Merrifield Consulting Group

Article 1.24

Rethink “Business Intelligence” (BI) & “KPI’s”

The on-going, global, credit-bubble meltdown requires new thinking beyond cutting costs. But, new thinking requires new vocabulary to explain new concepts that can be both analyzed and managed by new, truly “actionable information”. Deeper profit power metrics – that presumably will come from a “business intelligence” (BI) system – must be added to our past “key performance indicators” (KPIs).

Although BI data-warehouses and KPIs for “dashboards” and “balanced scorecards” have been around for over 10 years, they haven’t been widely used. And, how many stories have we heard about: “a fast, inexpensive, flexible, dynamic, distributor-tuned, BI solution that is delivering 2 to 10 times ROI in 3 to 12 months”? (One now exists specifically for distributors! Check out Waypoint Analytics’ web site; attend one of their BI benchmarking workshops.)

Why is BI a bit of an oxymoron? Is it because we are using KPI’s that are refined by-products of financial data, which are the lagging effects of still deeper, vaguely known, but unmeasured profit power causes that proceed better financial results? If our KPIs are only telling us that – “we aren’t improving, try harder!” – how do we do more than just fine-tune the past?

First, can we agree that “BI solutions” are really only “tools”? For big change to happen, we will also need new: strategic architecture of insights (blueprint), support systems to engender new beliefs that will then motivate the re-skilling of the users to then realize the upside potential of better tools? We need a total, holistic change plan and support to go along with better measurement of true profit power root causes!

“ROOT CAUSES OF PROFIT POWER?”

Let’s follow this dig-deeper chain of inquiry to the elusive root causes of profit power.

Most distributors exist to deliver the irreplaceable, fundamental economic benefits of “hub economics” for breaking big orders into assorted small orders of stuff needed quickly to maximize uptime value or minimize downtime cost. By buying from an array of manufacturers in large quantities, a distributor can create a one-stop-shop, in-stock-fill-rate, service value for one or more target segment/niches of customers. This dramatically reduces channel transaction costs in comparison with customers bypassing distributors to get a lower price per unit, but at a higher total procurement cost while direct-selling suppliers often incur higher total sales and service support costs than gains in incremental margin dollars. For how to sell with the “total procurement cost” model see article #4.2 @ merrifield.com. http://www.merrifield.com/articles/4_2.asp.

Assuming most customers want (or can be taught to want) best total economic/service value – assuming we have such service value:

1. What is our most profitable segment-niche of customers? Read article #2.30

@merrifield.com. http://www.merrifield.com/articles/2_30.asp.

2. If we ranked the customer niches by estimated profit contribution, what would that report look like?

3. Who are our most profitable customers in our top niche(s)?

4. Amongst the most profitable customers in our #1 niche, can we find a few “advisor” customers with which to re-define a new, improved definition for our service value equation expressed in 8 to 12 specific service metrics? See Exhibit #3 at Merrifield.com. http://www.merrifield.com/exhibits/8elements.pdf.

5. What next level of metrics do we have to measure, manage and improve to in-turn improve the 8 to 12 service metrics? For example, what measurable daily activities will help to improve effective fill-rates, which is itself a foundational basic service metric? What measurable analytic reports will help us to reduce errors to “zero unconditionally guaranteed”?

6. If service personnel are ultimately responsible for changing their attitudes, skills and team-work to achieve distinctively different and valued service metrics, how do we measure their morale, skill levels, skill-improvement certifications and team-work spirit?

7. If 4% of all customers are perpetual innovators that will grow far faster and more profitably than the rest of their niche competitors, how do we identify them; measure their year-over-year growth with us; crack them and partner them through total team-service focus?

8. We won’t crack these target, “gazelle” accounts unless the entire team is empowered to do “heroic service acts” for them. How do we measure the daily “heroic acts” done by any and all employees and report that back to them real time? Why is the feedback of “published praising statements” the oxygen for continuous improvement of both personal-growth and service value? See article 6.3 at merrifield.com, http://www.merrifield.com/articles/6_3.asp.

ACTION STEPS

So, FedEx’s motto of the early ‘80’s – “People, Service, Profits” – points us down the right metrics path for improving profit power. Within distribution we can sell however many different niches of customers that each can have different service value (metrics) equations, as well as profit-potential economics for our core business model. We have to zero in on our most profitable niches and customers within those niches to (re)define our service value equation metrics and endeavor to capture 50% or more of “the customer profit pool” in that niche for our market area.

If you are looking for the best strategic BI capability for a distributor that delivers the fastest, highest ROI possible, or, you would like to benchmark your current BI capability (no strings attached) against this service, then please contact me in order to sign up for a Waypoint Analytics workshop in a city near you! The next will be in Oakland, CA. on February 12^th and then we plan to have one in Chicago in mid-March.

bruce@merrifield.com

January, 2009