Category Archives: Cost-to-Serve Math

92. Tight Labor Market Challenges? Here Are Solutions!

Cost-to-Serve Math, Distribution Strategy, Index, Service Value Innovation Guidelines, WayPoint Analytics

A February 2017 survey by Vistage Worldwide found that 67% of small business owners report a shortage of skilled workers. To try and bridge the gap, 87% have increased recruiting and 60% have boosted wages.

The answers beg more questions

But, what company doesn’t worry about skilled worker shortages, recruiting, and wages? Continue reading 92. Tight Labor Market Challenges? Here Are Solutions! →

61. Discussion Exercise: Lessons to Be Learned from Moneyball

Cost-to-Serve Math, Index

The critically acclaimed book turned Hollywood movie, Moneyball, tells the story of the Oakland Athletics baseball team and their industry-changing approach to winning more games per payroll dollar than any other team in history. How did they do this?  By being the first team to use analytical insights in distribution to increase profit instead of traditional player valuations.

The movie has strong messages, and you might be surprised to find they can be applied to your distribution business.  Below are YouTube links to a few of the most important scenes, plus some discussion questions. Watch the clips and add your own questions to spur management team discussion that will help you go beyond tradition and into the brave new world of analytics. Continue reading 61. Discussion Exercise: Lessons to Be Learned from Moneyball →

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

Cost-to-Serve Math, Index, Profit Analytics

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

Cost-to-Serve Math, Distribution Strategy, Index

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

Core Renewal, Cost-to-Serve Math, Distribution Strategy, Index

“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: