2. Brent R. Grover
Evergreen Consulting, LLC
29525 Chagrin Boulevard, Suite 214
Cleveland, OH 44122
brent@ evergreen-consulting.com
(216) 360-4600 ext.101
• NAW Institute Fellow
• Author of eight books
about W-D
• Distribution CEO
• Business school faculty
• International firm CPA
3. •
Distribution TRENDS
• High level overview of DISTRIBUTION METRICS
• Talking & selling to DISTRIBUTION DECISION
MAKERS
• Distributor IT INVESTMENT OUTLOOK
4.
5. 2013: The Year to Invest
• Housing starts rebounding
• Return of manufacturing
• A good year in 2013, a mild pause in
early 2014 followed by several nice
years
• Distributors more interested in
investing in productivity than in
adding staff
6. Housing starts, vehicle
production, energy
• 2013 housing starts projected at 980K units
• Domestic vehicle production SAAR 15.5M
• Natural gas exploration
• Individual microeconomics depend on
trade line, customer segment and geographic
market
8. Work force demographics
• Median age increase from low 40s to low 50s
• Baby boomers, Gen X and Millennials
• Aging distributor sales force
• Changing role of distributor sales professionals
• Multichannel marketing
• Need to keep up with technology
9. Can’t just “move boxes”
• VMI, consignment, JIT, other
inventory programs
• 3PL, 4PL
• Value-added services required
10. Vending machines
• "Candy machines" no more
• Placement doubled in 12
months
• Plan to place 30,000 in 2013
(goal was 10,000 in 2012)
• 25% of sales in fourth quarter
• Safety supplies, cutting tools,
fasteners
11. Co-opetition
• Distributors of noncompeting products share
locations
• Distributors of competing
products in different markets
share inventory
• Distributors share customers
• Distributors share buying
power
12. amazonsupply.com
• 500,000 stock products in 14 product categories
• B2C buying experience for B2C: one click,
Amazon Prime®
• Free shipping, $50 minimum, 365 day return
privilege, phone support, charge accounts
• Experimenting with same-day delivery in
some metro areas
13. Strategic Pricing
• Pricing autonomy without market
pricing information
• Identify and fix outliers
• Promote consistent pricing to
resistance
• 200 basis points adds 8-10 points
to ROI
14. Customer Profitability
Analysis & Cost to Serve
• Measure operating profit of transactions,
customers and groups of customers
• Track cost to serve differential for
customers
• Holistic balance of order size, margin,
cost to serve
15. • Distribution TRENDS
•
High level overview of
DISTRIBUTION METRICS
• Talking & selling to DISTRIBUTION DECISION
MAKERS
• Distributor IT INVESTMENT OUTLOOK
18. Strategic profit model
for distributors
NI
Sales
X
Sales
Assets
Assets
X
Equity
NI
=
Return on Asset
Leverage
Sales
Turnover
Equity
Return on
Investment
18
20. • Distribution TRENDS
• High level overview of DISTRIBUTION METRICS
•
Talking & selling to
DISTRIBUTION DECISION
MAKERS
• Distributor IT INVESTMENT OUTLOOK
23. Hidden Risk: ERP Upgrades
Half are more than one version behind.
24. Hidden Risk: ERP Upgrades
Most do not know if their costly mods
are included in the current releases
available from other vendors.
25. • Distribution TRENDS
• High level overview of DISTRIBUTION METRICS
• Talking & selling to DISTRIBUTION DECISION
MAKERS
•
Distributor IT INVESTMENT
OUTLOOK
26. Technology goals in the 2013
distributor strategic plan
• E-commerce: critical mass
• 85% plan to upgrade their websites
CRM: coming of age
• Mobile: game-changer
•
• 1/3 of Grainger visitors on mobile often reserve
orders for will call (vs. 2% on grainger.com)
• Analytics: center stage
• Strategic use of sales resources – reality gap
27. Analytics in action
• Pricing optimization: strategic pricing
• Eliminating pricing outliers
• Establishing pricing consistency
• Holding sales reps accountable
• Customer profitability / cost to serve
• Protecting high profit customers
• Building order size; reducing costs to serve
• Focusing on profitable customers
Common mistakes made in Strategic Pricing programs?
The biggest mistake is to ignore the opportunity to generate an increase of 200 or more basis points (2 percentage points) of gross margin percentage. We have seen very few situations where this cannot be achieved and sustained. This kind of increase is huge when you consider the effect on the bottom line, on ROI. It’s far more dramatic than slashing the staff or reducing sales commissions. For a $50 million distributor, we’re looking at additional operating profit of over $750,000 for a 200 basis point improvement (net of sales commissions on the increased gross margin dollars). They are losing over $60,000 of profit dollars for each month that they hesitate.
For management teams who see the opportunity, and are willing to act, we would point out the following pitfalls:
•Like any other critical initiative, top leadership commitment (personal involvement and unqualified support) is crucial.
•A qualified manager must take on total responsibility for pricing as all or part of his/her job description.
•Some ERP systems are better than others, however nearly all of the popular ones have fairly weak pricing functionality. Strategic pricing provides powerful information but it does not “automatically” appear in the distributor’s pricing files. Part of the implementation job is rethinking the pricing process, any exploring ways to get more out of the ERP system’s pricing module.
•If an outside consultant is used for the strategic pricing project, like other outside resources this person is a source of valuable information and advice guided by experience. The value of the consultant is getting the project done right and on time, but the ultimate success depends on the company’s people – not the consultant.
•Many distributors have demonstrated sustained margin improvement and continuous improvement over several years. This kind of success is the result of hard work, measurement of results and course correction.
The whale curve indicates that operating profits peak at $14,349,974 and that $12,025,399 (83.8% of profits) is lost on money-losing accounts.
The peak-to-actual ratio of 6.16 is extremely high (unfavorable).
Investigate the operating loss accounts. There are some large loss accounts for which explanation is needed.
