A distributor recently shared his success story with other distributors at a conference that I was participating in. He told how he had to get through some pretty big fears to capture the big profits that result from solving the heretofore, unmeasured, buy-sell inefficiencies that exist between all channel partners. The crowd loved it! Thanks to web video, you can see this video via several links at the end of this post.
So, Who Is Our Humble Hero?
Frank “Manny” Bonomo is a second-generation CEO of a one-location distribution company named Diamond Fasteners. Three years ago, he was working crazy hours to earn weak profits at best. But then, he was the first in his market to measure and solve the “hidden or soft costs” for buying fasteners. Channel players had always talked about hidden costs, but as long as they went unmeasured, it was a product/price fight.
Using Line Item Profit Analytics (LIPA) tools, Manny could see two things within customer buying activity:
1) Activity-Cost Inefficiencies that Hurt Both Parties, and
2) Ways to Improve Customer Uptime Productivity.
But, he wondered and worried about whether customer(s) would believe his analysis and allow his new solutions.
He Tried a Secret “Baby-Step” Experiment First
Manny called on many big accounts himself. So, with nary a word to a sales rep, he visited a big, friendly, net-losing customer. This customer bought about $100K the prior year at a 25% gross margin. Diamond’s service-activity costs were, however, about $30K resulting in a ($5K) net loss. Manny had found that there were too many: small picks, small orders and rush orders.
Using the customer’s own, buying-activity data, Manny was able to suggest some tweaks to the customer’s replenishment process. He offered to install the solutions at his (Diamond’s) own expense (about $2K) and monitor the subsequent effectiveness of the solutions.
The customer didn’t lift a finger or spend a dime to win big. Their conservative estimate for downtime cost savings alone was more than $15K per year — the equivalent of an across-the-board, 15% price cut from a fastener distributor!
As a result of this success, the customer felt economically compelled to give Diamond ALL of the fastener volume to be served by Manny’s custom-tailored, service tweaks.
Diamond’s sales doubled to $200K while service costs dropped due to larger average picks and orders.
The account is now yielding a net profit of 10% on $200K in sales with the same 25% margin rate. A one-time $2K investment in tweaks generated a $25K swing in net profit in year one with many hopefully to come.
Manny then had similar successes with profitable accounts resulting in profit margins growing from 2-3-4% to 8-9-10% also rewarded with big increases in share of customer-spend. He was becoming a Service-Value-Chain Consultant. His CEO title got him into see VPs of Supply Chains as well on to the plant floors to find the root cause(s) for the high-activity-cost symptoms. And, Diamond’s “Customer Intimacy Service” program was born!
How to Scale this Experiment?
To deliver similar pitches and tweaks to Diamond’s top 200 accounts, Manny had two big concerns:
First, he was concerned with how to get his sales reps to use “Activity-Math” to sell and install his re-tuning tweaks. The reps were currently paid on gross margin dollars. Why would they allow him to disturb a good GM$ account with a larger, losing Cost-to-Serve total? The ideal incentive plan to reward win-win supply-chain tweaks should be based on the net-profit improvement for each account. A scary idea!
But, with such a huge, proven, profit-improvement opportunity, Manny had no problem:
- Guaranteeing reps their previous year’s income;
- Trading some of his big accounts for their many minnow accounts that went to a new Small-Account Division with higher prices and unbundled services;
- And, team-selling the transferred big accounts with the reps. The reps could then do the installing and tuning of the “Customer Intimacy” solutions.
Manny’s second concern was getting the rest of the employees engaged and supporting the semi-custom, replenishment-system fixes for bigger customers. He decided to go “Open Book” so everyone could see how big the net-profit swings could be if they all worked together. With such a big upside potential, the odds that everyone would get good, gain-sharing bonuses were high.
“But It Wasn’t all Rainbows and Unicorns!” (Manny speech quote)
Manny’s subsequent results over two years were fantastic, and his videos will tell you that story. While you watch them, start living into these questions:
- What would I discover with the Line-Item Profit Analytics Management service he is subscribing to on a monthly basis?
- If he can do all of this, why can’t I?
- If I don’t do this, which competitor might steal my share of big account business with similar “Customer Intimacy” solutions?
Watch and learn from Manny’s 9-minute edited conference presentation here: http://waypointanalytics.net/customer-success-stories/
Or, for the full 18-minute Manny, hit this link: http://www.apicconference.com/APIC_videosBM.asp
Then, what’s your version of Manny’s offer to do a “soft-cost audit” (1.41 min) that’s on his web site: http://marketing.diamondfasteners.com/reduce-your-fastener-costs
And, Manny’s transformation couldn’t have happened without his paying reps on “net profit improvement” (or delta)(1.05 min): https://www.youtube.com/watch?v=CE8oXmWsroU
Big Data can uncover hidden, supply-chain treasure. Why not be like Manny and find it before your competitors do first?!
Give me a call at your convenience, and I’d be happy to show you how your company can take similar steps to do what Manny did for Diamond Fasteners.