November 12, 2003: Distribution Channel Commentary (DCC) # 47

Greetings:

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

  • A FREE SERVICE

The Merrifield Consulting Group, Inc. (www.merrifield.com) is offering this opt-in weekly commentary service that is now being posted at www.merrifield.com. (Past DCCís are all posted there along with a summary index of over 150 DCC topics!). We do have a growing list of e-mail addresses to which we e-mail the commentaries on Wednesdays in a Word document to allow for easy reading, re-purposing and forwarding.

  • SHARE THE KNOWLEDGE: ADD OTHERS (OR, DELETE ME!)

To make this free service continue to happen, we must reach more individuals who care about making independent distribution companies/channels more effective. If you know of others who might like to receive this service, please: forward this commentary on to them; encourage them to email karen@merrifield.com to have her add their email address to our list; or, send them to our web site. If you donít like this type of mail, ask to be deleted, and we actually will.

  • RE-PUBLISHING/RE-PURPOSING ANY COMMENTARY CONTENT? YES YOU MAY!

Just let us know by email what you want to do, give us some credit and point them to our web site. We are delighted to have a number of: trade associations; channel publications both printed and on-line; software firm publications; buying groups; and university programs that have all found re-purposing applications.

THIS WEEKíS TOPICS

  1. CHECK OUT THE GOOGLE DESKTOP SEARCH BOX AND OTHER TIPS
  2. IS YOUR PRODUCTIVITY KEEPING UP WITH THE 8.1% 3Q AVERAGE?
  3. OUTSOURCE YOUR SMALL TRADE RECEIVABLE ACCOUNTS TO BLUETARP?
  4. TWO SMALL FIRMS DO THEIR OWN CHINA SUPPLY-CHAIN MOVES
  5. "TIRED OF STRATEGIC PLANNING" THAT DOESNíT WORK; ARTICLE; CASE
  6. NEWS FLASH ON THE "DISTRIBUTOR PROFITABILITY" PROGRAM AT TEXAS A&M

1.    CHECK OUT THE GOOGLE DESKTOP SEARCH BOX AND OTHER TIPS

www.google.com is very valuable to me. All of its capabilities help me add good value to this commentary, and it might help you too. Here are a few google tips:

  • Check out their "news" section on their homepage. You will get the most eclectic, thorough, emerging thematic, 24 x 7 coverage of all aspects of world news. Try "searching the news" by typing in "wholesale distributor", and you will find case study articles on a cross section of distributors from publications that you have never heard of. I, for example, just did the search and found a lengthy article on an industrial packaging distributor, Hughes Enterprises, that is a member of the buying group Afflink. The article was from an on-line type of "Inc magazine" publication called "Smartbiz" which looks interesting to owner/operator types. Hereís that link: http://www.smartbiz.com/article/articleview/442/1/1/
  • To go one step further, if you arenít e-mail-spam-volume sensitive, try their "news alert" service for whatever specific topic(s) you might like. More on this at http://labs.google.com
  • While at the labs page check out their newest tool, the desktop search box, which will save you a few steps (and dis Microsoft). I use it for reference-book type questions all the time. Here is the link for this handy tool: http://toolbar.google.com/deskbar/index.html.
  • There will be some immediate opportunities to use google for some experiments that follow later in this commentary.

2.    IS YOUR PRODUCTIVITY KEEPING UP WITH THE 8.1% 3Q AVERAGE?

What could be more gaudy and unbelievable than the 7.2% growth in the USís GNP in the third quarter? How about last weekís government announcement that productivity of labor in the non-farm sector grew by 8.1% following a 7% growth rate in the 2nd quarter. The nationís average productivity has improved at an average of 5% for the past 8 quarters, the fastest rate in more than 50 years. The 8.1% productivity number was more than twice what economic experts had been forecasting, and the 5% average for the past 2 years is twice what the same experts had pronounced was sustainably possible. Doesnítí it make you wonder:

  • How do government officials get and spin their information? And,
  • What major, flawed, economic model assumptions are the economists using?
  • If the experts have been so wrong on so many forecasts for the past three years, what are the new, huge, deep background, global macro conditions that few have successfully put into their thinking models?

Why is the productivity growth rate so high? The most common theories are:

  • We are all finally figuring out how to get productivity out of all of the technology investments that were made in the late Ď90ís.These investments are increasingly married to internet and wireless mobile connectivity for everyone. If in real time, we can get whatever information we need, and contact anyone we need to then lots of everyday "friction" disappears. This commentary, for example, couldnít have been published, distributed and search-located from around the globe a few years ago. Of course, it is up to me to make it worthwhile and some of you to be encouraged to take further educational and experimental action to really make productivity go up.
  • In those industries in which times are tough, people may just be working longer hours for the same pay; otherwise, the marginal work, capital investment and production are being outsourced to China and India with less expensive output being imported back. Most big publicly traded companies have continued to grow earnings without increasing sales by cutting costs through outsource activities to Asia. These productivity gains arenít as immediately beneficial to the US economy as the spin-meisters would lead us to believe. The new jobs and initial spending from those jobs are going into different domestic economies. The lead-time before these economies will begin to import our "higher value goods and services" could be quite long.
  • DIY tech-enabled services are growing. We scan our own groceries, book our own plane tickets, print our own boarding passes, etc. Kiosks are 1/36th the cubic size today that they were 10 years ago, and now they are wireless and connected to the web.

But, I think the biggest productivity opportunities can occur when companies in mature industries change their business models to capture enormous "strategic productivity" that has been ignored due to "traditional best practices" obsessions starring: forced product volume growth to achieve mythical financial management cost and return goals. The fresh value and profit power creation opportunities that can result from re-framing how we look at a business by customer profitability have huge upside.

For a compelling case study of a distributor that grew personnel productivity by 15% in one month by selling "more best products to their core niche customers" go to the end of "Chapter One" (p. 21 of 28) in our forthcoming book entitled "Reinventing Distributor Profitability". If you should develop a case of "productivity envy", we suggest you go further and check out all of the first three chapters of our book that are posted at www.merrifield.com on the home page under the red star. It should be a very helpful read, especially as we are now going into "strategic planning season".

3.    OUTSOURCE YOUR SMALL TRADE RECEIVABLE ACCOUNTS TO BLUETARP?

Hereís a possible trade credit productivity solution. A friend, client and great serial entrepreneur just turned me on to www.bluetarp.com. My pal is currently turning around and growing a distribution business that serves a specialty contractor segment. His firm has thoroughly digested and put to work many of the ideas in our "High Performance. . ." video as well as several of our audiotape products. (In this case, he may have also borrowed some ideas from our "Trade Credit TacticsÖ" videotape product.)

If we apply the thinking in our video on customer profitability and more specifically -"Segment Customers and Service Them Differently" (module 3.6) - to trade credit, then we start to realize how economically iffy it is to offer trade credit to accounts that buy $3600 per year or less. If a small account with negligible growth potential occasionally goes slow for whatever reasons, the extra trade credit attention cost will make them an unprofitable account for the year. The very small customers who come to a counter environment can be put on cash or credit card basis, but what should we do with the next level of customer up who wants, and traditionally expects, trade credit?

A fair number of these "C strata" accounts in any given customer segment are continually small because they are owned and run by people who seem to have a lot of organizational problems. Trade credit managers who keep time logs for a few days or weeks will find that 80% of their time is spent on a small percent of slow-pay receivable dollar total that is generated by lots of same old, small, growing no-where customers. They even seem to have the same problems and excuses, perhaps on a once a year basis, but thatís enough to make them an unprofitable account.

Whatís the solution? My friend is experimenting by outsourcing some chronic, slow-pay, C accounts to Bluetarp. Check out their specialized menu of services that they offer contractors at their web site.

My client seems to be positive on the experiment so far. First of all, he has picked an initial batch of accounts for which there will be a win if they leave or stay. Because they are net losers right now and activity distractions for his business, if they get "offended" and leave, he will re-deploy operational slack towards more profitable account activity. If they stay, he will eliminate one to a few $100 total-cost, receivable-collection dramas on an annual basis. If the customers get hooked on the frequent flier point or special summary reports services from Bluetarp, maybe they will even buy more.

So far there has been very little resistance because the distributor has framed it as a win/win to the small contractors. They point out that they canít offer all of the extra services that Bluetarp does, because they arenít a focused dedicated service company. The assumptive attitude is that the distributor is providing a trade-up opportunity for the contractor.

So, for those of you who sell lots of little contractors, it might be worth a cheap experiment to see how it works.

4.    TWO SMALL FIRMS DO THEIR OWN CHINA SUPPLY-CHAIN MOVES

In just the past week, I learned that two client distributors have broken new ground in their China supply flow. One chap is a distributor of giftware items within a narrow niche. He has been going to tradeshows in Hong Kong to scout for supplier sources for a number of years. This year they found, however, that more of the actual manufacturers were showing up at the shows, not just the exporter firms who had been masquerading as the manufacturer. By going right to the source of some of their product manufacturing, they found that they could cut the exporter out of his mark-up and source more of their everyday items from the same factory. The net economics will be that landed costs will drop by 20 to 40% on lots more volume and items. The container shipments of more mixed items will move more frequently allowing for less average inventory investment with higher fill-rates here in the states.

  • My clientís business is so small, he has to find and exploit his own supply chain opportunities in Asia, but they are well worth it for his $10MM sales business.
  • How long will it take before his competition, which frequent the same trade shows to see the same, behind the scenes buying opportunities, begins to compete away the extra profits in the US? First movers with prepared minds who are looking for new China deals will definitely win for awhile.

A second client distributes industrial and foodservice paper and packaging goods. He has a niche of customers that are currently using big, collective quantities of printed paper good items for which he was able to find a common source of supply from China. The source can do a better quality printing job and lower landed costs by over 20%.

I had not thought, heretofore, about finding sources for manufactured goods from China that also involved custom printing, but its obviously possible. There is an entire channel that is dedicated to printed promotional items.

I also hadnít realized that a distributor could create their own small, supply chain solution between a group of common buying customers out of one distribution center with a source in China, even when annual volume flow involved is as little as 6 truckloads of a more bulky, freight-sensitive item.

To decide if your business has supply opportunities in China or India, you might try a google experiment. Go to google and type in a "product category or item" + "tradeshow"+ China (or India) and be amazed at how many hits you get. It may be time for you to take a trip to check out some Asian tradeshows.

A variation on the google search above involved a grad school student problem. This acquaintance of mine has to do a lot of interviews that then need to be transcribed for a masterís thesis. I had read about how many small doctor offices have been getting transcription services done in India via the net in 12 hour turn around times (send digital recordings at dayís end, the word document is back from India the next morning). So, my friend typed in "transcription services" + India and got 10 pages of hits with 10 sponsoring services on the first page.

The examples of capturing productivity gains by outsourcing product and service needs to India and China continue to grow. Iím afraid that the populations of those two countries will want to average their wages up and ours down for years to come. This will provide a constant spur to re-invent our domestic value-added skills and business methods.

5.    "TIRED OF STRATEGIC PLANNING" THAT DOESNíT WORK; ARTICLE; CASE

Because it is year-end (strategic) planning season, Iím noticing more articles on the subject as well as starting to participate in some distribution firm planning activity. We have also noticed vigorous downloading activity of two annotated slide shows at our site entitled: "Cracking Target Accounts" and "Crafting Corporate Strategy for Tough Times", here are their links if you havenít checked them out:

Crafting_Corporate_Strategy.pdf

Cracking_Target_Accounts.pdf.

Tenny Campbell, who e-mails me more quality management reading stuff then you can imagine, sent a timely one this past week entitled: "Tired of Strategic Planning?" which is worth a skimming for any of you who are concerned that past planning efforts didnít really seem to matter. The article came out of the McKinsey Quarterly, and it is at this link:

http://www.mckinseyquarterly.com/article_page.asp?ar=1191&L2=21&L3=37&srid=17&gp=0.

Hereís the warm-up paragraph:

"Many companies get little value from their annual strategic-planning process. It should be redesigned to support real-time strategy making and to encourage creative accidents."

I liked the first quarter of the article on why and how to "prepare minds" to see and jump on opportunities and how to increase the innovativeness of strategic plans. The last half is a bit tedious with the how-to scheduling for their recommended process.

I was thinking of this article this past week when I was invited to sit in on a "strategic idea" meeting being held for about 30 managers of a high-performing, large, regional, durable goods distribution chain. The CEO has been the lead "intrapreneur" for a long time. He has everyone thinking in terms of (and using the same terms for) who will be the "champion" for a "guinea pig" pilot effort.

The managers were to come with their best thinking on new ways to grow profits with no official agenda for the first afternoon session. There were obviously a number of presentations that had been brewing for some time which would be unveiled, but not in any particular order. The second day had a few more pointed discussions on how existing innovative, change efforts were progressing. Part of the innovative process is deciding when to re-think or even pull the plug on some of the experiments that arenít working out to make resources available for the new ideas.

What was interesting was that there were no financial performance presentations at all. No past results, no budgets and forecasts for next year. That type of activity is done at the profit center level, more or less, and stays there. The CEO is a believer in the fact that you canít be creative or have any collaborative thinking and debating if you have a tight agenda with dog-and-pony shows.

If we want to significantly improve our profit power this next year, then we will have to change the competitive rules. We will have to change four or more of the Ė who, what, why, how, how much Ė variables of our current business model(s) that are aimed at value creation for our best target customer niches. Are we doing that?

6.    NEWS FLASH ON THE "DISTRIBUTOR PROFITABILITY" PROGRAM AT TEXAS A&M

I just got off a conference call with Ben Zoghi, who is the Director of the Read Center for Distribution Research and Education at Texas A&M. I have agreed to teach the last 1 Ĺ days of a 5 day program that is open to all distributor and distribution channel managers or managers in training. The title of my program is "Profitability Management In Industrial Distribution", and it is one of three 5-day modules that comprise a program that ends with a "Certificate in Distribution Management.

For the entire story on the program and module 2, in which Iím teaching the last part, go to this link: http://readcenter.tamu.edu/htmfiles/index2.htm.

Donít be put off by the "industrial" in "industrial distribution" this stuff will work for any type of independent distributor or distribution channel, and it doesnít matter what sequence you take the modules. The one that I will be participating will run in the center of the Texas A & M campus from January 12 Ė16th. I will be teaching on Thursday and Friday, the 15th and 16th. If you have any questions, email me.

How does this program fit with all of the other educational fare that is offered within the world of distribution? It is unique in that it is the most comprehensive, in-depth and coherent product for someone who would aspire to be a top-grade, generally competent branch manager. Most educational offerings within a specific channel are product and selling skills oriented.

The University of Industrial Distribution offers an eclectic variety of courses over a short week that allows participants to self-organize their own curriculum. This program is the best, introductory value there is within the distribution world, but it canít offer the depth or integrated comprehensiveness of the 15-day total program at "TAMU". They are not really comparable, but complementary. By example, the course that I will teach for UID on March 10th, 2004 in Indianapolis is entitled "Productivity Tactics for Branch Managers". I buzz through an enormous amount of information providing lots of additional sources for background learning along the way, because I just canít fit it all into one day. The TAMU course has built in all of the background educational content that I allude to in the UID program. The UID story, by the way, is at this link: http://www.univid.org. They are offering an early bird registration deal that is in effect right now!

If you are a manager well grounded in sales with some distribution operational feel through experience, then the TAMU module 2 will make you financially fluent, confident and much more capable. If you are a branch manager over your head or in-training, then the UID is a great survey offering after which you might seriously consider enrolling in one, two or all of the TAMU modules in the order and pace that you would like to do them.

Many distributors have cut educational investment spending to zero over the past few years due to tough economic times. Because we canít cut costs to sustainable service value and profit power creation, it might be time to stop sitting on the wallet and invest in some rut-busting, mind-opening educational experiences for those employees (including yourself) who might be the champions who must lead new business model innovations. Both the UID and TAMU programs are the best value opportunities out there!

Regards,

Bruce Merrifield

Bruce@merrifield.com

www.merrifield.com