185. Downsize (Upgrade and Reinvent) Tactics for Distributors

Tough Times’ Tactics

Since WW2, when the economy tanked, the drill was: freeze hiring, maybe weed a few. Freeze all investments. Cut all discretionary expenses. Try not to cave on declining incentive pay that is de facto salary. Wait out the recession, then get back to growing with: the US Economy; your industry; and/or the inflation in your product lines.

Today, though, we face an unprecedented, global-economy, C-19 shutdown/pause. This is favoring “Digital Disruptors” that are focused on stealing sales from traditional distribution channels. And, next-gen, millennial buyers are being more conditioned to expect more digital capabilities and (B2B) buying scenarios (v dealing through regular calling reps).

How can distributors simultaneously – downsize, upgrade and reinvent – what they are doing?

A Downsize, Upgrade Case:

A distributor roll-up had plenty of debt and a new, profitless branch with six trucks rolling out every day. Statistics revealed that they had a huge, small-customer, losing-small-order opportunity:

  1. 50% of the active accounts generated only 5% of the gross margin dollars on 25% of the warehouse transactions/deliveries for a net-loss.
  2. This sub-group of customers was using the equivalent of the full-capacity of two each: trucks, drivers, warehouse folks and inside sales reps (6 people total). The full cost of the trucks plus the six was over twice the contributed margin dollars from all 50%.

As an experiment, a letter was sent to the worst half of the 50% (that generated only 1% of the gross margin dollars) declaring new (profitable) terms. Then, the declining order-activity was tracked from: order-consolidations; new will calls (v. free delivery); and defecting customers. 10 of the 50% appeared to have switched to paralyze competitors. The rest bought in a new, profitable way.

As the transactional activity dropped, the least productive trucks and people were laid off. Remaining employees got “productivity increase” raises. Profits improved dramatically. And, sales then started to climb as fewer, better employees had the breathing room to take better care of the fewer, but better customers.

Moral: Don’t cut costs across the board; use focused, net-profit-analytics surgery. But, here’s one better!

Case Two: Invent Service Value, then Fix Minnows

A distributor team walked through their #1 most, net-profitable customer’s plant looking for inefficiencies in product flow and usage; communications; etc. The team identified 15 small fixes which they provided for free. And, new spend was: identified, asked for and won. For the account: sales doubled; average order-size increased by 20%; net-profits tripled; but, transactional activity increased by 60%. Hire more people! (?)

No! Headcount had been frozen. The new “innovation metrics” were to grow – Gross Margin Dollars; Operating Profit dollars; and Gainsharing Bonus dollars – per employee. Instead of new hires, they did a Minnow program as in Case One. Sales, rebates, profits and gainsharing all grew: all stakeholders won!

Final Lessons:

  1. Be surgically net-profitable with both downsizing and upgrading.
  2. For “digital transformation”? Let your most net-profitable customers guide you.
  3. And, watch 11, new webinars on net-profit-analytics plays and more:

Follow the series here.

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