Six Ways to Prosper in Distribution
By Michael E. Workman
President of Michael E. Workman Associates LTD.
Stick around long enough and it seems you’ll see the pendulum swing from one ‘right’ way to do things to a way that is completely opposite. We’ve been wooed by cure-alls that tell us we must move from, or to, models such as team–individual; competition—collaboration; centralization–decentralization; hierarchical structure–flat structure; spend–save; diversify–focus; and insource–outsource.
It seems we continue to cycle through the solutions, magic formulas and strategies with little or no apparent change. There are a couple of things we can probably agree upon. One, we are living in a time of unprecedented change and, two, the number of options offered to us continues to escalate.
Someone once told me that all you had to do to prosper in the distribution business was to be effective at six things. You had to buy low, sell high, collect sooner, pay later, turn your inventory more often and improve your operational skills while lowering your internal costs. Sounds pretty simple. Well, the principles might sound simple and true, but implementation is getting harder to do. During this constant change mode of business, it appears that dealers might do well to keep in control of a few new and a few old concepts. Most of those apply to any business, but some appear to be more dealer-specific. Hoping to not insult your intelligence, lets look at six ways we might effectively accomplish those first six things more closely in the coming 24 to 36 months.
Positive Cash Flow
One thing for sure in business today is that deals, contracts, alliances, cost reductions and additional services all contribute to a cash-to-cash cycle that is different than it once was. It is very easy during this demanding-customer and demanding-supplier arena to loose sight of this very important element of our business. Businesses do not fail because of a lack of business, but because of a lack of cash. Dealers must look more closely and more often at the cash cycle in their businesses.
A Realistic Constant View of the External Environment
A distorted view of where our customers are headed, what their expectations are and will become, what role our suppliers need and expect us to play in the market, and what competition we face is not uncommon in our industry. Business relationships are changing. Value is defined in different terms and with different measures. Costs of doing business are still unknown to most of us, and until we get a handle on those costs we are extremely vulnerable. While the environment doesn’t cause change, it can strongly influence how we respond to it.
Managing for Performance
Variations on performance management have been around for some time. “Management by Objectives” was one of the first to get the attention of our industry, and its principles were continued in most Total Quality Management systems. Two or three factors jump out as we look at the failure of most ‘systems’ based solutions. First, the intent and the process are rarely communicated throughout the organization. This creates a great deal of confusion among employees trying to implement something they not only do not understand, but also do not know the intended outcome. Second, measurement systems do not reflect outcome, instead they reflect either effort or attitude. I really believe that most systems-based processes are not systems at all, but a group of loosely-tied functions hopefully reinforcing a common output or yield. Before one can effectively manage for results or performance, the conditions to reinforce the performance must be firmly in place. We continue to wonder why performance doesn’t change even though we vary our mission, vision, tactics and techniques.
Performance management is truly about communication. Managers who want performance must get a handle on the new-work definitions held by employees today. We must focus on increasing their employability, focusing their intents, managing their expectations and rewarding their outcomes.
Management sciences all still agree that master communicators do three things well. First, they know their intended outcome. They are very clear on the results they expect to accomplish, and know what those results will provide. Second, they have the flexibility to vary their communication style. If what they are doing isn’t working, they can change what they are doing or the way they are doing it. They have multiple styles and techniques for approaching the same goal with different people at different times. We’ve all seen how effective coaches use different techniques with different players at different times to get desired results. Third, they have an awareness of the responses to their communication. Being able to see and hear are major abilities of effective managers. They are responsive to the reactions of the people with whom they are involved.
Management skills have changed very little. Attitudes, goals, measurements and needs have changed a great deal. Attempting to achieve performance without being attuned to these differences is very frustrating, costly and ineffective.
Dealers must know, within their customer portfolio, which businesses they serve are customers and which are consumers. Which of these contribute to net profit, and which do not. Offering the same services to the same consumers at the same prices is costly. Dealers that are seriously lacking in their understanding of customer characteristics, behaviors and preferences put themselves at risk of failing to make the most of each interaction and allow competitors to disrupt the relationship and leverage future opportunities. To know which ones you can profitably serve, and which ones you and your suppliers should approach differently will be paramount in continuing channel integrity.
Leverage your Knowing
Once you understand your customer awareness, you must then develop systems to better support and optimize the high-priority, high-profitability customers. Customers, dealers, and suppliers working together discover value. It doesn’t exist ‘out there’ needing to be found. Its discovery comes from identifying and focusing on critical success factors that are understood by all parties and continually at the front of all transactions.
It’s Not the Answers, It’s the Questions
The questions that you as a manager or owner continually ask your sales, operations and internal support team determine the direction of your organization. What questions are you asking? What measurement systems are you continually upgrading? What contributes to the highest yield in your systems? What constitutes value in your best customers’ minds? The more complicated a process, the greater influence a dealer can have over it. Trying to simplify a complicated channel might be the wrong tack to take. Maybe then we should become more aware of the futurity of the decisions we make today.
It’s really a very simple business; it’s just extremely difficult to do.