“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:
- 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:
- 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?)
- 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.)
- 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.
- 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.
- 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.
- Tiny customers pay for most services a la carte.
- Big accounts can get “extra services for free” if they meet some target Sales and Sales per order.
- Find and cure the Big-Sales, Small-order customers that are killing both parties with hidden activity-costs from too many, small orders.
- Get the LIPA and CTS analytics to support guidelines 4.a-c.
- 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.
- Attend APIC Canada in Toronto on Sept. 22nd
- Learn/Get LIPA Management and Cost-to-Serve at Waypoint Analytics
- Google – “Merrifield + core renewal” – for how-to details for Guideline #5.
- For a tutorial on Strategy and to test the strength of your existing strategy, visit: http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/have-you-tested-your-strategy-lately