November 3, 2003: Distribution Channel Commentary (DCC) # 46

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THIS WEEK’S TOPICS

  1. UPSIDE DOWN KETCHUP BOTTLE AS A METAPHOR FOR REINVENTING PROFITS
  2. BUSINESS EXEC ANTIDOTES FOR "NICKEL AND DIMED" RESENTMENT
  3. PEAK PERFORMANCE, TRAVEL-WEARINESS AND SALES REP TRAINING
  4. MICHAEL DELL SHOWS "VULNERABILITY IS A CORE LEADERSHIP SKILL"
  5. LITTLE BANKS LICK THEIR CHOPS OVER A BIG BANK ROLL-UP MOVE
  6. "CHINA’S FACTORIES WANT TO FILL OUR GARAGES" (and warehouses?)
  7. HALLOWEEN COSTUME GUESSES AT WHAT PANTS BRUCE WAS WEARING WHEN FILMING HIS VIDEO
  1. UPSIDE DOWN KETCHUP BOTTLE AS A METAPHOR FOR REINVENTING PROFITS

A number of books are coming out on "innovation, experimentation, new ideas waiting to happen, etc." perhaps because lots of mature industry companies have hit the profitability wall. Because cutting costs and trying harder in the same old way isn’t working for mature businesses, what should we do first to reinvent our value proposition for the best target customers in our best historic niche of customers?

In an edited excerpt article in Forbes magazine (link at the bottom) from the forthcoming book entitled: "Why Not? How to Use Everyday Ingenuity to Solve Problems Big and Small", there are pictures of both the old and new Heinz ketchup bottles. The new one has the pop-top for the base, so for the last half of the bottle’s life we won’t have to store it precariously upside down in the refrigerator. By following what customers actually do during the entire life cycle process of buying, using and disposing of a bottle of ketchup, Heinz found a breakthrough idea. "We believe this is the biggest idea in ketchup since the invention of the plastic squeeze bottle!" stated a spokesperson in the article.

Regular readers of this commentary series know that I have been recommending that distributors in mature channels flip some of their old thinking on its head. Some themes have been:

  • Stop thinking we make profits from me-too commodity products that are sold to too many customers that are unprofitable and/or have "growing nowhere" written all over them. We need, instead, to figure out how to sell a stream of (on average) profitable orders to and through the few, right profitable customers so that they get the lowest total procurement cost (TPC) while we get the lowest total sales/service cost. (How to do this? See Chapter One of our forthcoming book posted at www.merrifield.com for strategy maps that will lead the way.)
  • Stop thinking that we have and sell "good service" when it is actually not numerically defined and tuned for each niche of customer that we pursue. If our service isn’t measurably, consistently and distinctively providing the best total value in our target customers’ minds, then it needs to be. We need to have "the last-look-plus answer" when a customer gives us last-look to meet the dumbest, most desperate competitor’s price for me-too-products. (For more on – "defining, measuring, achieving, selling, getting paid for and leveraging perfect service" -– check out the 14 modules in section 4 in our "High Performance..." video; and/or, articles 3.1 to 3.5 at our site.)
  • Turn all employees into educated, cross-trained and economically motivated parts of the service reinvention solution instead of parts of the passive, resistant, status quo problem.
  • Convert outside sales reps from product pushers into supply chain, process replenishment solution sellers who can sell the best, one-stop-shop, highest fill-rate bundle of items (and related services) to and through the right, fewer, customers that have a profitable growth future for both of us. How TPC fluent are our sales reps? (Start with article 4.2 and this exhibit: ./exhibits/8elements.pdf.)

There have and will be more themes involved in "reinventing distributor profitability", but will we have the courage to turn old, channel cultural habits on their head? If you want more on this subject, keep reading this, future and past commentaries (all posted at our site). And, check out the short, fun, provocative article at this link: http://www.forbes.com/forbes/2003/1027/127.html.

    2.    BUSINESS EXEC ANTIDOTES TO "NICKEL AND DIMED" RESENTMENT

Have you been listening to a cross section of people expounding upon "what’s wrong with our economy"? What do a professor who just got his state funding cut, a college kid with bleak job market prospects, and a striking grocery union worker have in common? After reading "Nickel and Dimed" by Barbara Ehrenreich, they all think, more or less, that business executives are greedy and selling America and American workers, and they put me in that group!

But, consider what media stories they have been hearing lately:

  • America’s funniest, corporate video entitled "Tyco CEO’s wife’s birthday party".
  • The Enron trials. Did you know that California’s economic problems were caused solely and completely by Enron? I found that out from an airplane seatmate on my way into San Francisco the same day that Governator was being elected. (She wasn’t happy about Arnold or my thoughtful answers.)
  • Lock outs of union employees from national grocery chains that are getting squeezed to death by Wal-Mart SuperCenters. (One day this past week Wal-Mart opened 39 new centers!)

What should we say to our child in college who is reading "Nickel and Dimed" and asks if we are freezing or reducing wages and/or benefits at our companies? How can we convince them that, on average, business is what creates value, jobs and higher value jobs? Or, that not all CEOs have the same scoundrel proclivities that Ken and Dennis had at Enron and Tyco?

What might the bottom 50% or more of our payroll who make service happen for our customers be thinking on these topics? In a vacuum with no economic facts of life, rumors and accusations will fill the voids. People need scapegoats to blame bad times on. In topic 4 below, there is reference to an article on Dell computers at which there have been some first time lay-offs and what anonymous employee surveys turned up. It wasn’t positive regarding the leadership at Dell.

A few thoughts:

  • You might skim the reviews for the book "Nickel and Dimed" at Amazon. I bought the book and read most of it. It is a well written, engaging book that offers true insights into the total world of people working in the lowest paid service jobs in America. The author pretty much concludes that these people are victims of the capitalistic system which needs more government control. The author obviously does not have much knowledge, interest or sympathy with how businesses must work in a democratic capitalistic system. She did not touch on, for example, that only 5% of the people in these jobs stay in them for the long haul. Most move on by going back to school, getting promoted or migrating up the job ladder world with their accumulated experience and maturity. But, the book has legs! Lots of people are reading it (for college courses here in Chapel Hill at UNC). Wal-Mart is growing like a weed because we all shop there for the best total value. If America in general does not like how they pay and treat employees, than why don’t the 85% of Americans who have shopped at Wal-Mart just go and pay 4 to 20% more at the traditional retail stores? How should we force these Wal-Mart shoppers to go back to the old stores?
  • Wal-Mart has about 45% personnel turnover per year, and I would guess that 90%+ of that is within entry-level job positions. But, Wal-Mart is also creating new jobs like crazy for which they get many more applicants than job positions. How could we stop people from applying for these jobs? What about the other 55% who stay and like it or even get promoted at a rate that is commensurate with how fast the company is growing?
  • As for our own employees, maybe it is time to go "open book" and point out how we aren’t making obscene profits by paying them less. Giving everyone the same, real data-filled story kills all rumors and negative, exploitation suspicions. AND, more importantly, we can then sign them up to part of the everyone-wins service value, profit power reinvention solution. (If it sounds daunting, skim articles #5.14 plus its support notes at our site, and watch the entire section 2 of our "High Performance…" video before you use it to educate all employees on why and how to become "commonwealth capitalists".
  • Check out the one-page article (link at the very end) that points you down the path of paying premium compensation for jobs. Much higher service productivity and value can be generated to not only pay premium wages, but also generate premium profits. If you want more specifics, you can check out our articles #ed: 5.2, 5.5-5.7, and 5.10. All of the same material is packed into our video along with a key module (#4.7 entitled: "Learn-n-earn certification – a case study).

Business execs are not the general cause for our post-bubble, job-loss economy problems. Sure there are a few scoundrels like those at Enron and Tyco who pop up in every mania market. But, there is an equal, small percentage of scoundrels in all professions including professors, priests, doctors, lawyers, accountants, etc. Progressive businesses will, in fact, be the best solution for reinventing our economy and jobs possibilities, not more central government solutions. If we really believe that last statement and want to do economically better for all of our stakeholders, then start by checking out the link below.

http://www.businessweek.com/magazine/content/03_41/b3853043_mz005.htm.

    3.    PEAK PERFORMANCE, TRAVEL-WEARINESS AND SALES REP TRAINING

Just as the Heinz people observed the life cycle process for a bottle of ketchup to find a value-added packaging solution, Hilton Hotels sponsored a study to track road warriors and their travel weariness looking, no doubt, for value-added service reinvention ideas. An 11-4, NY Times article tells the story and some of the findings, but none of Hilton’s hot new ideas (if they uncovered any). I thought some of you who must fly around a lot might enjoy the findings, and all of us could think about walking through our customers total, chronological buying, receiving, using, etc. processes that they use when they buy our type of products. We would be looking for ways to deliver as much of their needs in the lowest TPC way, so we could reformulate our total service offerings to build our customers’ bottom lines better than any other supplier could. Can we spare the time to co-create new profit-building solutions with the best customers in our best target niches? Or, are we to busy pushing too many different products to too many different customers and trying to get an order instead of a long-term, big win-win relationship stream of business? Here’s the link to the article: http://www.nytimes.com/2003/11/04/business/04actigraph.html.

    4.    MICHAEL DELL SHOWS THAT "VULNERABILITY IS A CORE LEADERSHIP SKILL"

This commentary is dedicated to Tenney Campbell, a semi-retired distribution executive living in the Bay Area. Tenney is a guru’s guru, who sends me a stream of the highest quality management literature and quotes. (Keep them coming Tenney!)

If there is one most common theme to his selection of material it might be "reframing" our strategic thinking and behavior. From Tenny’s stream of stuff (in just the past week!) I have selected and put below 3 article titles, 3 quotes and some out takes from one case story on Michael Dell, the founder of Dell Computers. Only the Dell article is generally accessible for free on the web.

"The ultimate competitive advantage is continuous business model innovation", because doing an industry’s "best practices" well is what too many other competitors are already doing. To have great profit power you have to deliver distinctive value for one customer niche at a time by doing things differently, not the same, as the other competitors. (The article title in italics above is from the "Journal of Business Strategy"; vol. 24, 11/5/03, pp. 15-21)

"Embracing vulnerability: A Core Leadership Discipline for Our Times" from the Systems Thinker Vol. 14, 11/8/03. (Their web site is worth checking out at: http://www.thesystemsthinker.com.) Although "vulnerability" is not an attribute or discipline normally associated with leadership, these uncertain times require total team participation to reinvent profit power capability. Since none of us have the total answer for how all of us will ultimately blend old ways with new ways to move ahead successfully, we might as well admit that:

  • "We have a profit power problem?"
  • "I’m not sure what the final answer is, but our best, most profitable customers in our historically most profitable customer niche will help us to co-create the answers."
  • "All of us will either be part of the new solution which will require giving up old skills, habits and thinking or we will be part of the problem by refusing to see the new needs and change.
  • "So, will you (can you) help me work on reinventing a unique value proposition for one niche of customers at a time?"

"What you don’t know about Dell; A look at the management secrets at the best-run company in technology" (Business Week’s cover article, 11/3/03; http://www.businessweek.com/magazine/content/03_44/b3856001_mz001.htm).

This is a fascinating article on which I could make many comments, but in this case I will point out that the article starts off with (these excerpts):

"internal interviews revealed that subordinates thought Dell, 38, was impersonal and emotionally detached…few felt strong loyalty to the company leader…discontent was spreading…Within a week, Dell faced his top 20 managers and offered a frank self-critique…he vowed to forge tighter bonds with his team…some in the room were shocked…such an admission from him had to have been painful…days latter, (the company) began showing a videotape of his talk to every manager in the company (several thousand)".

Michael Dell is obviously the kind of guy who will never accept the status quo which includes, I suspect, continuous improvement ("trying harder") at whatever losing activities we have been doing for whatever original, vaguely-defined reason we started doing something in this industry long ago. He believes in uncovering any and all problems as opposed to practicing wishful thinking and denial starting with how he is leading. Besides insights into effective leadership, the article also explains how the company is basically a distributor of commodity products that is killing the other assembler/distributors. Good fare for distributors of all stripes.

How many companies survey employees anonymously on: how happy they are; why or why not; etc. Then, have CEOs address their personal shortcomings publicly to allow the entire company to move forward while setting a powerful example for all other managers to get over their ego-driven defenses that are also holding the company back? (For "High Performance…" video users, re-do module # 3.15 entitled "Measure Employees Morale Anonymously and Act" for how this powerful idea can be woven into your company’s continuous innovation culture.)

Let’s now close this commentary topic with a few quotes:

"The most fatal illusion is the settled point of view. Life is growth and motion; a fixed point of view kills anyone that has one". Brooks Atkinson

"The eye only sees what the mind is prepared to comprehend." Pete Cohen

After the manic ‘90s, the dot-com bust, the stock market bubble pop (which is now reflating) and the corporate/wall street scandals, where did all of the pontificating CEO’s and their PR machines go?

"Certainly the CEO-as-hero took a hit." Tom Peters (in NY Times 11-2-03)

    5.   LITTLE BANKS LICK THEIR CHOPS OVER A BIG BANK ROLL-UP MOVE

You may have recently read about Bank of America’s offer to buy out FleetBoston for $48 B, this works out to be $4000 per customer. What was interesting to me was how so many – competitors, investors and banking customers – effectively said: "We’ve seen this movie before; it is another overpriced, ego-driven, local service deterioration roll-up move."

These different players said this inferred quote in the following ways:

  • B of A’s stock immediately dropped 10% +. Analysts criticized the high price, the high consolidation expense projections and the lack of obvious value creation synergy.
  • All regional publicly traded players that stand a chance of stealing customers during the "integration and cost reduction" process for the two banks saw their stocks go up by 5%, and they have all rolled out proven promotions that worked the last time roll-up activity came to their area.
  • From the following typical promotional story we might infer that local retail and commercial customers have also learned what happens to local service when a roll-up from out of town takes over their account. A local California bank sent out Valentine cards to the customers of a local bank being acquired by an out of town consolidator last winter that asked: "Looking for a new relationship?" If these promotions worked, what previous bad experiences have many banking customers already had?

A best summary article that I have seen on how bank consolidations have worked at the local business level is entitled: "Little Banks Learn to Compete with Merger Mania" in the 11/2/03 NY Times at this link: http://www.nytimes.com/2003/11/02/business/yourmoney/02bank.html.

If you read through this article, there are two sets of questions you might ask depending on your viewpoint. If you are a small, local or well-run, organically grown regional distributor, you might target a few best scoring target accounts that have been loyal to competitors that have been acquired by consolidators in the past few years.

If you are a value-added consolidator that can actually run distribution companies better on a local basis, then they were run before (and maybe 5% of the consolidators are), you clearly want to have a program aimed at measuring and retaining the most profitable customers at each location. You might also want to refrain from doing top-down, monolithic product promotions for all locations as "Rollups, Inc." did in the case study in Chapter 3 of "Reinventing Distributor Profitability" which is posted on our web site’s home page.

  1. CHINA’S FACTORIES WANT TO FILL OUR GARAGES

Regular readers know that I have been an on-going student and commentator of the huge direct and indirect effects that China’s manufacturing prowess will have on distributors. Some specific past commentary topics you might want to review on this subject are: DCC #1-Topic 2, DCC #17.2, DCC #24.3, and DCC #30.2. All of our past commentaries on posted under a link in the top right hand corner of our home page. You might also skim or print out the index for all 46 commentaries to date if you would like.

A latest, best article on how things are progressing in China’s total manufacturing capabilities is entitled: "China’s Factories Aim to Fill the World’s Garages". It is a fascinating read at this link: http://www.nytimes.com/2003/11/02/automobiles/02CARS.html.

The automobile industry is the "industry of industries"; no other man made product has such a vast supply chain that feeds more materials, components, technologies and enabling service capabilities. If China can make good quality cars, they can make anything (with 50 cents per hour labor and close to no regulations in their eastern-seaboard, free-enterprise zone).

How is and will your supply chain reduce landed costs for your highest volume products by going back to new manufacturing sources in China? Who will figure out these new sources and supply flow processes first to undercut the rest? What will this do to existing inventory valuations the day the knock-off goods arrive in your local markets at a big discount to your landed costs? Check out the article and then start researching what is going on in China with your biggest volume, most price sensitive goods.

  1. HALLOWEEN COSTUME GUESSES AT WHAT PANTS BRUCE WAS WEARING WHEN FILMING HIS VIDEO

Last Friday, on Halloween, I received a nice e-mail with photos from a training director at a distribution ERP software vendor. They have been running all of their distribution industry consultants and marketing people through our "High Performance…" video. I gather from her comments that after watching 53 modules that take an elapsed time of 11 hours and 40 minutes, usually two times at a session, you really get sick of looking at me and my plain blue shirt and red tie.

So, at this client’s Halloween party two employees independently showed up in the scariest costume they could think of – Video Bruce. One of the photos showed the Bruce clones side by side in their blue shirts, red ties, glasses and Bruce head tilts. The second photo showed one of the employee’s bottom half that was clad in zubaz. For the many of you, who should have no reason to know what zubaz are, here is a link to the "bad fads museum" (an interesting site in of itself) that shows you a picture of these pants and tells their history. http://www.badfads.com/pages/fashion/zubaz.html

What was I wearing? Tennis shorts and loafers without socks, because the room was always too hot from all of the lights. Next time, if there is one, I promise to wear a few more clothes combinations, and I will probably invest in a bigger, better ventilated room. But heck, the first time around I was just trying to produce the lowest priced, best value educational solution possible.

That’s all for this week! All the best,

Bruce Merrifield

Bruce@merrrifield.com

919-933-7474