Strategic Insights 29
Zero to $76K in Profits/Employee in 3 Years!
The audience was rapt. Three
distribution Execs from different channels were panelists at the 9th,
semi-annual, Advanced Profit Improvement Conference (“APIC”). They were recounting
how each had gone from negligible profits to $50,000+ per employee with sales
growing on average 10-25% over the 2-3 previous years. How? By selling their customers differently, starting
back in ’08 -’09, with the use of Line-Item
Profit Analytics (LIPA).
What lessons did they offer?
1.
They all had false-starts
with customer profitability ranking reports in the distant-past using
transactional-cost assumptions (no net profitability numbers or insights for
stock items). They were shocked to find that some of their best accounts were big
money losers and many small accounts were money losers in spite of high margin rates.
Since they didn’t know (back then) how to turn big-losers into happy winners or
how to deal with rep compensation issues, the discoveries stalled. (details in YouTube Playlist 9: clips 1-5).
2.
But, with LIPA,
a distributor can go deeper by using a “4-View-Analysis” of a customer (YT 9:
11-13) to discover pockets of acute losing activity for both parties that can
be re-tuned into win-win solutions. And, new insights enable small accounts to
be reassigned to a new service division that especially pleases the best reps
(YT 9:26-27).
3.
The Big-Losing
Accounts can now be approached in a collaborative way. “There is no bad guy here; we have data about your activity that
suggests we could both eliminate a lot of hidden activity-costs and unnecessary
downtime for you. The key is to re-think how we work together on small-dollar,
high-pick items and some recurring, emergency, small-orders for those same
item(s).”
4.
Most customers are
then pleased enough to buy more to maximize the new system benefits. Collaboration
on buy-sell-activity waste leads to partnering account-share!
5.
95% of the small
accounts are not growing and the standard, distributor service-model costs more
than the margin dollars from these customers. As one CEO put it: “To lose an average of ($50) on 500 accounts
each year plus their disproportionate costs for - returns; canceled special
orders; and slow-pay games - isn’t healthy, and it’s a distraction from key
account potential.” After “the minnows” were reassigned to a new, service-model
division with profitable terms, all three distributors lost 10 to 30% of them over
the next few years. Those that stayed became profitable by buying more, less
often and at higher prices with delivery charges being extra. (See: Minnow
solution cases: YT9: 22-32)
6.
The Actionable, Profit-Improvement metrics that ALL
three are using:
a.
Percent of
customers that are profitable
b.
Percent of peak
customer-profitability getting to the bottom line.
c.
And, profits
(and gain-sharing bonus) per Full Time Equivalent Employee (FTEE)
7.
How did the
three panel firms progress on these metrics?
a.
An
industrial-paper, jan-san distributor started with: 18% of all accounts profitable;
20% of the peak profits getting to the income line; and no gain sharing. After
two full years, the numbers respectively were: 40%, 70% and $3200 gain-share/FTEE.
b.
For an OEM steel
distributor: 40%; 20%; zero → 62%, 60%, $2800/FTEE
c.
For a fluid
power distributor over three years: 20%; 9%; zero → 71%, 98%, $6670/FTEE.
8.
By solving
hidden, buy-sell activity waste and getting more share of key accounts, all
financial numbers improved dramatically. The fluid power distributor results
were:
a.
Sales up
17% per year while active customers dropped from 1050 to 893.
b.
Average profits
per customer climbed from $30 to $941.
c.
GM$/FTEE climbed
from $98K to $197K versus a channel average of $124K. And…
d.
Profits/FTEE
climbed from $1590 to $75,597 versus a channel average of $22,305K.
9.
Sales force
reactions? The key is to sort them into three groups – Great; OK; and
Small-Order-Account Reps – and then handle each group differently. With new
incentives tied to profit improvements, the best reps on all of the “A” accounts are doing very well!
10. Concerns about going “open-book”? Because LIPA
reveals new gold and allows continual tracking of net profit improvement at the
customer/item/supplier levels, open-book gain-sharing
bonuses for all is a surety. It didn’t take long to get everyone’s
– minds, wallets, and win-win hearts – engaged and aligned!
11. The Execs? Working less
hours with more spent on the business rather than in it. Less stress, more fun.
And, enjoying being a hero to all of their happy stakeholders.
Is
it time to: check out their case stories in YT 9: 20-93? Request a Waypointanalytics.com
demo? Put the next APIC conference on your calendar? Embrace new metrics
that are bottom-line actionable and become a hero to all stakeholders!
Bruce
Merrifield, Jr.
*Sign
up for the 10th conference in September in Phoenix at www.apicconference.com.
**“YT9:1-5” notation means my YouTube Playlist #9,
clips 1 through 5 in that playlist of 116 clips.
See annotated indexes for all 454 clips and rising at www.merrifield.com.
