January 7, 2004: Distribution Channel Commentary (DCC) # 52

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THIS WEEK’S TOPICS

  1. Tri-focal Reading For Making 2004 Better For All
  2. Redesigning The Sales Effort To Jumpstart Growth
  3. Sell Better To Your Largest Accounts; Buy Better From New Master Wholesalers
  4. How And Why Small US Manufacturers Are Now Outsourcing To China, etc.
  5. Housing Bubble Update Reports
  6. Is Sharing Knowledge Through These DCC’s An "Unnatural Act"? 
  1. Tri-focal Reading For Making 2004 Better For All

January is a wishful thinking month. Lots of factors combine to make us think about what we can do to make 2004 a better year than 2003.

The strategic approach to getting to a short list of the most important stuff to do is to look through our tri-focal lenses in this order: the long view – what’s our North Star(s); the intermediate view – checkpoints along the way; and then short-term view – action steps for tomorrow. But, it is a lot easier and more humanly common to just try to be more efficient at those things that seem to be squeaking or bleeding the most right now.

If you are looking for some tri-focal reading to help you work both smart and hard, here our a few suggestions:

"All of Us Are Stuck on Suck-Ups"…This is a short, funny, sad-truth article on why we unknowingly encourage people to tell us what we want to hear instead of what is really going on. If you would like to reduce the political friction while increasing the strategic action at the shop, you might check it out at: http://www.fastcompany.com/magazine/77/mgoldsmith.html.

"See the Forest and the Trees"…One way to reduce politics and get everyone to start working better together doing the right things is to: measure the right things; post them for all to see; and even tie everyone’s economic well-being (more or less) into profit improvement gainsharing. Sounds easy, but it’s actually complex. If you would like to read a good article for rethinking your current "performance management system" (we all have them whether we know it or not), check out this excellent article. http://www.mercermc.com/Perspectives/Journal/MMJ_pdfs/16/MMJ16_chapter5.pdf.

"High Performance Distribution Management: Six Key Systems"…. If you would like to read a lot fewer words and more how-to, distribution specific advice for overhauling your "performance management system". Check out this article of mine that is posted at our site: 5_10.asp.

IF ALL OF THIS STUFF THAT "I SHOULD DO, BUT DON’T HAVE TIME TO DO" is overwhelming, then consider making all of the managers and outside sales reps be part of the big change, for big gain solution in 2004. You can do this by making them go through our "High Performance Distribution Ideas for All" video educational process. The video is a monster value on a cost for content basis. The real question is how many employees do you have who really want to make things better as opposed to just whining and talking about it. Everyone is either part of the strategic improvement solution or they or part of the problem; make them choose.

If you haven’t checked into the video, you might start by reading what other ecstatic distribution CEO’s have said about it at this link: ./products/exec_comments.asp.

   2.    Redesigning The Sales Effort To Jumpstart Growth

If you are not a "tri-focal" strategy type person, but just want to drive your sales force towards selling the right solutions to the right customers, check out the article link below by at least looking at "exhibit 4" entitled "How do sales reps spend their time?" http://www.mercermc.com/Perspectives/Journal/MMJ_pdfs/15/MMJ15_chapter3.pdf.

If you would like shorter, how-to, distribution-specific copy on how to get to the strategic heart of your sales force’s opportunity, check out these links:

4_9.asp ("sell products and a win-win relationship")

SupportNotes4-9packet.pdf ("support notes for the article above)

2_20.asp ("A Strategic Time Management Assignment", and a one page monthly report to change branch managers’ behavior for the better over time.)

   3.    Sell Better To Your Largest Accounts; Buy Better From New Master Wholesalers

Large customers of distributors are overhauling their purchasing: thinking, people, software and practices. If these big guys want to make buying the lowest total procurement cost (TPC) through new supply chain contracts a strategic, next-level issue, then the distributors that want to sell them need to study the same things.

As a test of how fluent you and your organization might be in understanding and selling to this new higher level procurement need, hit the link below and skim through the article. While you are doing it, think about what you are doing to buy new "supply chain products" (made in China) through (new?) master distribution centers that can offer you a better TPC solution that will:

  • Improve your turn x earn ratio.
  • Consolidate purchasing activity and in-bound shipping costs.
  • Improve each locations real-time: fill-rates, customer satisfaction/retention, order size and order fulfillment personnel productivity.

The master distribution centers that will re-distribute products may be owned by:

  • You, if you are a large distribution chain that can do your own Asian sourcing and already have good hub and spoke distribution logistics.
  • A big distributor that has "spun out" an importing capability that serves both their locations and non-competing (?) independents.
  • A buying group facility.
  • An already existing master wholesaler that is becoming much more important now that the 20% of the items that are 80% of your sales are becoming "supply chain" (often private label) products.

Here’s the link to the latest, excellent article on "Why Senior Executives (of your customers) Should Care About Sourcing." http://www.mercermc.com/Perspectives/Journal/MMJ_pdfs/16/MMJ16_chapter3.pdf

   4.    How And Why Small US Manufacturers Are Now Outsourcing To China, etc.

Regular readers of our DCC’s know that we have been covering the China sourcing trend and strategy issue steadily. New readers might want to skim through our index of past DCC topics under the "all commentaries" hotlink in the upper right hand corner of our homepage at www.merrifield.com.

In Wednesday’s Wall Street Journal (1-7-04), there is a short article entitled: "Small Firms Outsource Abroad By Tapping Offshore Producers". The link is below, but it may not work for those who aren’t on-line subscribers to the journal.

The gist of the article is that small manufacturers are now using Chinese engineering firms as supply chain intermediaries to state-of-the-art factories in China to produce "autoparts, fishing reels, dental tools, etc." The progress of orders from placement, through manufacturing to the warehouse can then be electronically tracked real time.

If the small manufacturers don’t outsource to China, some big customers are telling them that they will have to go direct on their own. The pace of this outsourcing activity "is increasing fast". In October, for example, the Precision Machined Products Association, which represents mostly small, metal-parts makers, took 52 members to visit 7 factories in China. Here’s the link: http://online.wsj.com/article/0,,SB107342876260431500,00.html?mod=economy%5Flead%5Fstory%5Flsc

So, what does this mean to the average distributor? Those distributors that are the first to buy equally excellent items for a magnitude of 50% less will be able to:

  • Sell the new stuff for less while making more and grabbing market share.
  • Phase out their old, high-price inventory faster for less of a total write-off. (Can you imagine big inventory investments dropping in value by 50% over a year’s time? PC and semiconductor distributors have long had this problem, but they have usually had price reduction insurance coverage from the same suppliers that were cutting the prices.)
  • And, generally get a head start on rethinking their entire supply chain strategies and purchasing practices.
   5.    Housing Bubble Update Reports

Because a lot of our readers are involved in the building material distribution channels that flow into home construction, I’ve been watching the housing bubble for some time. I’m personally amazed that the housing bubble in the US (and many other countries) has gone on as long and as high as it has. But, that is the way of all manias involving the average consumer and voter. When and how will the bubble’s end arrive and play out? Three perspectives follow.

For a one-pager with a lot of stats on what is going on at the epicenter of the US’s housing bubble (S. California), check out: "California’s Home Boom Looks Like a Bubble" http://www.forbes.com/2003/12/30/cx_da_1230topnews.html

From the January 1st print edition of the Economist or their 12-30 on-line edition, check out their new "house-price indices". It’s fascinating and frankly quite concerning. Their latest update is entitled: "Cracks in the Brickwork?" at this link: http://www.economist.com/displaystory.cfm?story_id=2319345

If you are blocked, because you are not a subscriber, then highlights of the two-page report are:

  • The Economist concluded in 2002 that house prices in 6 of the 13 developed countries that they have been tracking are "dangerously overvalued" (America, Australia, Britain, Ireland, the Netherlands and Spain)
  • Markets in these six countries will face more testing conditions in 2004 for three reasons, and the hottest, big city markets will have the most downside.

For a detailed, balanced, sober, but somewhat reassuring perspective (for at least through 2004) check out John Mauldin’s "The Outlook for the Housing Market". I am a regular reader of John’s weekly Saturday AM postings. He always has some fascinating facts. Two of his key conclusions in this posting are:

  • Job creation will have to improve dramatically to maintain the current volume of housing construction.
  • The housing industry will not fall off of a cliff in 2004, because the Fed will do whatever it has to do to keep the credit bubble growing to keep housing going until the November elections.
  • He doesn’t guess, however, if, when and how big the reckoning will be after the election.

Here’s the link to Mauldin’s posting: http://www.2000wave.com/article.asp?id=mwo010204

   6.    Is Sharing Knowledge Through These DCC’s An "Unnatural Act"?

A reader recently sent me a nice email message of thanks for doing this commentary service for free. He did indirectly question my cost benefit equation which made me think of Hubert Saint-Onge’s quote that "sharing knowledge is an unnatural act" (in most companies anyway). (Saint-Onge is the CEO of a knowledge management consultancy called "Konverge and Know" (http://www.konvergeandknow.com)

Some of the big problems with sharing knowledge in businesses are:

  • Why should we incur the cost of helping someone else benefit, especially a peer with whom we might be competing for the next promotion. Or, someone outside of my profit center and performance/bonus pool.
  • Why should we document our job secrets, so that lots of others can do it nearly as well? Won’t that reduce our job value and job security propositions?
  • Documenting what everyone knows and continually updating it requires a lot of maintenance costs. And, most really good knowledge is very context specific, so it might not be as readily applicable as we think. Not all "art" can be turned into "science".

But, we probably should try to come up with answers to these problems if we would really like to leverage both the collective knowledge that we have in our business and our ever better information technology and communication tools. Does anyone out there have any – energy, questions, stories or ideas – about how to better apply "knowledge management" to independent distribution channels?

In the meantime, I replied to my reader that I do think the cost/benefit of doing the DCC series is worth it, but that he and the rest of you will ultimately determine that. So, keep your questions, thoughts and stories coming in!

Happy New Year to All!

Bruce Merrifield

Bruce@merrifield.com

919-933-7474