118. Financial Blind-Spots of Most Distributors

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

What Do Line-Item Profit Analytics Reveal?

Waypoint Analytics is the only cloud-service firm that offers distributors an array of tools based on a Line-Item, Cost-To-Serve (CTS) model, and a calculation engine. The firm has, over its 10-year existence, created CTS models for well over 100 distributors in over 50 different channels. The aggregate stats for this pool of progressive distributors are startling:

Total Sales                           $39.7B

Op Profits                            $2.19B (5.5% of sales)

Losing Invoices                  59% (down from a typical starting level of 65 to 80%)

Losing Customers            ($4.13B)*

Losing SKUs                        ($4.52B)*

(*The losses on SKUs and Customers include much double-counting overlap.)

Waypoints’ deep-dive tools uncover the root causes for profits or losses for both customers and SKUs; as well as the insights to fix unnecessary, small transaction activity for win-win savings. Why, though, do most distributors choose to not believe in, and then fix the losses hiding within their aggregated and averaged-out financial numbers?

Two Blind-Spot Bubbles: Financial Beliefs and Supplier-Product-Push-Incentives

Factories create and incentivize distributors to get their lines of products to markets. “Grow sales” for operational “economies of scale” is the blended goal. Some sub-themes in this:

  1. Hire more reps to get more accounts to get more sales. Yet, many rep territories are net-profit losers with too many small-order, losing customers.
  2. Incentivize Reps on margin dollars regardless of order size, and cost-to-serve. So, Reps give away services to grow and retain margin dollars. All margin dollars are good regardless of CTS.
  3. “We can always process one more (incremental) order for free; keep folks busy!” But, 70% of the average distributor’s line-picks are losers. Losing “busy-ness” is eating all proactive intentions.
  4. More volume gets more supplier rebates: an increasing percent of profits. Plan B: fix big customers’ unnecessary, small-dollar transactions. Save both parties costs. Earn more share of account. And, grow – sales, profits, and rebates – faster!

CONCLUSIONS

“More Sales” works better for the cost models of factories and rep agencies. But, distributors (with variable order-processing costs) lose on increasing small-dollar picks and orders.

Financials are necessary to pass audits, pay taxes, and borrow from banks. But, they are blind to customer and SKU profitability. Have both! Become more customer-centric and value-effective for big accounts to then grow faster and more profitably. All stakeholders will win: customers, suppliers, rep agencies, bonused employees and shareholders. For how-to’s? Request my “Roadmap” bruce@merrifield.com). Check www.merrifieldseminar.com and, find out there how you can help get this seminar in your home city!