February
26, 2009: Distribution Channel Commentary (DCC) # 108
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TOPICS:
QUOTES
HOW
LONG WILL FORCED LIQUIDATION, DELEVERAGING LAST?
IMPROVE
BUSINESS INTELLIGENCE FAST & AFFORDABLY: CHICAGO 3/24!
VISION
VIDEO (7 min.) + PAPER ON: ROBOTS IN YOUR WAREHOUSE
MANUFACTURERS
SELL DIRECT & PLEASE YOUR CHANNELS
QUOTES
"Owners of capital will stimulate
the working class to buy more and more expensive goods, houses and technology,
pushing them to take on more and more expensive debt, until their debt becomes
unbearable. The unpaid debt will lead to the bankruptcy of all banks, which
will have to be nationalized, and the State will have to take the road which
will eventually lead to communism." Karl Marx (from “Das
Kapital”)
“It's almost worth the Great Depression
to learn how little our big men know.” Will Rogers
"Man who stand on hill with mouth
open will wait long time for roast duck to drop in." Confucius
Companies
have a four to six times better chance of success if they seek a solution for
tomorrow’s growth based on “hidden assets” within their core business…through a
cycle of F-E-R: Focus (on core business); Expand (on new adjacent businesses)
and Redefine (the core business)… Chris Zook (author of three books on core revitalization;
the last, best one, being: “Unstoppable: Finding Hidden Assets to Renew the
Core and Fuel Profitable Growth”)
HOW
LONG WILL FORCED LIQUIDATION, DELEVERAGING LAST?
Here is a
succinct description of the “deflationary spiral” we are currently in:
When everyone is leveraging, it creates
buying pressure. When everyone is deleveraging it creates selling pressure.
Increased buying pressure leads to higher prices of assets. Increased selling
pressure leads to lower asset prices. Lower asset prices lead to more
collateral calls, which lead to even more selling. And around and around we go
until equilibrium is reached between the need to sell and the desire to buy.
The process of selling to meet collateral calls, which in turns puts even more
pressure on asset prices, is often referred to as a "deflationary
spiral".
We mentioned above that structured
investment products greatly increased the availability of credit. The
structured investment products pooled loans and sold the loans to numerous
investors in the form of securities. As you might imagine, when default rates
pick up on loans, the value of the securities backed by the loans drops. After
the downward spiral in assets prices started, investors in securitized loans
lost a lot of money. When investors lose money, they are less inclined to line
up for the new offerings of securitized loans. Thus, a giant source of capital
for the credit markets has dried up. (for the rest of this “themes for 2009”
article by Chris Ciovacco, the link is at the end of this topic).
I think
the big economic factors to consider are that:
1.
The average US consumer is too much in debt and currently losing: jobs, income, health insurance and
paper wealth in their 401 and house. Savings will go from a negative percent of
annual income (thanks to refi spending) to eventually about 10% over the next
four to five years (high, single-digit savings rates were typical up through
1982 when our great, debt-bubble economy began). The savings shift will be a
big drag on our over-sized economy that was 70% comprised of borrow-and-spend
consumerism.
2.
At the peak of
the global credit bubble in early 2007, 70% of all of the “moneyness” credit
units that were used to drive the prices of all assets up had come from
asset-backed securities (ABS) generated by the financial services industry and
only 30% came from commercial bank loans. The ABS market has collapsed by about
90%; it doesn’t appear to be coming back soon; and all of the fees that the
financial services companies made off the ABS process won’t come back either.
(How will financial companies with over-sized headcounts and pay structures
replace this source of profits?)
3.
Defaults on
credit cards, auto loans, student loans, home equity loans, commercial building
loans, leverage-buyout loans, municipal bonds and weaker company and country
loans are just starting to ramp up and are far from their peaks.
Those are
enough trends to keep the de-leveraging and general economic downsizing process
going for some time. We will have to not only continue to cut costs, but change
our assumptions and innovative initiatives for these new conditions.
What are
my recommendations for what the average distributor should do? In a sound bite:
“downsize to your core; upgrade, revitalize what you do
for the core; and innovate from it. To enable these steps: use better strategic
business intelligence and software-as-a-service applications to achieve quick,
breakthrough, smart-supply chain effectiveness with your channel partners.”
For more
detailed advice, see my last commentary at the link immediately below and read
the section titled: “Epic Downturn; New Rules; New Tactics.
http://www.merrifield.com/articles/107commentary.asp
You may
also want to review my recent article on my recent article - “marketing plan
2009” - for some specific how to’s for “more to the core”: http://www.merrifield.com/articles/2_29.asp
Here also
is the link to Chris Ciovacco’s article which is a good read:
http://www.howestreet.com/articles/index.php?article_id=8421
IMPROVE
BUSINESS INTELLIGENCE FAST & AFFORDABLY: CHICAGO March 24th!
Aside from
mostly financial reporting data that we get from our in-house computer
capability, what other “business intelligence” data do we get that will enable
us to get fresh insights into the root causes of our profit power and then
allow us to track how well we pursue those insights?
Whether
you have a formal “business intelligence” capability or not, you are welcome to
attend a one-day workshop (there will be a seat limit) that I will be
conducting with both Waypoint Analytics and Bill Wade on March 24th
in the Chicago area at the Wyndham Drake (Oak Brook) Hotel from 8:30 AM to 4:00
PM. If you would like a registration brochure (the fee is nominal) or more info
from me than follows below, please contact me at bruce@merrifield.com or call me at
919-357-2372.
Why
attend? What topics? We will go through all of the strategic profit power plays
that the Waypoint business intelligence (software-as-a-service) can deliver to
you through a browser in about one week’s time from signing on. Whether you
eventually subscribe to the Waypoint service or just come with a team to
benchmark what you are already doing in-house to steal what ideas you can; we
don’t care! A summary of these plays is at this link: To Re-cap: Merrifield Plays
and Waypoint Reports.
While you consider
this workshop, here are some questions to consider about your current BI
capability:
1.
Are good,
customer-profitability-ranking reports - creatively analyzed - a doorway to new
profit-power improvement insights and plays?
2.
What if we
don’t have in-house expertise to design trustworthy, activity-based-costing
(ABC) models that allow us to determine true customer profitability? (Why not outsource
that to an expert who does it for many distributors just like we might
outsource our payroll to PayChex or small package delivery to UPS?)
3.
What if we
don’t trust the outsider’s initial ABC models? (Answer: We can custom modify
them quickly and usually for no additional fees beyond the monthly subscription
fee.)
4.
What if we get
to “the doorway” of new, customer-profitability insights and we don’t have the
new skills and courage to pursue the cook-book, how-to, recipe plays that this
“total profit-improvement solution” offers? (Answer: Educational support tools,
qualified consultants, real case study successes and remote,
looking-at-the-same-screen/data-as-needed access to both Waypoint and Bruce are
all included.)
5.
What will the
cost benefit be of subscribing to this service and getting some range of
results depending upon whether we are weak-good-or-great implementers? (Weak
implementation: a low of 2X the investment within 3 months to 10X+ on a
sustainable basis for the good executors!)
6.
How can we get
this comprehensive service in just one week’s time? (Answer: That’s how long it
takes for Waypoint to take all of the transaction data you may have in-house,
recast it into the computing cloud and turn on the service with all of its
macro-buttons for all of the plays in place.)
7.
Why would you
let companies that already have in-house BI come with their IT people to
benchmark what Waypoint and Merrifield are co-evolving? (Answer: We think that our
product is so comprehensive and continually improving that in-house people will
take too long and spend too much to try to match something that will have
continued to improve beyond what they see. The cost of the service is so low
that most companies can subscribe to it as an auxiliary service to what they do
in-house, get a great return and decide if and when they really want to try to
duplicate the continually-improving capabilities in house.)
See
you in Chicago! Or, if any intrigued readers are in Toronto, we are planning a
seminar there in April. To be notified of the final time and place, contact me.
VISION
VIDEO (7 min.) + PAPER ON: ROBOTS IN YOUR WAREHOUSE
Do you
ship a lot of your warehouse volume via small package carriers? If so, do you
want to see how cute little robots that cost $20K per copy and deliver $2mm in
lifetime, error-and-accident free labor to a warehouse work? First, watch this
highly entertaining and informative video clip: http://www.youtube.com/watch?v=Fdd6sQ8Cbe0.
The net of
the story is that in a world-class, high-volume, semi-automated warehouse
(conveyor systems, etc.), the robots cut all hard costs by about 50%, and there
is no estimate put on the soft benefits of:
1.
Better service
value from: zero errors; 100% cycle count accuracy; and faster order pulling
availability.
2.
The total costs
of eliminating moving equipment accidents and waste.
3.
The HR costs of
dealing with warehouse personnel costs related to: turnover, union threats,
etc.
Then,
realizing that most distributors are too small to “buy the robots” direct from
Kiva Systems and be your own general contractor or heart transplant surgeon,
you might want to read the short white paper written by the CEO of the only 3PL
firm that combines: world class warehouse management software capabilities with
multi-tenant economies of scale that also happens to use Kiva robots. Email bruce@merrifield.com
for a copy of the paper.
If our
armed services can go from experimenting with battle droids and drones six
years ago to legions of them today, then what we see and read in these two
sources is just the beginning for massively-parallel receiving and picking
robots in warehouses. Can any distributor take advantage of this technology
trend? Yes! And, thanks to software as a service internet applications,
the smaller the distributor the faster and easier they can outsource their
warehouse activity for better total economics than the biggest guys out there that
have the biggest investments in old-school warehouse software and automation.
MANUFACTURERS
SELL DIRECT & PLEASE YOUR CHANNELS
In the
fall of 2000 I wrote an article entitled: “Manufacturers Must Sell
Direct: Sort of.” It went over like a lead balloon. Most readers didn’t
even know what I was talking about or have dial up internet, slow-bit access.
And, the distributors and manufacturers that actually read it and thought about
it for a second had an immediate fright, freeze up of their corporate amygdales.
I just
re-read it, and aside from updating some of the case references, I wouldn’t
change anything. I hope some readers will check it out at this link and let me
know what they think now, http://www.merrifield.com/articles/8_16.asp.
And, after
you read it, realize that there now is software-as-a-service,
electronic-commerce, supply-chain software that makes it very easy, inexpensive
and fast to:
1.
Be a
large wholesaler that sells to resellers to now sell direct to the end-users
with re-intermediation of those resellers and then add even more win-win supply
chain applications.
2.
Be one or more
manufacturers with post-sale parts and pieces to create a 3PL, factory co-op
that ships parts and “long-tail items that distributors and dealers won’t
stock” direct to the final user if need be with happy (re-intermediation)
benefits for all downstream channel players.
If you are
a frustrated manufacturer or distributor trying to sell more through channel
partners that aren’t changing fast enough, do everyone a favor and feel free to
call me about how we can design fast, affordable, innovative supply chain
solutions to take away everyone’s pain.
That’s all
for this issue!
Bruce
bruce@merrifield.com
office:
919/933-7474
Commentary
# 108 Feb. 26, 2009
