Category Archives: Cost-to-Serve Math

58. Ranking Sales Reps in Distribution by Their Potential to Switch to a Competitor

Many distributors resist vital changes out of vague fears that some sales reps might not like change or its compensation implications. Some fear losing their sales reps in distribution to a competitor and all their loyal customers along with them. Of course, there are many factors that will determine what will happen, including how strong your reps are, whether you can afford to lose a few customers based on the projected new sales, and how many of your customers have integrated contracts. Ranking sales reps in distribution by their loyalty and account profitability is a good place to start.   Continue reading 58. Ranking Sales Reps in Distribution by Their Potential to Switch to a Competitor

50. Analytics in Distribution, Theories, Bias Inefficiencies and Courage

Analytics Without Upside Theories Fizzle

Don’t use analytics in distribution to grind existing information finer and faster. You will get interesting, but non-actionable data. Start instead with an improvement theory. Then, build an analytical model to validate an improvement theory for your distribution. You will find insights to exploit and can track subsequent change experiments with new metrics.

Distributors, for example, have a mix of very profitable and unprofitable items, picks, orders, and customers hiding within averaged-out, aggregate financial numbers. Instead, create a cost to serve (CTS) model to expose the big profit cross-subsidies and then pursue a new metric like: make 100% of customers profitable.

Continue reading 50. Analytics in Distribution, Theories, Bias Inefficiencies and Courage

31. What’s New In Distribution Strategy? Not Much

“Distribution Strategy” is a mature 50-year old. But, 90% of distributor’s (that do financial performance surveys) need some Strategy homework. Their 15-year-average grade is 7% Return on Total Assets while the top 5% have been scoring 22%+. What strategic wisdom are the Distribution Strategy Nerds following?

IMITATE THEIR STRATEGY GUIDELINES  

Actually, don’t imitate anyone’s strategy. Their competitive soup and strengths aren’t yours. But, do imitate guidelines that generally work for distribution channels. Like:

  1. The power — in mature, consolidating channels in which 90% of sales are on commodities in global, excess supply — has shifted to the larger, growing/consolidator end-customers. So:
    1. Partner and retain these customers better than your competitors to grow faster and more profitably. (Do all employees know your top 10 customers by heart?)
    2. What do these customers want? More supply-chain value and/or lower cost solutions. (Get/learn: Line Item Profit Analytics (LIPA) and Cost-To-Serve (CTS) Math to sell them what they want.)
  2. Don’t service all customers with the same standard service model and experience. You will over-serve 50% of your smallest accounts and under-serve 5% of your biggest, profit (potential) accounts.
  3. Shift your service-people, activity time and costs to be proportional to each customer’s profit potential (the reverse of #2). Then, eat competitors doing #2.
  4. Service-value metrics vary with the needs of each customer niche. And, bundled or unbundled services with the product prices depends upon customer volume and average order size.
    1. Tiny customers pay for most services a la carte.
    2. Big accounts can get “extra services for free” if they meet some target Sales and Sales per order.
    3. Find and cure the Big-Sales, Small-order customers that are killing both parties with hidden activity-costs from too many, small orders.
    4. Get the LIPA and CTS analytics to support guidelines 4.a-c.
  5. With customer profitability analytics identify your Core customers: the 10-20% that provide 120-140% of your profits to pay for your losing accounts. Do a “Core Renewal” to: 2X Sales; 2X GM$s/employee; and 5X Profit Dollars/employee.

EDUCATION/EXECUTION SUPPORT:

24. CEO Sales Calls that Win Huge, New Profit

The CEO, Profit-Sales-Call Formula:

  1. Do a customer profitability ranking.
  2. Personally call on the #1 (or few) most profitable accounts.
  3. Use your title to win audiences with higher ranked folks reps don’t get to see.
  4. Have maximum account information and pre-written, best questions in advance if need be.
  5. Besides saying “thanks” and “showing the flag” have these goals:
    1. To do an immediate (or pitched for) “audit” of the buy-sell, inter-business process that has evolved between you: so far, un-managed and un-tuned. Find inefficiencies to fix with your people and dime. The account’s profits over-justify the investment.
    2. Improve the customer’s profits by the reduction of their “soft costs”. Find ways to consolidate small, frequent – line and invoice – purchases that also cost the customer recurring – downtime, expediting and emergency small order- costs. (You will save matching service-activity costs!)
    3. Find, deserve and win more share of sales.
    4. Continue reading 24. CEO Sales Calls that Win Huge, New Profit

18. Re-Think 2016 Sales-Growth Plans

Are your 2016 Sales-Growth Plans guided by some of these unspoken, dated assumptions?

  1. All expenses are fixed (for the time being).
  2. Incremental, new sales and Gross Margin Dollars (GM$s) (less some commissions) flow through to profits and earn more rebates at year end. Carpe economies of scale!
  3. To get more sales, get more reps to make more calls on more accounts with selling scripts for products from “key suppliers”.

Why Are Macro and Micro Numbers Flashing Red?

Continue reading 18. Re-Think 2016 Sales-Growth Plans