A monster distribution chain CEO asked for ideas to include in a regression analysis. Then, they had hired a consulting firm for $500,000 to co-identify ninety-six financial factors to correlate with branch return on assets. What Makes a Profitable Branch Profitable in Distribution?

Thinking of some of the prioritized factors in my kinetic chain model, I asked whether they had:

• One number to score the quality and years-in-place of the branch managers? (Management)
• One number for share of the number one target customer segment? (Strategy)
• The number of credits per thousand line items processed? (Systems)
• The number for gross profit dollars per full time equivalent employee? (People)

What? How? Why?

For confused faces, I explained my kinetic chain model (google: merrifield + kinetic chain). And, while, all agreed with my general assumptions, the project manager complained that this seemed like a lot of extra, confusing work for imprecise guesstimates.

I suggested that:

• Invented, approximate scores were better than pretending that all branch managers and customer segment shares were the same
• Theories worth validating and creating valuable insights will,  take some novel work
• Potentially, none of the ninety-six metrics were as important as the one question of who was running the branch
• We do a 30-minute brainstorming session on how to create and get these new numbers

Then, we did the session. Good-enough solutions emerged. The team was on the hook.

What we found was that the ninety-six factors had no helpful correlations, but the metrics for management, systems, and people all had strong correlations. Additionally, the strategy metric had a weaker correlation, but stomped the easily-gathered ninety-six factors.

My Interpretation  

In conclusion, to turn around a weak branch you must insert a zealot to weed out the coasters and hire a few people with a good work ethic to make your brach profitable in distribution. In addition, you must boost service excellence, energy and standards while pursuing a zero errors approach. With fewer errors you will gain lower credits/thousand lines processed, boost your gross profit per full-time employee, and improve service reliability for all customers.

Further, you should visit your top 20+ customers to find ways to focus on competitors’ weaknesses or oversights and to uncover the branch’s accidental, hidden, and historic service strengths. But, winning a bigger share of big accounts does not guarantee they will have a profitable average order size. To consolidate unnecessary, unprofitable small orders, you need a cost to serve toolkit plus education.

Finally, to learn more, catch my upcoming presentation at APIC in Phoenix!  The Advanced Profit Innovation Conference is being held in Scottsdale, AZ, April 20-21, 2017. Or, email me at  bruce@merrifield.com.