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Why aren't "Best (Distributor) Practices" happening?
by Bruce Merrifield
The recession of 1990 helped turn the idea of identifying and imitating “best practices” across an industry or across multiple locations of a firm into a consulting bonanza. After a decade of noise, 90-plus percent of all wholesale-distributors (WDs) must not be doing them.
Want proof?
Exhibit A is a 10-year, longitudinal study of more than 10,000 distribution firms in 40 different channels. This report concluded that the bottom 90-plus percent of all WDs maintained a flat, marginal pre-tax return on assets while the top 10 percent steadily increased their returns. In fact, by 2000, depending upon the channel, the top 10 percent performers were averaging anywhere from three to six times the pre-tax return on assets of the bottom 90 percent.1 No wonder manufacturers are, in general, re-distributing resources away from the rest to feed the best.
Exhibit B for the fizzle of best practices is the record of publicly traded distribution chains. With lots of locations, they should have an economy of operational excellence. The top-performing branches would presumably share their secrets for superior profits with their sister branches, if they only knew what they were! In spite of best intentions, nine out of 10 chains have mediocre numbers for their channel if not a disaster in the case of a number of roll-up firms.
Why do so many companies continue to work so hard to achieve so little? It is not for lack of general business educational resources. The general themes for how to be successful in mature service businesses have been well covered. The knowledge gaps for achieving excellence lie deep beneath the normal, best-practice generalities.
Levels of knowing – a case example
Consider these two, related, best practice assumptions:
• Not all customers are good or profitable for a distribution firm to serve.
• Don’t sell a little to many kinds of customers, be the No. 1 supplier to all of the right customers.
Sounds reasonable. But, how many distribution managers (and front-line employees) would know, believe and enthusiastically explain the answers to the issues that lie beneath the two statements above?
Consider, for example, what are the answers to these “level two” questions? How do we:
• define the No. 1, best niche of customers for a given branch location to pursue;
• determine the five most profitable customers within that niche by operating profit contribution;
• determine what the re-tuned total service metrics should be for each strata of customers within the best niche;
• determine the five best target accounts within the niche;
• determine the unprofitable customers within the niche;
• turn those losers into winners or tactfully drive them to a competitor; and
• re-deploy slack capacity by either laying off much more expense than lost margin dollars or super-focusing the entire organization on cracking only the most desirable and vulnerable accounts within our competitors’ portfolio?
Level two issues lead to level three questions. What are the how-to solutions for:
• improving the target niche’s service metrics: fill-rates, zero errors, order surge management, on time delivery, heroic recoveries, and breakthrough service initiatives for best and target accounts;
• getting breakthrough results for managing the “small (money-losing) order problem; and
• segmenting customers and selling/serving them differently when too many sales reps are currently assigned to too many small accounts that they won’t give up?
Strategic questions lead to operational tactic questions which then lead to implementation questions. A vital question being, if we knew roughly the right answers to all of the questions above, how could we package them to motivationally and repetitively educate the bottom 80 percent of the payroll who must make service excellence happen?
Our education must then be followed by execution. What implementation skills are necessary for making the journey from mediocrity to high performance greatness on a sustained basis?
Implementation journey needs
Any journey needs a destination or at least a North Star to organize and motivate collective efforts in the right general direction. What is the star? What is our compelling answer to the usually unspoken question asked by all front-line service employees: What's in it for me?
If all employees are going to be responsible, intrigued, scorekeeping contributors to the transformational journey, then we will have to make lots more operational process and financial numbers available to everyone.
Before we figure out how to gas up this effort for a sustainable drive, we will first have to identify and remove any inhibitors that will demoralize any extra efforts or drastically reduce our gas mileage. We will have to weed the losing and subsidized elements within the business that committed employees will not want to drag along. Losing customers, small orders, coasting employees, etc. will all have to be addressed.
We will have to also identify and address the root causes of fear and doubt that employees may have. Because there is no significant learning or progress without taking risks and incurring failures, it will have to become cool to fail forward.
We will also have to be prepared to deal with the bumps that we will encounter along the road to greater profit power. When things aren’t working as planned, an implementation team must have shared problem-solving tools and philosophies with short-hand terms like:
• pushing the wheel of learning;
• trying cheap experiments;
• using simple prototypes;
• making good mistakes; and
• turning every negative into a positive.”
The devil and greatness are both in the details. Every distribution location must fit generally right solutions to their unique local environment and stakeholder personalities.
After addressing energy drains and inhibitors and arming ourselves with problem solving tools, we can then ask everyone to give us 10 percent extra effort for a 6 month to 12 month period because we have to do our jobs and then make proactive time investments. If we are good implementers, we will quickly create slack time as a result of consolidating orders and reducing errors which will increase proactive investment time for the same energy output.
To keep everyone at one, higher sustainable effort rate will need to create and share progress metrics, reports and published praising statements for as many individual contributions as possible.
Do all of this? Why and how?
The knowing and doing needs listed above may seem overwhelming (and there are more that weren’t covered). But, what are our choices? In the face of tough economic times, we can cut costs and work harder with inefficient practices to hope for profitless survival at best. Or, we can educate ourselves about in-depth, best practices specifically for distributors and start a successful, transformational journey. The how-to part can be jump-started with an affordable, educational solution. It is a video entitled, “High Performance Distribution Ideas for All.” Check out the details for this revolutionary product at www.merrifield.com.
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Improving Distributor Profitability by Al Bates, PP 7 to 9. Available from www.nawpubs.org. Back to story
These learning how to learn concepts are covered in the video “High Performance Distribution Ideas for All” specifically in modules # 5.1-5.8.
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