The audience was rapt. Three distribution Execs from different channels were panelists at the 9th, semi-annual, Advanced Profit Improvement Conference (“APIC”). They were recounting how each had gone from negligible profits to $50,000+ per employee with sales growing on average 10-25% over the 2-3 previous years. How? By selling their customers differently, starting back in ’08 -’09, with the use of Line-Item Profit Analytics (LIPA).
What lessons did they offer?
- They all had false-starts with customer profitability ranking reports in the distant-past using transactional-cost assumptions (no net profitability numbers or insights for stock items). They were shocked to find that some of their best accounts were big money losers and many small accounts were money losers in spite of high margin rates. Since they didn’t know (back then) how to turn big-losers into happy winners or how to deal with rep compensation issues, the discoveries stalled. (details in YouTube Playlist 9: clips 1-5).
- But, with LIPA, a distributor can go deeper by using a “4-View-Analysis” of a customer (YT 9: 11-13) to discover pockets of acute losing activity for both parties that can be re-tuned into win-win solutions. And, new insights enable small accounts to be reassigned to a new service division that especially pleases the best reps (YT 9:26-27).
- The Big-Losing Accounts can now be approached in a collaborative way. “There is no bad guy here; we have data about your activity that suggests we could both eliminate a lot of hidden activity-costs and unnecessary downtime for you. The key is to re-think how we work together on small-dollar, high-pick items and some recurring, emergency, small-orders for those same item(s).”
- Most customers are then pleased enough to buy more to maximize the new system benefits. Collaboration on buy-sell-activity waste leads to partnering account-share!
- 95% of the small accounts are not growing and the standard, distributor service-model costs more than the margin dollars from these customers. As one CEO put it: “To lose an average of ($50) on 500 accounts each year plus their disproportionate costs for – returns; canceled special orders; and slow-pay games – isn’t healthy, and it’s a distraction from key account potential.” After “the minnows” were reassigned to a new, service-model division with profitable terms, all three distributors lost 10 to 30% of them over the next few years. Those that stayed became profitable by buying more, less often and at higher prices with delivery charges being extra. (See: Minnow solution cases: YT9: 22-32)
- The Actionable, Profit-Improvement metrics that ALL three are using:
- Percent of customers that are profitable
- Percent of peak customer-profitability getting to the bottom line.
- And, profits (and gain-sharing bonus) per Full Time Equivalent Employee (FTEE)
- How did the three panel firms progress on these metrics?
- An industrial-paper, jan-san distributor started with: 18% of all accounts profitable; 20% of the peak profits getting to the income line; and no gain sharing. After two full years, the numbers respectively were: 40%, 70% and $3200 gain-share/FTEE.
- For an OEM steel distributor: 40%; 20%; zero → 62%, 60%, $2800/FTEE
- For a fluid power distributor over three years: 20%; 9%; zero → 71%, 98%, $6670/FTEE.
- By solving hidden, buy-sell activity waste and getting more share of key accounts, all financial numbers improved dramatically. The fluid power distributor results were:
- Sales up 17% per year while active customers dropped from 1050 to 893.
- Average profits per customer climbed from $30 to $941.
- GM$/FTEE climbed from $98K to $197K versus a channel average of $124K. And…
- Profits/FTEE climbed from $1590 to $75,597 versus a channel average of $22,305K.
- Sales force reactions? The key is to sort them into three groups – Great; OK; and Small-Order-Account Reps – and then handle each group differently. With new incentives tied to profit improvements, the best reps on all of the “A” accounts are doing very well!
- Concerns about going “open-book”? Because LIPA reveals new gold and allows continual tracking of net profit improvement at the customer/item/supplier levels, open-book gain-sharing bonuses for all is a surety. It didn’t take long to get everyone’s – minds, wallets, and win-win hearts – engaged and aligned!
- The Execs? Working less hours with more spent on the business rather than in it. Less stress, more fun. And, enjoying being a hero to all of their happy stakeholders.
Is it time to: check out their case stories in YT 9: 20-93? Request a Waypointanalytics.com demo? Put the next APIC conference on your calendar? Embrace new metrics that are bottom-line actionable and become a hero to all stakeholders!
Bruce Merrifield, Jr.
*Sign up for the 10th conference in September in Phoenix at www.apicconference.com.
**“YT9:1-5” notation means my YouTube Playlist #9, clips 1 through 5 in that playlist of 116 clips. See annotated indexes for all 454 clips and rising at www.merrifield.com.