November 3, 2004: Distribution Channel Commentary (DCC) # 73

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THIS WEEK’S TOPICS

  1. THEMATIC QUOTES (momentum, thinking differently, brand value creation).
  2. HOW TO GET WINNING MOMENTUM LIKE THE BOSOX’s 8-0 RUN TO CHAMPS.
  3. A STRING OF OUR DOCUMENTS THAT LEADS TO "5-5-5" MOMENTUM.
  4. BRAND VALUE = YOUR BUSINESS MODEL, REINVENT THAT FIRST.
  5. TOO SMALL TO SOURCE PRIVATE LABEL GOODS FROM INDIA? TRY UPSOURCE.
  6. IF YOU GET THIS FAR, THINK ABOUT THIS OPPORTUNITY.
  1. THEMATIC QUOTES

"Sometimes being pushed to the wall gives you the momentum necessary to get over it!" Peter de Jager

(Here’s a wall. The Red Sox were down to the mighty Yankees 3-0 in games and 4-3 in runs in the 4th game going into the bottom of the ninth inning - 3 outs from being swept away. They had lost the third game by a score of 19-8 that should have bruised the Boston pitching staff’s confidence, but then the amazing 8-0 run began.)
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"Success requires first expending ten units of effort to produce one unit of results. Your momentum will then produce ten units of results with each unit of effort." Charles J. Givens

(In game 4, five Sox pitchers emerged from the pen to shut down the Yankees for the last 6 innings and the Sox offense won the game in the bottom of the 12th. In game 5, six Sox relievers held the Yankees scoreless for the last 8 innings to win the game in the bottom of the 14th. In game 6, Curt Shilling had his injured ankle tendon stitched in place, and he was a bloody red-socked, Red Sox as he pitched a 4-2 win. Then, Lowe pitched the Sox to a 10-3 exclamatory 7th game win. Can you sense the team effort of many hands initially pushing for all they are worth to squeak out a victory, then two, and then their flywheel of momentum started really spinning going into the Sox’ 4-0 drubbing of the Cardinals? How can we get creative, flywheel-momentum progress going in our business?)

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"Stop going for the easy buck and start producing something with your life. Create, instead of living off buying and selling of others." Carl Fox (in the movie Wall Street)

(So much of distribution channel energy is wasted on trying to buy low versus selling high instead of suppliers and customers working together to co-create win-win, total, lower cost replenishment systems to accommodate the flow of 90% of the volume that is old stuff being sold to old customers. How many companies can honestly say that they have measurably, creatively improved their total-procurement, value proposition for target niche(s) of customers in the last year?)

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"The most exciting phrase to hear in science, the one that heralds new discoveries, is not "Eureka! (I found it!), but "That's funny..." Isaac Asimov

(Rank all customers from high to low by their sales growth for this year over last year. Look for the ones that are up the most, down the most and the ones that are up by the highest total percentages and ask 2 to 5 levels of "why?"questions. Your investigations will find some interesting new stories and a few new, perpetually-innovating, potential rocket-ride customers. These new business model accounts are not apt to have a one-stop-shop source of supply, become their one-stop solution and find another like them. Go find those "that’s funny…" customers on the living edge and dying edge of your business; learn; and try new, creative stuff.)

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The following excerpts are from The Brand Gap by Marty Neumeier(New Riders, 2003; paperback. Pp149-157).

"Only one competitor can be the cheapest – the others have to use branding. A charismatic brand is any product, service or company for which people believe there’s no substitute…Branding is a process that can be studied, analyzed, learned, taught, replicated and managed."

(Question: All distributors should be selling a "service excellence" brand, how well are all of your employees doing this?)

"A brand is a customer’s gut feeling about a product, service or company. It is not what you say it is…..Branding is the process of connecting good strategy with good creativity….Customers trust your brand when their experiences consistently meet or beat their expectations."

"Alignment, not consistency, is the basis of a living brand…(which) is a never-ending play, and every person in the company is an actor….everyone’s decisions should be made by asking, "Will it help or hurt the brand?"

(We have posted a modified version of our "kinetic chain" model to illustrate that both sustainable profit power and brand value are by-products of kinetic chain alignment at ./exhibits/Kinetic_Chain_Ex_16.pdf)

"To begin (re)building your brand, ask yourself three questions: 1) Who are you? 2) What do you do? 3) Why does it (really) matter (to the customer)?"

"The innovator’s mantra: when everyone zigs, zag…How do you know when an idea is innovative? When it scares the hell out of you….Expect innovation from people outside the company, or from people inside the company who think outside."

(Question: In your company plans for 2005, what is scary? Or, is it full of good, necessary fine-tuning ideas that everyone else is doing too? Are all of the measures guided by the same old, unchallenged mental models?)

Bruce’s conclusion: Our brand is a by-product of our business model. If we want to improve our brand value we must first re-invent our business model to be importantly different to then brand that difference. Communicating more about what we are already doing will yield poor returns. For more on this subject, see topic #4 below.

  1. HOW TO GET WINNING MOMENTUM LIKE THE BOSOX’s 8-0 RUN TO CHAMPS.

It took 86 years, a lunar eclipse and a most improbable 8-0 winning streak against the two, best-record-during-the-regular-season teams –the Yankees and the Cardinals – for the Boston Red Sox to break the curse of the Bambino and win the World Series. Wouldn’t we like all of our employees to pull together to achieve daily – micro-wins, new personal bests and heroic extra efforts – to move towards our goals? How do we turn downward spirals into upward, positive-momentum cycles on a sustainable basis?

Here are a few thoughts:

Identify vision goals that make motivational sense to all employees and confirm that the goals are motivational to them with an anonymous survey. (Sports teams have less trouble doing this because all of the goals are constantly visible and measurable, as are the cause-and-effect results of all player efforts.)

Stumped for vision goals? Identify the 5 most profitable customers in each customer segment that the company targets along with the 5 most important target accounts in the same niche(s) and put those names (and even pictures of contact people) on the wall for all to memorize. Define the 5 to 8 specific service metrics that are important to the target niche customers and start measuring those on the wall too. Teach the employees how they can help to continuously improve and maintain the service metrics as well as do both heroic acts and recoveries for all accounts, but especially the key ones. Start tracking GM$/employee on an annual basis as well as operating income/employee and tie improvement in these financial numbers with gainsharing bonuses. Seek to get every employee’s heart, mind and wallet connected to improving and delivering service value to customers, especially the ones that really count from an operating profit contribution view. (Want specific how-to’s for all of this? See ad below on a video of ours.) Then, immediately start trying to catch as many employees doing activities that deserve a "praising statement" as possible. Assign quotas for finding, giving and reporting "praising statements" to all managers and sales reps. Summarize all of the praising statements in a weekly "good news bulletin" and watch enthusiasm and momentum start to build.

For more background information on these techniques:

Buy our training program, "High Performance Distribution Ideas for All". It covers all of this stuff and more in a totally organized and comprehensive fashion. (The praisings, good-news-bulletin story is in module #5.2) The video is nearly for free, especially through our re-sellers, and it is guaranteed for a 30-day trial period. Read all about it in the center of our home page.

For free, piece meal reading right now, check out these documents at our web site:

How to identify the most profitable accounts and what to about them? See our two annotated slide shows at our site entitled:

"Identify Best Customer Niches for Profit Maximization Identify_Customer_Niches.pdf

And, "Cracking Target Accounts" Cracking_Target_Accounts.pdf

For how to define, measure and achieve "service excellence" see articles at our web site #-ed: 3.1 through 3.14 .

For ideas on how to link $GM/employee improvement and compensation see article #2.16 entitled: "E=MC2 Measurements for Distributors" at 2_16.asp

And, for more on "praising statements" see article #6.3: "The Science and Value of Praising Statements" at 6_3.asp.

Of course it would help immensely if the management team could be as effectively laid back as new Boston Head Coach, Terry Francona. He was somehow able to keep the self-proclaimed "idiots" (what the players named themselves) from not panicking and starting to think about how well or bad they were doing so that they could just let their natural abilities max out. All human organizations are susceptible to getting into both virtuous and vicious momentum cycles. Don’t wait for them to happen by accident for just brief moments in time, fuel the journey towards your compelling, vision/goals with praising statements.

  1. A STRING OF OUR DOCUMENTS THAT LEADS TO "5-5-5" MOMENTUM.

A distribution-chain client of ours recently adapted the idea of the "good news bulletin" full of praising statements (explained in topic #2 above) to the progress their branch managers were making on their "5-5-5 monthly reports". The 5-5-5 report is a one-page report that tracks the operating profit contribution of: the 5 most profitable accounts; the 5 most important target accounts; and the 5 biggest losing accounts at a given branch. The strategic reasoning behind this report is summarized in these two documents:

Article #2.20. "A Strategic Time Management Assignment" at this URL: 2_20.asp and Exhibit #30: "Assumptions Behind the 5-5-5 Report" at this URL: ./exhibits/Ex30.asp.

The 5-5-5 report is a final distillation, action-report for a distributor that has done a simple, customer-profitability ranking report analysis followed by "strategic dialogue" (not debate) with at least all managers and sales reps over why the company has so few, huge, super profitable and losing accounts. For "question-map" sets of questions to discuss –different types of accounts and the need for selling and co-creating win-win demand replenishment systems – see exhibits #-ed 31-33 and 14-15. ./exhibits.

For more on conducting conversations that stay calm and creative and that unpack old, dated mindsets reverentially, check out these exhibits:

On "dialogue (not debate), exhibit 6. ./exhibits/Dialogue_Exhibit.pdf

On "appreciative inquiry" about what have we have been doing the best to get good positive momentum going in the conversation check out exhibit 8 ./exhibits/Appreciative_Inquiry_Exhibit.pdf

The new, revised "ladder of inference" exhibit # 34 which we have renamed "The Cycle of Mental Model Thinking". ./exhibits/Ex34.pdf.

If you use the tools above to discuss the questions, you will begin the journey of changing your company’s mental models that will in turn allow you to change your company’s future. This process is discussed in slide show # 11, entitled: "Renewing our Business’ Mental Models" at this URL: ./exhibits/Ex30.asp.

To achieve breakthrough results and take the 5-5-5 accounts to the next level, management has to be totally involved. Sales reps can very rarely take these customers to the next level for reasons that you will find in the "question maps" and the slide show on "Cracking Target Accounts". Because most managers have little to no previous skill at doing "let’s change how you buy and we sell" consultative pitches to their management counter-parts at the 5-5-5 accounts, steady reporting of little wins by many managers across a chain on 5-5-5 selling provides growing, group-skill ideas and inspiration. Be the BoSox of 5-5-5 management-led, strategic account transformation!

  1. BRAND VALUE = YOUR BUSINESS MODEL, REINVENT THAT FIRST.

Because perfect quality products have just become the tablestakes to be in the manufacturing game, many producers are concerned about how they might revive or strengthen their product brand names. Wouldn’t we all love to own charismatic brands like Starbucks and Harley-Davidson?

The more I study this problem-opportunity, however, the more I think that the branding opportunity is what you do after you have invented a new category product that is more importantly wrapped in a new supply chain solution. Consider these recent news items:

  • During recent 3rd quarter earnings great brand name companies like Colgate, Unilever and Coca-Cola came out with earnings disappointments all complaining about the declining returns they seem to be getting on their advertised products. Even P&G, who outperformed the rest of its packaged goods competitors, mentioned that advertising ROI was dropping. But, they have done a number of other clever things to their total business model to outperform the pack.
  • Kraft has announced that they want to sell Life Savers and Altoids, two brands that they paid a lot for not too long ago. It turns out to be successful with Wal-Mart and other retailers, you have to dominate a "category" and be selected as the "category captain" to then be responsible for choosing which products should go in the category including your competitors. The two number one brands Kraft bought don’t total up to the heft that Wrigley’s has in the gum and mint category.
  • Tesco, the phenomenally successful UK super-market chain just reported record earnings and an even higher percent of private label store brand sales.

What are the trends? Brands are getting tired. Manufacturers that aren’t the #1 brand in a product category are losing share to private label clones that are more frequently coming from Asia. And, if you don’t have the best demand replenishment solution for a category or a total account, then someone else’s equally excellent, no-name brands will win because of total business model effectiveness.

What’s the solution? Read a bunch of books on "branding" and do P&G "best practices" branding activities? I think not. I think "branding" has gone through its own lifecycle from its invention in 1931 by P&G through its golden years in the 50’s-80’s. Branding of products may have peaked in 1988 with an Economist cover article proclaiming 1988 as "The Year of the Brand". Now with excessive, equally excellent clone products that are routinely guaranteed by all sellers, the seller that offers the best, total value (demand replenishment) solution wins. This doesn’t mean that within a winning business model we can’t still romance our brands, but without the low cost total solution, we will waste our communication dollars.

I have spent plenty of words in commentaries and articles about how distributors can do a better job on re-inventing their total procurement cost offering for best customers within best niches, but what about niche manufacturers? What should they do?

  • Small guys have to follow the big consumer goods guys in outsourcing commodity production to Asia and outsourcing logistics to third-party solution providers. Nike and HP, for example, don’t make or distribute anything, but they try to innovate and brand like crazy. There are different types of "master distribution" models for solving the logistical outsourcing problem including a "logistical consortium of suppliers" within a given industry that share the same distributor/dealer base. CoLinx is the only consortium example that I have found. It is highly successful for all channel parties. For more on them check their web site (www.colinx.com), our article #2.25 or contact me.
  • Small guys will need to re-tune their independent distribution channels making the big generalists "short-line" distributors of the commodity items and cultivating new longer line specialty distributors. An exemplar of this methodology is Bullard Corp., the inventor of the hard hat. Check out how all of their specialty distributors under the distributor location tool at bullard.com
  • All manufacturers of branded, niche items will have to be prepared to sell all items to end-users on a direct basis through their web site at distributor-list price + handling in a way that re-intermediates distributors. Whatever distributor that is chosen by the end-user will get the lead (and even a commission) to follow up the order to see if they can convert the interest into a regular repeat order that will allow the distributor to stock it locally. After all, the distributor will always be the low-cost, one-stop-shop, local replenishment solution for an assortment of end-user needs.
  • Get back to innovating new products to create new categories in the end-users’ minds around which you can then (re)brand. Without the hassles of doing high-cost manufacturing and logistics, there should be more resources like Nike, HP, etc. Do less commodity activity to do more proprietary activity.

Enough on this for now!

  1. TOO SMALL TO SOURCE PRIVATE LABEL GOODS FROM INDIA? TRY UPSOURCE.

John Engle, the new CEO of the National Association of Manufacturers, was quoted in a recent article saying that there was a divide amongst US manufacturers. The big guys, apparently, liked outsourcing to Asia, because first movers were saving a lot on costs which was great for profits. But, the little guys didn’t have the economies and budgets to figure out how to do effective outsourcing and were getting killed by the clones that the big guys or the big retailer customers were bringing in. They wanted US government protection.

Consumer goods manufacturers and large retailers long ago figured out how to outsource to Asia or they aren’t around. One company that has helped hundreds of retailers source private label goods (think shirts, pants, etc at the Gap) is Li and Fung out of Hong Kong. They have grown to become a monster integrated supply chain solution company. You might read some of the articles that will appear when you type in "Li and Fung" at google and click around their web site at lifung.com.

As I look at the split within the NAM membership and what a terrific job Li and Fung has done, I have two big questions:

  • When are the companies, whether they be manufacturers or private-label seeking distributors or dealer chains, going to sour on China and start to look at India? China is now running into shortages of factory labor, energy, etc., and their economy is overheated. What happens when it does have a bust as the US used to have in the 1800’s when it was the low cost producer for Europe? India has property rights and a court of law; China may have to do some heavy-handed intervention activity.
  • And, where is an integrated sourcing company for industrial product manufacturers? Li and Fung may have a small division aimed at niche manufacturers needs here in the US, but I haven’t yet found it. But, I have run into Upsource. They are a start up company that has joint ventured with a large Indian IT company that is strong in business process outsourcing, and they are now focusing on hard goods manufacturing industries in the US. If anyone out there in reader land is looking for some help in outsourcing to Asia or who is thinking of shifting some manufacturing away from China to minimize risk exposure there, check out Upsource. I understand from the Chairman, Mark Cohen, that they have a new improved web site that will go up this week at www.upsource.com, Because I have agreed to be an advisor to the company, I’m sure that I will have more to report on this entire subject of outsourcing production goods from India.
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Here’s a business intelligence service you should at least know about. Bruce Merrifield, a distribution channel consultant, writes frequent "commentaries" that he posts at his web site at www.merrifield.com, you might want to check it out. Here is the link to his latest one, but he also has lots of articles, exhibits, annotated slide shows, etc at his site. It’s all for free, and if you would like them to email you a word document of each new commentary, you just sign up for it. 73commentary.asp

 

That’s all for this issue. Happy trails to you, until we meet again.

Bruce

Bruce@merrifield.com

919/933-7474