February 12 2003 - Distribution Channel Commentary # 11 Merrifield Consulting Group

February 12 2003 - Distribution Channel Commentary # 11



            If you know what these commentaries are all about, go to “TOPICS” below; otherwise, read on.




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“Where are you going with this series?” is a question that a few clients have asked. “I’m not totally sure” is the honest answer. I do have some big picture, longer-term themes and objectives that I started out with, but I also take random bites out of the current business news stream and try to add value to them. 


From the grand design perspective, here are a few big, personal assumptions that I have committed to starting back in the fall of 1999 that have since shaped all that I have been writing about.


a.       In December 1999, I could see the forthcoming dotcom crash and had concluded that the US markets were going into a post-bubble, long-term, “secular bear market” which may will persist for a few more years. I liquidated what stock investments and options that I personally had by the end of the bear market rally in the Summer of 2000 shifting into both zero coupon bonds in my IRA and cash in CD’s. In a bear market, all capitalists will lose wealth, the goal is to minimize the losses. I have had and continue to get great advisor help on these decisions. For the best, investment-advice newsletter value on the web bar none, check out Richard Russell’s service. You can get some free samples of his daily commentaries at this URL: http://www.investmentrarities.com/archives.html. Scroll down to his name and read what’s there. He reports 6 days a week for $250 per year at www.dowtheoryletters.com. I have also been a fan of Gary Shilling’s view on global deflation and the bull market in zero coupon bonds especially for IRAs since ’84.

b.       By the Spring of 2001 I had become convinced that the US and all G-7 democracies had entered into a post-bubble economy that would be a similar, but perhaps a lighter version of what happened during the great depression and in Japan since 1990. Hence, the title of both the E-BOOKLET and one of its articles .”.a different kind of downturn.” This has been, of course, a very unpopular view even to this day for a number of reasons. But, I’m not in the feel-good, do the same thing more efficient, edutainment consulting niche, I just try to call the world the way I see it and offer prescriptions for dealing with that view. It’s axiomatic that if you keep believing and doing what you have always done, then you will keep getting what you have always gotten, or worse, if the economic tide is going that way. The first 3 to 5% of the population that figures out the new emerging rules of the capitalist game and can change accordingly do the best. Some very hard-working, fast followers may survive, but not thrive. On this theme, I, again, had big help. The best, most-right, prolific-writing, free, economic advice on the web for the past few years has been contributed by Stephen Roach at Morgan Stanley. I have listed URLs for some of his comments in past commentaries.

c.       While global stock markets may be in bear mode, there are always new bull markets emerging somewhere even though they may take a few years to gestate and many more years before the thundering herd piles in. While stocks continue to go South, for example, commodities and notably gold continue to appreciate in direct proportion to how fast fiat currencies are being debased. G-7 countries are already pumping up money supply to lower interest rates to accomplish several things. First, it allows the last hired, first fired consumers to borrow and spend or “invest” in non-productive assets (think “house”); this keeps the economy treading water until the debt can’t be serviced, because China is eating jobs faster than we can reinvent ourselves. Then, if the currency is debased, the 95% of the voters who are also debtors can pay for their loans in cheaper dollars as well as keeping some jobs from being exported to countries with an even more devalued currency. How many lenders (the other 5%) with assets parked in money market funds have figured out, for example, that if they had just been in commodities (or Swiss Francs without interest!) over the past year they would have 25%+ more spending power in US dollars? The commodities aren’t appreciating. All fiat currencies are instead being debased and dropping at different rates.

What’s the next bull market for management needs? I believe it is to first figure out that we are in a post-bubble economy in which the rules have changed and then to start practicing what I call “high performance service” practices and educational methods.

If you skim the summaries of past commentary topics below, I believe that you will see how these three big themes play through them. The big question I have for you, is do you believe in them yet? If not, why not? I would be delighted to hear from any of you pro or con.  




#1 (11-12-02)


1.       Different paths to increasing productivity.

The news item spark for this topic was the 11-7 news item that US productivity had increased by 5.3% over the past 12 trailing months. The two ways for doing this were: cutting costs faster than margin and sales volume erosion. Or, strategically downsizing, upgrading,

#1 (11-12-02) continued:


refocusing on core profit power sources to revive all employees’ awareness and creative energy in further dominating the highest customer profitability niches that are buried within all of the product promotion, volume driven activity within a typical distributor’s customer portfolio.


2.       Got your China deflation strategy in place?

China is becoming the world’s manufacturing center in at an unprecedented speed and scale. This will continue to liquidate high-paying factory jobs in the US at companies that have huge and growing pension liabilities. It will cause deflation in distributor product lines as their own people costs continue to rise. And it will shrink market size for distributor to industry volume. These factors will then have other negative secondary effects which all distributors should understand, anticipate and adapt to.


3.       Video case study question: “how do we improve our pay system?”

Guidelines are offered for creating productivity-profitability improvement gainsharing incentives at the departmental level.


#2. (11-19-02)


1.       Weekly Economic data versus the bigger picture

Because there is too much daily, weekly and monthly economic and business data which then gets constantly revised 3 to 6 months later in footnotes somewhere, it is important to be able to look at the big, longer-term trends and bet your resources accordingly. This comment offers three web articles and source sites that will give you the honest, big picture as opposed to what is reported by the media, wall street and government officials who all have editorial policies geared toward perpetual optimism in the face of serious, global, structural economic problems.


2.       Housing Bubble has topped; building supply channels “heads up”

This lists a number of economic trends that suggest that there is a housing bubble, more or less across the entire nation and that is in the process of forming a top. There are also a number of economic trend conditions that foretell a deflationary downturn ahead. This will obviously impact all channels that feed goods into housing.


3.       How to raise your prices

The news spark for this comment was UPS announcing price increases in the face of softening demand. It goes on to explain that the average distributor has a lot more economic clout to renegotiate losing contracts, especially with large volume, losing accounts.


4.       Distributor Case Study for goal setting season: How employees can earn higher health insurance premiums through gainsharing.


#3 (12-06-02)


1.       New Year’s Health (resolution) success rates

Raises the question of whether last year’s and this year’s corporate goals will succeed any better than the average New Year’s Health resolution.



#3 (12-06-02) continued


2.       Roone Arledge: An inspirational rule changer moves on

The news spark: Roone Arledge died on 12-5-02 at the age of 71. He was a perpetual innovator who transformed last-place dogs into dominant #1 money-makers. If we keep doing what we are doing and try harder, we will keep getting what we have been getting with more unintended side effects. Draw inspiration from this rule changer’s style and business moves.


3.       Economic headwinds or tailwinds in 2003

In response to Wall Street cheerleading for rallying stock markets, this comment reminds the readers that I believe then and now that we are in a long-term bear market, because of a number of structural headwinds topped with long-term investor psychology that has not yet run its course. A few links and site sources are offered to help the average executive to get the real economic story that does not come through the media.


4.       Rethinking change/transition management

Because only 3 to 4% of all companies achieve sustainable, breakthrough results from their program initiatives, the rest of us need to improve our change management/implementation skills. This comment offers some best references for educating not just management, but all employees on how to be better change artists for everyone’s sake.


5.       Case Study: An in progress MRO distribution survival story

After several rounds of lay-offs, wage reductions and the use of a break even gainsharing incentive for all, this case study distributor discovers the power of using customer profitability ranking report productivity tactics covered in bite-size video modules in our transformational solution in a box, “High Performance Distribution Ideas for All.”


#4 (12-12-02)


1.        A review of the book, “A Stake in the Outcome”  by Jack Stack .


2.       Case Study: “Bruce what is my building supply distribution company worth?”


3.       Post-Bubble economics problem – why “exit options” (for professional roll-up investors) and company valuations will be flat to falling for some time.

This comment refers the reader to an issue of “the credit bubble bulletin” which explains why debt encumbered buyouts in a mature businesses may have headwinds in the years ahead after having tailwinds from ’82 to ’00. Consolidating, cost cutting and flipping won’t work over the next 5+ years. How many will figure out how to become high-performance service management value-added managers?


#5  (12-18-02)


1.       Ready for year four of the post-bubble economy?

This blends mid-December economic news with two sets of forecasts for 2002: the ones from all of the experts who have been very wrong for the past few years and will continue to be wrong and Stephen Roach who’s been right. I’m with Roach, we will muddle along with “growth” that continues to see unemployment rise and the S and P 500 hammered. “Stimulation’ plans from Washington to perpetuate borrow-to-consume our way to prosperity will continue to make our malaise last longer and eventually be worse. Tough news, but the antidote follows in #2.

#5  (12-18-02) continued


2.       Downsize, upgrade + refocus, rethink and revive in 2003

Makes the case that you can only layoff and cut wages and costs once before smart employees start to leave. first psychologically and then physically. The second part of the formula has to be implemented NOW! An entire menu of applications and references is offered. The punch line is buy our video on a guaranteed, trial basis to begin the transformational journey or risk harvesting away.


3.       Apply “appreciative inquiry” to your #1 historic, strategic niche

Defines a simple, but powerful discussion tool and approach to doing what you already do very profitably and well a lot better. A few web sources our provided.


#6 (01-08-03)


1.       The elephant factors missing from most 2003 forecasts

After reading all of the media delivered economic forecasts for the economy and the stock market averages, ask yourself if you would bet your company and personal investment savings using these forecasts over the past three years. If the forecasts don’t pay due respect to: the China effect; the debt towers/exhaustion weighing down on the US; the high valuations of the markets based on core, trailing earnings; the growing, consuming pension under-funding problem; the US dollar implosion problem; or the US housing bubble’s end-game possibilities then they are not wise forecasts. Read about them and rethink your own forecasts.


2.       Time for “clawbacks” at all levels of society

From the Federal (macro) to your personal retirement funds (micro), there will be ever bigger, tougher promise breaking that will have to go on in our society over the next 5 years. This outlines the why’s and how’s. An ounce of prevention now will be worth a pound of cure later.


3.       Serious “value-added” reinvention attempts – case studies

Three distribution specific and web site references for what distributors are doing to get better paid for their service value-added propositions. Then, if you want a distribution-specific, educational solutions for getting better paid for what you do: a list of steps, articles and of course the video plug.


#7 (01-15-03)


1.       Your economic forecast assumptions for 2003

Offers three latest, best, overview reads on the web for this on-going problem. Note that by the end of January 90% of all media promoted forecasts have already proven to be too optimistic by 50% or more. Forget the degrees, show me the competence in forecasting for the past three years in a post-bubble economy, a very “different kind of downturn” – our working title since July ’01.


2.       Wanted: A new profit model with all on board

This one is sparked by a Washington Post article entitled “When Business Plans Go Bust.” Extensive commentary on why the “learning company” fad went bust and why most businesses still have a huge “knowing – doing gap” and what to do about it with a lot of references.


#7 (01-15-03) continued


3.       Where are we going to get new growth?

By total-team refocusing on the 5% or less of active accounts that generate over 80% of a distribution location’s current profits and the 5+ accounts that are most likely to give a location 80% of its new profitable growth over the next 5 years, good things can happen. A big list of how to’s for taking the target account strategy up a few levels over what competitors aren’t doing.


#8 (01-22-03)


1.       Tough economic times persist; hope isn’t a strategy.

A list of grim, big, structural economic news followed by a stop hoping things will get better and lets reinvent our business productivity and value-added pitch.


2.       Manufacturers’ channel frustrations

Sparked by the concerns of two manufacturing clients – one in a big volume, commodity business, the other a niche product manufacturer. This is an extensive review of how to rethink “continuous replenishment” initiatives for the commodity manufacturer and how to rethink channel strategies for the niche manufacturers. Distributors that insist on past practices will be part of the problem instead of being part of a co-created, reinvented set of practices.


3.       Fill-rates as an organizing theme; a distributor case study

A first-user of our new video shares his success story in which buyers, warehouse staff and inside sales people put optimizing fill rates ahead of pennywise-pound-foolish cost containment goals for huge gains.


#9 (01-29-03)


1.       Stalled Economy; How to Grow Profits?

Because free market facts and news keeps embarrassing media economy and stock cheerleaders, we have to figure out the deflation cycle from other sources (web site graphic). Then, mini-case/lessons from Stanley Tool, Home Depot and McEmpire’s latest economic predicaments.


2.       Tips for refocusing on your best niches

Offer a 5 step process with references to detailed, how to back up sources for defining what a distribution location’s #1 historic niche really is and how to personify that with 5 best customers. Then, more references on how to compete on value-added and get paid for it niche, by niche.


3.       Team focusing on key accounts, “next level” ideas from readers

This builds on DCC#7.3 by sharing specific how-to’s from early, successful users of our video starring “heroic actions”(and action hero awards) for target accounts.


4.       Educating all employees – affordable solutions


5.       “High Performance’ video users’ share-ware


#10 (02-05-03)


1.       Distributor hope data amidst a sea of gloom

After a big review on why tough times are here to stay for some time, a review of different financial performance studies just on wholesalers. 90% have returns that have already trended

to the point of where liquidation and investment in muni bonds is a serious option. But, the top 10% and really the top 5% in all channels are doing consistently very well; 4 to 6 times the return on equity of the average distributor! If they can do it so can many of the rest ,if they are willing to try some high performance service management beliefs and methods.


2.       Getting paid for service value (really!) – case study

A reference to valuepartners.org’s latest case study which really is a freak of business nature story. I go on to point out that about 3% of all customers and distributors are capable of creating and maintaining a win-win, higher-level economic system supply relationship. Then offer criteria for targeting who can do it and a nine step process for making such a system happen and last.


3.       Let customers strategically manage your core inventory

After citing a good web read on “category management” by suppliers in retail stores, the concept is modified to apply to core 5 customers helping a distributor pro-actively improve their one-stop-shop assortment of items for their #1 niche. By selling more old and new items to heavy, past customers the flow through of margin dollars to the operating profit line is the highest possible.


3.            E-FEEBIES FROM MCG


Please feel free to request any e-mail deliveries of the following items that have been mentioned and offered in commentaries #1-10. Hard copies of all of this material can be shipped with our “High Performance Distribution Ideas for All” video for which satisfaction is guaranteed! All of these documents will also be posted on our new web site by March 1st at the latest.


A.       The first 27 pages of the “Implementation Guide” that includes: table of contents; how to use the guide and video modules; the learning methodology built into the 53 modules and the summary notes with objectives for all the modules.


B.       A 74 page Study Question workbook to be reproduced locally as needed for all employees who take the course. The original plan was for a video user to make copies out of the guide as needed. A regional plumbing supply distributor requested this study question workbook option, however, and is quite satisfied with it.


C.      The 45-page “E-Booklet” entitled, “New Solutions For a Different Kind of Downturn.” This is promoted at the top of each commentary. Besides the 11 latest articles written since June ’01, there is a list of our 24 and growing list of resellers for our video who all sell it for 50 to 65% off of our list price of $995.


D.      Copies of any combination of individual commentaries, 1 through 10, or all of them edited into one PDF file of 52 pages in length.


E.       A 2 page exhibit for “rethinking systems” which is a pragmatic, but comprehensive checklist for guiding all of the people who are involved in a inter-departmental process to rethink it to make it more customer and employee friendly and effective.(Mentioned in DCC#6-Process Engineering)



F.       A summary of our nine stages from EDI to “collaborative planning forecast replenishment” (CPFR) between channel partners.(DCC#8-Nine stages)


G.      A 30 page summary of “Niche Marketing Guidelines” which has been particularly useful to both independent niche product manufacturers that are frustrated with consolidating channel frustrations and to consolidators of niche manufacturers that have found out that selling one-stop-shop for an array of niche manufacturers doesn’t work so well. (DCC#8)


H.      A Power Point slide show on “Vendor Education-Motivation Companies” that outlines how the web may be used for marketing niche products through channels in the near future. (DCC#8)


I.        A 21-slide, power point slide show used by an industrial packaging, Jan-San distributor for explaining his companies use of and success with the “High Performance..” video to regional meetings of his international buying group.(DCC#9)


J.        The one-page form used by a regional distribution chain to get all employees to personally commit to being part of the proactive solutions recommended in the “High Performance..” video that they are all using. (DCC#9)


K.       Any specific articles that are referred to in a commentary which you temporarily can not download from our transitional web site at www.merrifield.com.







Bruce Merrifield