Category Archives: Index

141. What’s Your Flywheel?

Core Renewal, Cost-to-Serve Math, Distribution Industry Sales, Index, Service Value Innovation Guidelines, WayPoint Analytics

Flywheel?

It’s a term popularized by Jim Collins (author of: “Good To Great”, etc.) The idea is that within great companies there is often a virtuous-cycle with about 4 to 6 steps that drives profitable growth. Each step reinforces the next. The entire cycle compounds itself.  The rich get richer, and the poor? Well, they work hard to deliver commodity-value for poor results.    

Collins’ New Monograph:

Collins recently published: “Turning the Flywheel: A Monograph to Accompany Good To Great”. It’s a quick, concise, recommended read. His concepts aren’t new, but his terms are catchy and inspirational.

And, Collins distills – an entire process for creating a flywheel – into a simplified (not simplistic) brilliant whole. For summary pictures Google Image: “Flywheel + Collins”. To see the flywheel that is eating into all physical, product-push, un-digital channels, Google image: “Amazon + Flywheel”.

Two Problems with Collins Framework

First: most companies don’t have the requisite capabilities to make big changes away from their complacent, hidebound status quo. Collins’ updated framework has four stages with 12 underlying capabilities – including looking at the “Brutal Facts”. Who, for example, wants to confess to tolerating incompetent and/or complacent players, having flawed, data-free beliefs, or having 30-50% of their customers being net-unprofitable?

Second: his monograph is necessarily generalized. What’s a best, distributor-specific flywheel strategy? Answer: at youtube search for: “merrifield + service profit”  to find my 7-minute adaptation of “the service profit chain”.  Then, for implementation specifics, request my free “Core Customer Renewal Roadmap” ([email protected].)

Roadmap Warning: Data-Free, Emotional Objections Ahead

In many presentations, audiences have agreed with the logic of my version of the Service Profit Chain. But, when management teams read through my Roadmap, the “concerns” start to arise. Write them down. Gently unpack their origins. Forgive past mismanagements; “we were doing the best we could with the analytics we didn’t have.” Test the data-free assumptions with statistical data and surveys of parties “who won’t like this”.  Maintaining the status quo is not an option in a fast-changing world.   

The Necessity of a Service-Excellence Flywheel

Physical, Product-Push Channels are under siege. Whether Amazon-Business nibbles or chomps into your channel over the next few years is one concern. A bigger concern? All next-gen, B2B buyers want digital-buying experiences and empowerment. Without flywheel profit-power, can you innovate to meet customers’ growing digital needs?  Or, will top 5% already-Great distributors innovate faster and eat your lunch?    

Come and meet me at MDM’s Pricing and Profitability Summit, in Denver, on April 15-17. I’ll make it easier for you: use coupon WayPoint2020 to get 100$ upon registration. See you there. https://pnp.mdm.com/

139. Better Mental-Models for Profit Power

2020 Companies, Concierge Customer Service, Core Renewal, Distribution Strategy, Index, Service Value Innovation Guidelines

Mental-Model Fuzziness?

We make decisions from a stew of emotions, beliefs, biases, and mental-model assumptions. Models approximate reality, so each has its blind-spots. But, a robust set of models can minimize oversights and help to make better business decisions.  

As a management team exercise, try writing down your models. Then, test them further with analytics, stakeholder surveys, and team discussions. Some common, flawed beliefs follow to get you going.         

Financial Model Beliefs 

  • Do you pursue greater sales to get economies for better buying and to spread fixed costs?
  • Do you grow sales by maximizing selling pitches to more customers to get more margin dollars? (And, why not sneak up prices too? Buy low, sell high!)   
  • To control costs, do you pay “fair” wages, run lean, and keep everyone busy? Then, won’t a bit more of each incremental, margin-dollar flow to the profit line?   

Financial discipline is good! But, the belief-questions above all have flaws and blind-spots. For example, does “make the numbers” work against investing in FedEx’s service-excellence model of: “People, Service, Profits”?

“Good Service” Beliefs

“Good service” is a commodity; it keeps you in the meet-the-price game. “Best service-value” – in the minds of targeted-customers – wins!  But, what are your assumptions for choosing initial segment(s) of customers to target? Can’t service-value metrics vary subtly and importantly for each customer niche?    

Target-Customer Beliefs

“Financial-Think” assumes bigger customers are better, and all are good. But, what if two customers are equal in both sales and margin dollars, but vary in average order size by 10X? Isn’t the small-order customer less profitable?

Cost-to-Serve analytics reveals that about 20% of big-margin-total accounts are typically net-profit losers.  They have too many small-dollar picks and/or orders that cause big, unnecessary activity costs for both parties. Win-win fixes are possible!  

People cannot process two orders at the same time. What is the opportunity cost of processing losing-orders from losing-customers? You can’t pursue, win, and process bigger orders from more net-profitable customers when consumed with losing Busy-Ness! So, what are your order-size-economic assumptions informed by Customer and SKU net-profit analytics?       

Innovation Beliefs/Conclusion   

Studies conclude that 60-80% of premium profits that star companies earn comes from innovations. Top 5% distributors grow faster and make 2-4X the ROI of the bottom 90% of distributors. The Stars are playing a better mental-model game! Why not upgrade your mental-models too?

For more mental-model testing, request my free: “Core Customer Renewal Roadmap” ([email protected]). 

137. Amazon’s Channel-Model Innovation Challenge

AmazonBusiness, Big Data, Distribution Industry Sales, Distribution Strategy, Index, Supply Chain Partners, WayPoint Analytics

LEVELS OF INNOVATION: INCREMENTAL, BUSINESS-MODEL, CHANNEL-MODEL

All businesses innovate. But, rearranging the deck furniture on the Titanic (an incremental innovation) is not as powerful as getting an iceberg-resistant ship or an ice-berg-free route.

Business-model innovation is when you rethink the system of how you organize your resources to create a breakthrough value for some target group of customers. You may also, simultaneously, eliminate wasteful or dying activities. Common phrasings: Weed to feed. Prune to grow. Downsize, Upgrade, Refocus and Revitalize. Do a “Blue Ocean Strategy”, etc.

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136. SELL WIN-WIN, LOWER PRICING (?)

Big Data, Concierge Customer Service, Cost-to-Serve Math, Distribution Industry Sales, Distribution Strategy, Index, LIPA, Profit Analytics, WayPoint Analytics

PRICING EFFICIENCY ISN’T PRICING EFFECTIVENESS

Practice good-pricing hygiene. Don’t underprice SKUs or customers if they will continue to (happily) buy from you at higher prices. But, consider also the positive trade-off of lower prices in exchange for larger average order-size buying. What are your general buying and selling incentives for increasing order size?

CASE STUDY ON ORDER-SIZE ECONOMIES

For 2018, a $100MM contractor-supply distributor had roughly 4000 active accounts. More facts:   

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135. Fix Your CRaP Items and Their Root Causes

AmazonBusiness, Big Data, Cost-to-Serve Math, Distribution Industry Sales, Index, Line Item Profit Analytics, LIPA, Profit Analytics, WayPoint Analytics

AMAZON’S WAR ON CRaP

Amazon’s analytics can identity SKUs on which they “Can’t Realize a Profit” (CRaP). Even with their improving, world’s best fulfillment and last-mile delivery costs, they can’t cover costs on items lower than $15 per pick/order.

AMZ’s fixes to date?  

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134. The Small-Customer, Small-Order “Lollapalooza Effect”

2020 Companies, Big Data, Core Renewal, Cost-to-Serve Math, Index, Line Item Profit Analytics, LIPA, Profit Analytics, WayPoint Analytics

Lollapalooza Effect: (A Charlie Munger term) When multiple cognitive biases reinforce one another within a group, irrational beliefs will take over.   

THE PROBLEM WITH SMALL CUSTOMERS WITH UNPROFITABLE, AVERAGE-ORDER SIZES

When distributors create a Cost-to-ServE (CTS) model to estimate and rank customers by net-profitability, there are typically two, customer-group shocks:

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