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.
Scene #1
https://www.youtube.com/watch?v=TpBcwGOvO80 (2:12 minutes)
The analyst tells the general manager that the league has always measured what was easy to see and count and has been asking the wrong questions. In his words, “You don’t want to buy players, you want to buy wins.…runs…and on base percentage” (OBP: was undervalued back then).
Discussion Questions:
Do promotional deals on commodities (items sold by others, too) create more primary demand? Can you teach customers to value service or price? Does this yield any sustainable competitive advantage?
Or, do you want to keep, win, and create more profitable-sized orders in which the gross margin dollars in the order exceeds the cost to serve (CTS) dollars for the order, creating profit dollars? Here is a shorthand profit equation:
GM $s – CTS $s = Profit $s
Scene #2
https://www.youtube.com/watch?v=yGf6LNWY9AI (2:08 minutes)
The analyst explains industry biases and how math cuts through the noise and flawed opinions to get to a key value number(s).
Discussion Questions:
A key cost to serve number to pay attention to is higher average gross margin dollars per invoice. So, why doesn’t an account’s average gross margin percentage correlate to its net profitability? Why do reps receive incentives only on gross margin dollars? Are they indirectly incentivized to give away extra cost to serve dollars to keep or win more gross margin dollars? Do large, small average-order customers kill themselves with unnecessary costs too?
Scene #3:
https://www.youtube.com/watch?v=pWgyy_rlmag (4:15 minutes)
The scouts suggest using replacement players for those stolen by big budget teams. Their funny opinions don’t address the real problem. The A’s tiny budget can’t afford free agents valued in traditional ways.
Discussion Questions:
Can a distributor of any size focus on its most profitable customers, in order to provide next level service and help consolidate unnecessary purchasing costs? Could the goal be win-win activity-cost savings and more share of the account?
Scene #4:
https://www.youtube.com/watch?v=DtumWOsgFXc (4:23 minutes)
The analyst and the general manager override the scouts’ ideas using new on base math. The scouts protest!
Discussion Questions:
Use analytical insights in distribution to increase profit for your company as well. While no math models are prefect or can guarantee 100% success, effective analytics enable statistically smarter resource bets for your company. Lastly, can your team afford not to get educated about cost to serve analytics? How can cost to serve analytics help you create a core renewal of your most profitable customers?
Use Analytical Insights in Distribution to Increase Profit For Your Company As Well
For easy answers, email me at [email protected]. Let’s set up a free GoToMeeting-style tutorial so you too can use analytical insights in distribution to increase profit.