September 28, 2006, Distribution Channel Commentary (DCC) # 91

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TOPICS:

1.      THEMATIC QUOTES.

2.      CASE STUDY: BUSINESS IS OFF 31% IN AUGUST (LUMBER DISTRIBUTION) WHAT TO DO?

3.      WANT TO RETHINK YOUR BUSINESS IN 10 DIFFERENT INNOVATIVE WAYS – AN OFFER.

4.      MASTER WHOLESALERS ARE WOEFULLY UNDERAPPRECIATED – SLIDE SHOW, NEWS ON SYSCO’S RDCs.

5.      BALANCED SCORECARDS + CHANGED INCENTIVES + TOUGH QUESTIONS + KINETIC CHAIN = CHANGE

1.      THEMATIC QUOTES.

The Chinese symbol for “crisis” is two brush stroke characters that translate in to “danger” and “opportunity”.

"Chance (and economic turbulence) favors the prepared mind (and organization)."     Louis Pasteur

"Was it possible, Bender wondered, that a cruise ship was more diligent about killing germs than his own hospital?" (Article from New York Times cited in topic #5)

2.      CASE STUDY: BUSINESS IS OFF 31% IN AUGUST (LUMBER DISTRIBUTION) WHAT TO DO?

Yesterday I got the indirect news from a client that his son is working for a monster building supply distributor that saw year over year sales drop in August by 31%.  Another data point from the building material distribution channel that I got from a chain of retail lumber yards was that year to date sales through August were off 10%, which included 5% in product deflation and 5% drop in unit volume. I suspect that the sales drop-off curve might be accelerating so that their August ’06 sales versus August ’05 might be closer to the first company’s 31% figure. The big case study question for anyone who might be affected by the current plunges going on in both the housing industry and the auto supply chains might be: “If you were the CEO of this distressed company, what would you do?”

The correct answer in business is always “it depends” on a lot of factors. In general, however, we might ask if we could rewind the tape and have a choice between whether we want to be one of the following types of managers:

·          An anticipatory manager who is always looking for present data that is different from the norm and trying to extrapolate whether this is the beginning of a new opportunity or a problem, so that we can invest a bit of resources into being ready for big positive and negative surprises.

·          An in-the-moment, super-agile, reactive manager (and company) who can outrun the rest of the reactive or comatose competitors. Be a fast follower, a settler, but not a pioneer with arrows in his back.

·          Or, an emergency, crisis manager who may scramble to barely survive

I would hope that the 31% down chain had anticipated that the housing bubble was a bubble and had not tried to get out at the very top, but had started to be more selective as far as adding capacity and selling marginal customers being kept alive by the bubble. They, of course, will be wiped out by the bubble and leave some suppliers with some big write-offs. Once the plunge is upon us, standard recipe stuff is to: downsize all cost and activity aspects of the business to be in tune with residual demand; upgrade what we do, by terminating all of the least productive people, branches, etc; refocusing more marketing energy on the 5-10% of the customer pool that tends to do best during downturns at the expense of all of their other reactive and crisis-management competitors; and most important, reinvent our value and cost models. The real business genius managers do all of this with a bi-focal view on what the industry will look like at the other end of the trough, so that they solve both today’s big problems while positioning themselves for what will eventually be important.

If you haven’t already seen a softening in your channel, do you have contingency plans for a general economic downturn in the US? Do you have both a short term and long-term view? Do you have ideas on how you should be reinventing your business model beyond just trying harder and doing “best practices” to be like everyone else, except more efficient, of course? Do you think about this sort of stuff with your management team on an annual and periodic review basis? Want some help? Read on and/or contact me for even more.

For a do it yourself, quick fix, business concept web site, go to the link below. I promise you that if you do no more than just read their inspirational signs you will benefit. http://www.businessballs.com/

3.  WANT TO RETHINK YOUR BUSINESS IN 10 DIFFERENT INNOVATIVE WAYS – AN OFFER.

Regular readers know that I have been working on “innovation management” ideas and projects for some time. Along the way I became a fan and follower of an innovation strategy firm in Chicago named Doblin, Inc. The managing partner and thought leader is an impressive fellow named Larry Keeley. I’ve been reading his stuff and using his/Doblin’s “10 ways to innovate” model for the past year, so I thought it was high time that I should email him to see if I could actually get permission to use his conceptual material that I was borrowing. He agreed! So, here’s what I’m thinking and an offer…

Trying to run our business better and doing lots of reactive, incremental adaptations to stay in harmony with our business partners is good and necessary stuff, but it doesn’t give us any sustainable competitive advantage. It just keeps us in the game, and our numbers go up and down with the industry tides. Distributors, for example, that distribute big pound products made of steel, zinc, and copper have done sensationally well over the past two years thanks to the global commodity bubble being driven by all construction bubbles in China and a global housing bubble. But, what will happen when things necessarily regress to the mean? Don’t we all have a bit of Starbucks or iPod envy. Why can’t we turn a total profitless commodity like coffee beans into a super-profitable, rocket ride. Or, what if we are a moribund, profitless, commodity equipment producer like Apple computers, why not reinvent how to make huge money on rock-n-roll.

How did Apple and Starbucks do it? They innovated by using 7 and 8 of Doblin’s 10 different ways to innovate. So, forget coming out with new, improved products or a new, improved product system idea, because according to Doblin those 2 way over-worked innovation methods don’t yield any return. Instead, look systematically at how you can weave two or more of the other ten ways to create something new. If you are intrigued, but totally confused, then email karen@merrifield.com and request a copy of the “Keeley slide show”. It is about 16 slides from one of Larry’s 70+ slide shows that focuses on Doblin’s 10 ways to innovate with some case study examples.

If this abridged slide show hooks you further, then feel free to contact me about your iPod envy. If you are a global manufacturer and can sign big buck consulting commitments go directly to larrry.keeley@doblin.com. 

4.      MASTER WHOLESALERS ARE WOEFULLY UNDERAPPRECIATED – SLIDE SHOW; NEWS ON SYSCO’S RDCs

Next week (October 5th) I will be doing a short presentation at the ISSA (Jan-San channel) convention on how distributors can partner with master wholesalers for breakthrough results and really just replicate what has already happened in other bigger, channels. If you are going to be there and have any interest, the 25 minute presentation will be at 12:30 on the main show floor of McCormick at the “Education Theatre” which will be at the back end of the floor. Otherwise, you can check out the annotated version of my slide show which has been posted at our web site at this link: http://www.merrifield.com/articles/ISSAFill-rate_annotated_show.pdf.

For those of you in the foodservice channel, you are acutely aware of Sysco and its plan to spend about a billion dollars on 9 regional master distribution centers to feed its 400 operating companies on a just-in-time basis. The best fundamental analysis I have seen on how this is all going is being done by an analyst named Jason Whitman at Cleveland Research. If any of you would like a copy of his latest report on Sysco, email him for it at the following address. He also is interested in visiting with anyone from the foodservice channel that has a view on how well (or not) Sysco is doing. Here’s Jay’s email address:  jwhitmer@cleveland-research.com (216-649-7203).

5.      BALANCED SCORECARDS + CHANGED INCENTIVES + TOUGH QUESTIONS + KINETIC CHAIN = CHANGE

How do you tell a bunch of distribution managers to start thinking and managing differently when they have just had the best two years in their history (or some of the old timers since the last commodity shortage windfall years of ’74 and early ’75)? It’s difficult. We all like to take credit for whatever good is going on around us, and because we only see what we want to see, we continue to think that the good times will last forever. At the stock market peak in 2000 a book entitled the “Dow 36,000” came out. And, the latest surge in housing would continue, because “this time it is different”. Maybe, at worst, we will have a very high plateau for real estate prices, or a “soft landing” which hasn’t ever happened.

Because what get’s measured and has incentives tied to it, does tend to get managed with changed behavior, if necessary. I would suggest the following prescription:

·          Develop your own distribution-specific version of “balanced scorecards” in which you put equal weight on the traditional financial numbers; the service quality metrics; the personnel development activities; and the general innovation portfolio of activities. For more on ‘balanced scorecards” check out this link:   http://bscol.com/

·          Ask the questions about what are the 4-8 metrics that we can measure everyday to make sure that we have achieved and are maintaining basic service value brilliance that is tuned to each customer segment that we go after. And, what are we doing that is better and different for key core, target, and super-losing accounts. For more on this see Exhibits 30-33 at http://merrifield.com/exhibits/

·          Make a list of all our employees that is broken into three groups – stars, steadies and problems. Do we all agree on who the stars are and what their relative rankings are? What are we doing to feed, grow and keep them? Do we agree on the “problems” and what are we doing about them?

·          As you scratch your collective heads about how to close performance gaps in the balanced scorecard numbers to maximize management compensation, use my kinetic chain to ask what we need to change at all seven steps to make this new and better world happen. (More on the “kinetic chain” is at: http://www.merrifield.com/exhibits/Kinetic_Chain_Ex_16.pdf ) This will help you to come up with a holistic and consistently aligned solution for your change opportunities.

As usual, I’m standing by to help you with more if you need it.

That’s all for this commentary!

Bruce