December 13, 2017


















DATA INTO DOLLARS? NOT YET!

Companies have "data, data everywhere and not a profitable drop to drink" at least according to their bottom lines. Over the past 5+ years, wholesale-distributor (WDs) software vendors have gone from offering "Executive Information Systems" (EIS) add-on's to more elaborate "business intelligence"(BI) packages. The demo's for these "solutions" are superficially seductive and the case examples, although airbrushed and perhaps successful for freakish reasons, are still compelling. So firms bought these information "solutions" like crazy up to mid-2000. Their data is now accumulating exponentially, but their profits have headed south. Is there, will there be an ROI?

Results are not all glum. In surveys of big corporations that have spent millions on BI solutions, most will claim partial or complete payback on their investments. Owens & Minor, the $4 billion hospital supply distributor, has gotten recent publicity about its' success with a $500,000 software package from Business Objects. O&M has married this software to an expensive data storage system and trained large hospital group customers to do purchasing optimization analysis with the system.1 But, what should the other 99%+ of all WDs that are smaller than O&M in most every way do?

THE BEST OF THE REST

Most WDs have bought good-value, turnkey software packages from vendors that typically offer as an add-on a good-value EIS module that can slice, dice and format stored information in lots of ways. I did an informal survey of some WD software vendors to find (after promising anonymity) that the average vendor had sold about 20% of their WD customers an EIS/BI module. But, the guesstimate was that only about 10% of the subscribers (or 2% of the total user base) had remained steady users of the tool. Why the fizzle when there had been so much initial sizzle? Here are a few guesses:

1. Any software solution is a tool. Without great management, strategy, process smarts and people power, a BI tool might become a reminder that no matter how we look at the numbers they still are mediocre. Can't these systems offer any fresh numerical insights into how to manage smarter rather than harder?
2. Financial numbers in, more elegant financial numbers out. Because all reported financial numbers are lagging symptoms of underlying, leading profit power elements, it doesn't do much good to slice and dice, graph and trend financial numbers. Although newer, cooler views of symptomatic numbers are possible, they can't tell us much more than to try harder in the same old ways.
3. We aren't asking the right questions about the strategic and operational sources of high-performance service effectiveness. If we were, then we could start capturing the relevant data to give us the insights and guiding that we need to learn our way to better results.
4. Power tool or shared learning tool? If the BI box is in the corner office as a power tool for executives, then the game of gotcha on steroids quickly loses its' appeal for both boss and subordinates. If, on the other hand, a firm decides to track and improve service metrics that have been re-tuned to a target niche of customers' exact needs, then better service value could be generated more efficiently. But, the BI system would also have to be accessible in the center of each branch. New templates for daily process improvement data would have to be created. Operational people would have to enter some of the data and they would, more importantly, have to want to and know how to use the output data as fuel for continuous learning and improvement. No significant, sustainable change results can come from trying harder; big gains must come from doing things smarter.
RECOMMENDED BI UPGRADES

Affordable BI modules for WDs will have to expand their scope beyond hardware and software to include some strategy-ware and people-ware training with new tracking templates for leading, profit-power metrics. Here are some recommendations:2
1. Provide a simple ranking report for customers by estimated profitability with cumulative percentage columns to determine what percent of customers generate what percent of profits (and losses!). From a cumulative ranking report, a WD can then pursue a number of productivity and profitability applications
a. For example, 100% of the employees at a branch level need to know by heart the top ten most profitable accounts and the top 5 to 10 most important target, growth-potential accounts. Then, these customers can get perfect service with extra efforts no matter what happens, assuming that all of the employees are intellectually, emotionally and financially signed up for such a commitment. The BI package should track ranked, retention ratios of gross margin dollars for the last trailing quarter (yr.) over the previous trailing quarter (yr.) for this super, strategic territory of accounts. ("Ditto" for all territories if we believe in and are pursuing "people/customer service retention economics theory." 3 )
b. After identifying the top 5+ most profitable customers in its' historic, number-one niche, a WD must interview the customers to re-tune what the 5 to 8 most important service metrics are for such a customer. The BI system must then provide tracking templates into which daily process numbers can be entered. 50 to 75% of the necessary numbers may already be able to be pulled from the datawarehouse, while the remainder will have to be captured and entered locally as often as necessary. Some universal service metrics are, for example: estimated errors per 1000 lines processed; fill-rates; cycle count accuracy scores; days in a row for same day receiving and heroic recovery performance; days in a row for on-time shipping and delivery.
c. The bottom 10 to 30 biggest, losing accounts need to be analyzed and re-sold on an individual and profitable basis. Well sold, 80%+ will agree to buy less often in bigger quantities with other cost-cutting or fee enhancing conditions applied for a win-win resolution. These accounts will point to the importance of both segmenting customers by volume for different selling and service treatment and managing the small order problem across all account segments. The BI system should allow sales and/or gross margin activity per month to be entered for segmenting customers into different strata as well as provide some better templates for tracking and managing the small order problem.4
2. BI templates for internal benchmarking, ranking systems using 4 to 12 metrics can be designed for different categories of employees. Branch managers for example could be scored and relatively weighted on traditional key financial ratios as well as important new profit power metrics like: their own total effectiveness score from 360 surveys; employees' average morale ratings from anonymous surveys done twice per year; basic service metrics. Intermediate by-product ratios are also important. All employees, not just branch managers, should watch and obsess over improving productivity per employee as measured by trailing 12 month gross margin dollars per employee. (Why? Then what?) All sales types - outside, telemarketing, mail order/catalog and counter - should watch and obsess over profit per customer in their respective marketing strata. (Why? Then what?5) Such ranking systems for each category of personnel, used correctly, can be a powerful continuous improvement tool for on-going skill mastery and service/personnel productivity. The reports can also be used to diplomatically pressure those who don't want to do their fair share of work or change to leave for someone else's payroll.
TRAINING TO GO WITH THE IMPROVED TOOL?

If WD software vendors did upgrade their BI offerings to track leading, profit-power metrics at the branch, process level, they would also have to provide a few other compliments to make it fly. First, the BI system would have to be able to share information both up and down the organization. Headquarters might design the templates to be used at the branch and process level and populate them with as much of the data as possible. The empty holes would have to be filled by local employees and pulled to HQ on a nightly basis to be monitored for timeliness and accuracy and incorporated into updated, summary benchmarking, ranking reports that would usually be shared downward in diplomatic ways.

Software vendors would also have to provide some training videos for educating 100% of their users' employees on the whys and hows of using the new "Profit Power" upgrade package for the BI system. Motivated employees will have to gather and input new local process data as well as take new output reports to assist continuous learning and improvement activity.

FUTURE UPGRADES?

Datawarehousing and big, continuously on, secure internet connectivity will someday be nearly free and permeate supply chains. The bottom 99% of WDs by size will then have O&M's option of making valuable, actionable data available to both customers and suppliers along with "digital cockpit" software applications that will allow all players in the channel to be more productive and profitable. But, assuming that we must all crawl before we walk and then run, the 99% need to first figure out how to measure and achieve high-performance, internal profit power applications. Now!

Traditional turnkey software packages have been shaped by the needs to buy and sell goods, pay taxes on time and borrow money using general accounting methods as well as minimize inventory and receivables investment. These are all good things, but the top-down, try-harder, financial management activity that computer generated numbers permitted starting in the late '60's has run its beneficial course. If every business continues to try to get more financial juice out of the exhausted lemon, competition will remain a fair fight.

But, software vendors, like arms merchants, are in the position to offer a next level of weapon designed around asking the right strategic questions to track the right, new numbers. Will they figure out how to provide the total package for bottom-up and top-down profit-power data sharing along with the education for using the new tools?6 Will all customers see the wisdom of the built in strategy-ware and buy the upgraded tools to turn data into dollars? Or, will only the steady innovators see and seize the opportunity to turn more of the laggards into dust at a faster pace?

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1 Forbes Magazine, April 1, 2002. "Analyze This", pp. 96-98.
2 For a how-to article "Measure Customer Profitability and Act" (Article #2.3 at www.merrifield.com)
3 "Succeed with the Service Economics Chain" (Articles #3.7, Ibid.)
4 "Tackle the Small Order Problem-Now" (Article #2.15, Ibid.)
5 "E=MC2 Measurements for Distributors" (Article #2.16, Ibid.)
6 Some vendors are already resellers of the video, "High Performance Distribution Ideas for All", which addresses all of the strategy-ware and educational needs mentioned in this article. More at www.merrifield.com

Merrifield Consulting Group, Inc.
D. Bruce Merrifield, Jr.
March, 2002, Article 2.19