Valuations for WeWork, Uber, Blue Apron, etc. have been tanking. They all prove that a company’s business service-cost model can’t spend more costs on a unit of activity than the unit’s margin-dollar content, and then make it up on volume.
The same economic reality hit many retail dotcoms back in 2000. Remember eToys? In ’99, they were averaging $20 in margin per order while spending an all-in cost of $300 per order for fulfillment.
Suppliers and their distributors will have to rethink their combined channel models to digitally engage end-users within the fast-unfolding digital commerce era. Most distributors must first, however, get more competent at customer-centric service value. Digital innovations come when that foundation has been built. Continue reading 172. Grow Traditional Core Competencies, Then Digital Ones→
In June 2019, Amazon introduced a new B2B brand: AmazonCommercial. The first items in the line? T&T! (For more search AmazonCommercial at AMZ).
What’s Amazon thinking? Amazon Business has gotten traction
with a “long-tail”, MRO/SKU strategy specifically aimed at huge entities. AMZ
has attracted an army of resellers to curate millions of B2B SKUs. And, in parallel,
AMZ has created two cloud solutions: integrations for 60+ internal procurement
systems, and free, central-spend-management tools. This evolving proposition now
wins up to 20% of a typical big-buyer’s MRO spend.
AMZ’s next B2B moves? Target some bulky, big-volume,
consumable, SKU? All employers do buy T&T… but how price-competitive can
AMZ be? Or, conversely, how net-profitable are T&T for distributors?
A Distributor’s T&T, Net-Profit Math
Checking with a “Jan-San” distributor who subscribes to
Waypoint Analytics’ “Net-Profit Analytics” cloud-service, here’s what we found:
The distributor breaks even overall on warehouse
business. Direct sales account for all operating profits.
The 7000+ warehouse SKUs were sorted into 100+
Ranking the product categories by net-profits:
the top 25 totaled big profits, enough to pay for 100% of all losing product
The biggest losing category was equipment parts.
The category has an excellent margin percentage. But, the many small-dollar
picks have less margin-dollar content than the fulfillment-dollar costs to
yield losses. The size of both picks/orders and fulfillment costs matter.
Two of the top 5 most net-profitable categories
were T&T! The categories’ low margin percentages were more than offset by
No big customers have yet to negotiate with AMZ
Questions to Live Into:
What will Amazon invent for in-the-cloud buying
tools, bulk-distribution capabilities, and/or business-model partnerships, to win
more B2B spend? And, more B2B searches and clickstream data to monetize via
Why are legacy channel players blind to the
net-profit/loss cross-subsidies that exist amongst both SKUs and customers?
Won’t both AMZ and big-boxes introduce more
private-label clone SKUs to eat into channels’ most net-profitable SKUs?
Will channel players beat AMZ to inventing an
in-the-cloud, channel-model for skid-quantity consumables? (I can envision such
a game-changing model.)
What analytics do factories and distributors
need to minimize AMZ’s takes while maximizing gains from slow-moving,
For more, be in touch: email@example.com. Waypoint clients can also attend my Nov 7th workshop. Link below:
Corporate America (distributors included) is overwhelmingly NOT
getting results from new analytical insights. Test your company’s Analytics IQ
The number of analytical-dimension tools that you
The buy-In rate for new insights
Your success rate at turning insights into
The 4 Lenses: Financial + Three Service-Profit-Chain
Everybody uses financial analytics (lens 1). Distributors
should also get/invent analytics for the three dimensions within the “Service
Profit Chain”(SPC) (Google the term.) The SPC simplified: best quality people
(lens 2) deliver service (lens 3), that yields(customer
retention) profits (lens 4).
The SPC outlines how Costco can pay (v. Sam’s/Walmart) 141%
more per employee to get 157% more sales and margin dollars. And, how Costco also
has legendary customer loyalty, and better sales growth – while selling at a measly
margin of 13%.
These four analytical lenses each have blind spots. For example:
“Inventory management” from a financial perspective stresses “Turn-and-earn”
with minimal “dead and excess stock investments”. But, service-value and
people-productivity lenses spotlight “fill-rates”.
Best fill-rates (tuned to a target-customer niche) from one
location reduce outages which:
Cause small-dollar, back-orders and interbranch,
These, in turn, boost transactional costs while
lowering productivity and morale.
Seek the best total-economic balance!
And, Sell More!
Financial thinking stresses pumping sales (and margin
dollars) for economies of buying and operational fixed costs. Plus, get those fatter
rebates from best-bribing vendors.
But, service analytics asks:
Grow sales from which target customers with what unique, service-value proposition?
Selling commodities to all customers with standard service creates no service-value
And, do all employees know the most
net-profitable (potential) target-customers? And, how/why they should allocate extra
service-hustle to them?
Customer Profitability Analytics (CPA) Informs All 4
Most distributors are 110% focused on financial-belief activities.
CPA reveals that some big, and many small customers, are unprofitable. Then,
those who are incented on any sales/margin volume, resist. Why low buy-in for insight-plays
that logically will deliver greater wins for all?
Four Nobel Prize winners (over the past 40 years) have proven
that our brains are riddled with cognitive biases. Stubborn, short-cut,
data-free beliefs win over longer-term realities.
For More on 4-Lens, Big, All-Win Gains:
Book an initial (free) C-suite, virtual session with me (firstname.lastname@example.org). And, for Waypoint Analytics clients, join me at the workshop in Phoenix on November 7th (link below).
Amazon is teaching everyone to want an increasingly better “e-buying-journey”. Because AMZ is corralling next-gen, B2B buyers’ searches, manufacturers are scrambling to create Omnichannel solutions for B2B e-buyers. How will distributors change to accommodate both the new needs of customers and suppliers?
Distributors’ standard service-bundle (including outside and inside sales overhead) will be pressured into un-bundling and then re-bundling in multiple ways. To do this, distributors will need to know their service-activity costs on an a la carte basis and have a data-driven culture of innovation.
With a cost-to-serve model distributors can do a two-step transformation:
Identify the big net-profit and net-loss cross-subsidies that hide within aggregated financial numbers.
Then, feed the winners and fix the losers to boost both their profits, and the courage needed to invent new business models.
By knowing the a la carte costs for each service activity, distributors will have 3PL-type flexibility. For key accounts, distributors can co-design customized replenishment systems and then e-integrate them. How customer-centric!
Getting best net-profit analytics is the easy part. (Contact me for a virtual session on this). The tough part is acting on new insights to first get super-profitable, to enable digital business-model innovations.
“MY VETERANS WON’T CHANGE”
If culture is: “the way we do things around here”, (as well as the get-along, go-along standards that we have accepted for too long). Then, most distributors have too many “set in their ways” associates who will resist any real change. What to do?
New Department Takes Non-Invasive, Small, But High-Impact Steps
Net-profit analytics (at the line-item level) allows you to zero-in on one, best, focused experiment at a time. To execute: set up a stand-alone “Innovation Department” with a “champion of change” to secure targeted wins. Trumpet wins to induce the next-most ambitious employees to bid for “Innovation-Department” help. Change the culture one person/department/territory/branch at a time. Hardcore resistors will feel increasing peer pressure to embrace growth and change or leave. Why should a few entitled associates be allowed to sit in the company boat and watch everyone else row them to greater prosperity?
For More How-To’s:
Check out these two bite-size blog posts:
For the big burrito, going into much greater detail, request my Core Renewal Roadmap by email: email@example.com
And, follow my curated posts (with commentary) on LinkedIn to track the on-rushing B2B, cloud ecommerce opportunities. Click HERE or search for: D. Bruce Merrifield, Jr.