Progressive Distributor - Don't rehire the sludge muffins

Don't rehire the "sludge muffins"

by Bob Footlik

Distributors function best when operating “lean.” Minimal facilities, lower inventories, reduced payrolls and greater controls are the legacies of the recent financial downturn. The economy was bloated, many individuals became too greedy, and then Osama and company hit. As this is written, employment is beginning to rise, and even Wall Street is expressing cautious optimism. How does this affect your business plan? Here are some things to think about as you develop a new strategy.

Don't rehire the "sludge muffins"
Many good people took early retirement, and left with useful skills. They are available, and can bring new business with them, but they also come with some scars and bad habits. It’s a buyer’s market, and you can afford to pick and choose. Look outside the industry for fresh talent and new ideas. Late in the interview process ask them what they think they can bring to your business. If you have any hesitation about them, don’t hire them. You just got rid of some dead wood, why bring in more?

Tighten controls more than ever
There are many new programs emerging in warehouse management, bar coding, “paperless” systems, and data analysis. Net Perceptions (www.netperceptions.com) and others have developed data mining tools for analyzing sales, customers, products, inventory and in-house functions. The information is presented as simple, graphical representations that can be read at a glance. The future will be dominated by companies that have the data, correlate the numbers, impart the information and act decisively. Be one of them.

Think new building
There are plenty of industrial buildings sitting vacant. Real estate is very sensitive to economic trends and this too is a buyer’s market. Short on cash? Many developers will be happy to rent to you, at a reduced rate, or at a guaranteed purchase price in five to seven years. An alternative is to poll your friends at other, non-competing, supply houses and seek a far larger building. By combining under one roof, you can save on every aspect of occupancy. Initial costs per square foot will be lower, expenses are shared, and you can have an asset on the balance sheet, instead of rent expenses. Becoming a full service destination is the best way to compete.

If you're not going to move, clean up what you have
The easiest time to implement major changes to a layout is during the moving process. Everything will be shifted anyway, so plan the move in detail, and let the movers implement the plan. If this cannot be done, at least clean up the existing floor plan. Congested aisles are the most frequent reason racks and shelves are not being properly stocked. Bring in a crew over a weekend, and start a systematic cleaning process. Don’t limit this to warehouse personnel only. Use the clean up as a team-building exercise for everyone. When the warehouse is so clean that you can “eat off the floor,” invite the employees’ families for a picnic – on the floor.

Stop fighting with obsolete or broken equipment
The used market is flooded with almost-new forklifts, pallet racks and shelving from failed dot-coms. Vendors are buying jobs to keep their factories operating. Prices are the lowest we have seen in more than 25 years. Under these circumstances, replace any equipment with rising maintenance expenses. Broken pallet racks, wood bins and light-capacity shelving are accidents waiting to happen. Get rid of them now; the economics will never be better, and when things pick up, you’ll be ready. Remember to standardize on one size, capacity, manufacturer and model whenever possible. If you have questions on whether the materials are usable, call us at .

Beware of cheap money
Like a drug pusher providing free samples, some banks are touting their low interest rates. We all know that the Fed has artificially maintained a low prime rate to stimulate the economy. Take advantage of this by locking in low-rate financing on long-term debt. Refinance the building, but don’t borrow heavily against receivables. Addiction to short-term borrowing will turn on you once the rates go back up. Learn the lesson of the lever. Only a small movement is needed at one end to create large movements on the other.

Read the messages in customer ordering patterns
Short orders, with relatively low dollars, typically means customers are buying for the job. The appearance of more full case quantities is indicative of stocking up in anticipation of future business and better cash flow. Increases in “will call” and counter business tell you that the customers have more time on their hands, and are filling it by running to the supply house. When they are busy, they want the goods delivered. Much of this takes place without any conscious efforts on the part of your customers. Reading these trends is easy once you know where, and how, to observe.

Resist filling the warehouse
Vendors and reps are going to come to you with some very good deals. Traditionally, distributors get excited over special billing terms, reduced pricing and fantastic new products. Realistically, special terms are typically applied to larger quantities that will cost real dollars to carry, even when there is space on the shelves. Reduced pricing is great, but a bargain on something you don’t need is never a bargain. New, unproven products are always a risk. Now, more than ever, your customers are going to be conservative. Fill the needs of your market, not the space in the warehouse.

Make the place look different
No need to break the bank redecorating. Creating a new look can be as simple as cleaning up the public areas of the company. Paint the lobby and the washrooms first. Reorganize any will call counters or customer service areas. Eliminate displays that are empty and obsolete. Put up a new sign on the building, and redo the image and format of printed communications. Trim the bushes, and plant some flowers. Run events such as an open house, customer appreciation day, seminars, and other training activities. Have some fun. Money spent in these areas shows that you are strong enough to stay in the market. Customers want to deal with winners; make sure you look like one.

If you are still in business, celebrate your success. You have survived a long and difficult period. At the depths of the recession, one distributor told me that, “Even the customers who intend to stiff me have stopped ordering.” With our assistance, and the hard work of his team, he is now adding market share. As business improves, grab all the customers you can.

Don’t satisfy them. Thrill and delight them with your new image, improved reliability, anticipation of their needs and enhanced customer service. When the facility, staff, operations, procedures and offerings are all raised to a new level, your competitors that sat out the recession will be left far behind.

For more than 50 years, Footlik & Associates has worked with a wide variety of manufacturing and distribution clients throughout North America. The firm has expertise in industrial engineering, facilities design and operational planning for productivity, quality and service enhancements. Services are available on a daily fee, or project basis. Visit www.footlik.com, phone or fax .