outcome supports the coverage one and should run alongside.
5. Common mistakes and how to fix them
Comparing a cash release against a margin gain directly. Convert the cash release to its annual funding value first.
Assuming a fill rate shortfall converts fully into lost sales. Estimate the proportion genuinely lost and mark it.
Treating coverage as a sales matter rather than a diagnostic one. It is frequently the largest single opportunity.
Ignoring that outcomes interact. Clearing stock funds the working capital that coverage growth consumes.
Reading receivables as a total. Age them and value the overdue portion separately.
Setting more than three outcomes. Three, with review dates entered at once.
Key takeaways
6. Board summary
Four patterns: stock, service, coverage and collection, each with a different remedy. Quantify all four on the same basis: convert cash releases to their annual funding value before comparing with margin gains. A fill rate shortfall does not convert fully into lost sales; estimate the proportion genuinely lost. Coverage, the gap between retailers listed and retailers billed, is frequently the largest single opportunity. Outcomes interact: clearing aged stock funds the working capital that coverage growth consumes.
Check your understanding
7. Practice and self-check
Question one. What are the four patterns? Answer. Stock, service, coverage and collection.
Question two. Why can a cash release not be compared directly with a margin gain? Answer. Because a cash release is worth its annual funding cost, not its face value.
Question three. In the example, what were his stock days? Answer. About seventy, against an ordering cycle of twenty-one days.
Question four. What annual value did clearing aged stock represent? Answer. About fifty thousand four hundred rupees of funding saved on three hundred and thirty-six thousand recovered.
Question five. What was the service problem worth? Answer. About thirty-four thousand rupees of gross margin a year.
Question six. What was the coverage opportunity worth? Answer. About ninety-eight thousand rupees of margin, from reactivating thirty retailers at half the average rate.
Question seven. Which problem ranked largest, and why had he never worked on it? Answer. Coverage, because it requires route planning and calling rather than anything in the warehouse.
Question eight. Why should the stock outcome run alongside the coverage one? Answer. Because clearing aged stock funds the working capital that additional retailers will consume.