SUPPORT NOTES FOR: "BUSINESS STINKS" ARTICLE
- The China Effects. In the last five years, China has gone from struggling to make quality Beanie Babies to making quality parts for all of the worldís most demanding manufacturers at 3 to 5% of the cost of doing the same job in Japan or the US. A wave of out-sourced manufacturing happened through the Ď80ís with production going to the Asian Tigers, Mexico, etc. But, supply of workers diminished and wages started to rise rapidly. In China, 1.2 billion people are unemployed or under-employed, so wages arenít rising; economists have never seen anything like it. Direct investment by global manufacturers in China for 2001 exceeded $50 billion, more than the investment in all other Asian countries combined. The Chinese have moved up the value-added manufacturing capability and educational ladders faster than any other third world country. The Chinese currency is pegged to the dollar; if the dollar depreciates it helps China attract more investment and doesnít help US manufacturing versus Chinese costs. In Mexico 350 manufacturing plants have been closed in the past 12 months because production is moving to lower cost countries, mostly China. The effect of Chinaís booming, lowest-cost, best-quality manufacturing capacity will ripple through most of the global manufacturing base.
What does this mean to US distributors?
- The labor-intensive and/or high-value per pound ingredients of whatever goods distributors sell are candidates for being made in China. This may well cause deflation in the product line and even write-downs of slow moving inventory as replacement costs drop. This is not helpful for passing along price increases in which the productís inflation roughly equals the people inflation at the distribution center here in the US.
- For distributors who sell MRO and OEM goods into US manufacturing plants there could be a flat to declining demand that tracks with production capacity leaving a customerís plant for off shore. This is not promising for mediocre service companies that assume they will grow with the market.
- If one supplier does a first or better job of out-sourcing production to China than another alternative supplier, then the first will have a better cost, price and growth proposition for the distributor. Distributors should ask every manufacturer: What is your China strategy for out-sourcing production and for combating competitors who do a better, first job at out-sourcing to China? And, then make your 1-5 year stocking and selling bets accordingly.
- How to identify losing accounts? Read article #2.3 at www.merrifield.com entitled "Measure Customer Profitability and Act." This same profit ranking technique is covered in module #3.5 of the Merrifield video "High Performance Distribution Ideas for All" for which there is 40 pages of information at www.merrifield.com behind the video information hotlinks on the homepage. (This will be referred to as "the video" through the rest of this note; vital facts about the kit including resellers are at the end of this note.) From the profit ranking report there are 7 specific productivity applications that can be pursued:
- Identify the 10+ most profitable customers and within that group determine what the number one historical best niche of customers is for each distribution center (video module #3.3).
- Visit the top 5+ customers within one niche to learn how to re-tune the companies service offering to that niche(module #3.2).
- How to vary it for each selling segment or strata within that niche (module #3.6).
- Focus every employee on "the best defense is a good service offense" for traditional best customers, and
- For target gazelle customers (modules #3.4, 3.7).
- Manage the small order problem by breaking them into four categories and dealing with each category differently (modules # 3.8-3.10).
- Sign up the sales force to being flexible on reassigning accounts and transitioning to new compensation plans with an interim no-downside risk draw. Then, they can be bought out of B and C accounts which can then be reassigned to telemarketing or house direct mail with different prices and terms than A accounts (module #3.11).
- How to achieve basic service brilliance? For overview articles on this subject at www.merrifield.com check out #3.1 and #3.10. In the video, an entire section of 13 modules is dedicated to the steps of: 1)defining, 2) measuring, 3) achieving, 4) selling, 5) getting paid for, and 6) leveraging best service into win-win customer relationships.
- To teach all employees the relationship between premium wages and career growth opportunities and the companyís productivity and profitability reinvested into faster growth (AKA, ABCís of corporate economics and wage rate realities). See video modules #2.1-2.12. For some overview articles on these topics at our web site, check out #5.12 and #5.31.
- Here are some thoughts for minimizing the tactical reasons for not sharing numbers with the employees: "We have unions. Everyone will want raises." In the absence of sharing numbers, employees assume that there are fabulous profits being made and hence hidden. They want a share of that mythical larger number or, at the least, they feel exploited and not trusted. By sharing numbers with employees, their expectations immediately drop for what the company can paternalistically do about "sharing the wealth." Then, it is important to teach the employees that wages are determined at the lower end of a job niche range by the local supply and demand for labor skill sets and at the high end by the productivity that a company team can work together and create. UPS, FedEx and L.L. Bean warehouse personnel, for example, make 150% of the going wage for warehouse workers in whatever cities they are in. But, those employees are part of a high-performance company system that includes all the employees working together in smarter ways to make the productivity numbers even higher (165% to 200% per employee) than the wages. These exemplary companies still make great profits to please shareholders and to reinvest back into more growth for all. These concepts are covered in the video modules #2.1- #2.12.
As for dealing with unions in general, any union wants a company to hire more people, provide more job assurance and pay them more. High performance strategies aim to do that. These practices will not pit management against labor, but rather put everyone on the same side of the opportunities with the same common objectives. The union will quickly get concerned for other reasons. Once employees start to understand a business and how they can be part of it and grow within it, they start to see the unionís costs exceeding the benefits provided to the employee.
"Employees donít want to know; they will be confused." This statement may be true for 5% to 20% of the employees, but the rest will be flattered and curious. Here are some of the early comments from the most naïve employees after having sat in on their first few numbers meetings. "Iím on the team; he (the CEO) trusts me; my friends and family members (outside of work) canít believe that I get to sit in on these sessions. His (the CEO) job is a lot more difficult than I thought; he knows a lot of stuff that I canít even begin to understand; heís doing a good job." With enough patient repetition of explaining the numbers in lots of ways, all employees can eventually understand enough to be newly effective, score and play the game of business improvement and be proud of it. Video module #2.12 addresses the importance of repetition until "financial fluency" is achieved by all.
"The numbers will get to my competitors and suppliers." Take precautions to minimize what isnít a big deal problem. Be deliberate about how numbers are handed out and re-gathered. Know that high performance companies retain employees far better than the industry average and then donít typically lose them to mediocre competitors. And finally, imagine what competitors or suppliers would do with your numbers? Every time I have seen a competitorís numbers I am usually surprised that they are bigger and more profitable than I thought, but there isnít anything I can do differently because of it. I have usually gotten more valuable strategic insight from their printed materials and marketing campaigns than what can be read between the financial numbers. Even if we knew who our biggest competitorís top 10 most profitable customers are (and we roughly do), what are we going to do differently? We may already call on them, but since we donít have a compelling better total value proposition coupled with customer dissatisfaction with the entrenched supplier, no switching activity is happening. Maybe if we could get the competition to obsess about us and our numbers that would take their eye off their value creation path for their own best niches of customers to pursue.
"Employees donít really want to be responsible and make more money." I agree with the first part for a minority percent of the employees, but not the part about wanting more money. Did you ask them about both issues? I think that a majority of employees can be educated to accept more responsibility for growing premium economics for all stakeholders (including them) and that they can quickly learn to like being able to score and improve at the game of business. Why do you think so many of them play and follow competitive activities during their hobby time?
"Money isnít what motivates them beyond a certain point." This is true for all employees including the CEO, but we can also be motivated by: the pride of hitting good numbers; beating the competition; hearing customers tell us that we are the best and that we saved them again; improving our skills to become a black belt 10th degree (fill in the job category), then getting promoted from within because we have learned how to learn (maybe for the first time in our life); etc. These are all motivational realities within a high performance company.
- Overcoming the cultural resistance of "we have never shared numbers or really questioned it." If you imagine what the total marketplace might have been like at the birth of your company and/or channel, the conditions were very different. Most companies didnít have good or timely numbers to share. The unofficial employment contract was go to work for someone and hang on until you get a gold watch. Workers could be exploited during and after the depression, so they formed unions. In 1950 35% of working America was in a union. There may have been times when supplier franchises were worth alot; goods were sold at list price + because demand was greater than supply and profits were worth hiding from union mentality workers. All of these conditions have changed dramatically. The only significant unions left are in large, capital-intensive, oligopolistic and/or government protected industries. Today, if an employee doesnít like the total job proposition, they leave. Good work ethic employees have the upper hand today, not management. Value-added doesnít come from the scarce, valuable lines that you have; everyone has the same or equally, excellent products to sell. The edge comes from people volunteering to work together to create a strategically focused service value proposition for the right customers. Entire new industries have grown up in the past 20 years, or less, that routinely share numbers, gainsharing bonuses and stock with all employees. So, it is OK to break faith with our forefathers if what made sense then doesnít make sense today.
- When we look at the four points of our "True Confession" CEO, here are some responses to consider: "I want everyone to think that the company is bigger than it is." I donít think that there are any secrets any more within distribution channels. If a competitor, a supplier or a customer really wanted to find out how big a given distributor was, they can find out. Even if they took the number of employees that a distributor had and multiplied it times the average sales/employee ratio for a distribution channel, they would be close enough. As for doing business with the biggest, I donít think that is the way any thinking distribution CEO shops for their companyís banking services, accountant, attorney, insurance agent, etc. The biggest usually has prices that are too high and service that is too inflexible for a small company anyway.
We all do want, however, everyone to think that we are more competent, richer, successful, smarter, etc. than we are. Kids never completely grow out of bragging or trying to appear "better" than they are. But, in this case, by going open-book with the employees, it allows us to pursue possibilities that will make us dramatically better than we are doing. What we would really like, we can get only by getting over what will appear like a small emotional bump in the road X years from now.
"The employees would be shocked by our poor profits and think me incompetent." The smart, experienced employees who will make you or break you, already know pretty much whatís going on. Actions like Ė laying off people, not giving raises or bonuses, etc. Ė scream "profits stink." The best employees may, in fact, assume things might be worse than they are and are already looking for new opportunities. The most naïve, youngest, least observant and frankly, least valuable people might be shocked until they sense that a critical mass of the leaders are excited about new profit growth possibilities. To teach the numbers more competently the first time in a bigger meeting, practice informally in smaller meetings with expanding circles of employees from the top down. Tell the top 10% of the payroll that you need their help on how to explain and teach the numbers. Then, when the bottom 50% of the payroll sits in for their first numbers session, the other 50% will have already been through it and presumably behind the new direction and intent that the company is taking. The presentation will also be more polished and tuned to the audience from a number of preliminary trials. And, for the first 4 to 7 repetitions, the bottom 50% will understand little and remember less. What they will take away are: "Iím on the team. They trust me. Better stuff could happen. Management is more cool (enlightened) and capable than I thought." As soon as they maybe ready, consider letting branch managers and lead personnel do some of the number reviews and explanations. Because first time teachers learn more than first time students, make as many people teachers as possible.
"I would look like a stumbling fool." Sure, anyone would if they stood up in front of the entire company and tried to explain to them without any practice and appropriate packaging of the story. But, if you watch all of Section 2 of the video; if you share the responsibility with and practice with the management team; if you get help as needed from your banker and accountant; if you lower expectations by promising that the sharing process will continue to improve in the months to come, then the company can evolve a very good number sharing and teaching system.
"I wouldnít know what to tell them to do to improve the numbers." After going to the references listed in notes 2 Ė 4, there would be plenty to tell them.
- The evolution of my 10-minute video module, 8 repetitions in a 50 minute hour training methodology is described in another article of mine entitled, "Affordable Education for Front-Line Employees." The methodology is also described in the promotional information on the video at our web site. If you would like a copy of the article emailed to you, just request it from email@example.com.
IMPORTANT FACTS ABOUT "THE VIDEO":
- 53 (10 minute on average) modules that come in 6 VHS tapes in an attractive storage case that fits on any bookshelf. 11.5+ hours of elapsed educational programming.
- 285 page Implementation Guide that includes lesson plans, study and discussion questions for every module.
- Retails for $995, but is available through numerous resellers at prices from $595 and lower!
REGARDING VIDEO RESELLERS
Who can be a reseller? A reseller can be any entity that will promote the video to constituents or forum members. There are already a number of different types of resellers that have different primary objectives. Buying Groups and some Associations see the video as a curriculum/discussion tool around which to organize round-table/forum discussion group sessions at regularly scheduled meetings. Manufacturers that are quite inter-dependent with their distributors see it as a training tool to help their "good distributors become great ones" so that they will grow faster and more profitably than the industry and in turn grow the manufacturerís market share. Some software firms are re-tuning their business intelligence packages to support the local, real-time information needs for the productivity plays within the video. They all see the video as a valuable educational tool for their constituents.
Donít see your affiliation group below? Have them contact us for the story.
RESELLERS As of September 1, 2002:
Software vendors: NxTrend Technologies, Inc.,
Enterprise Computer Systems,
System Designs, Inc.
Manufacturers: ExxonMobil (industrial oil products distributors)
Associations: AED, ASAP, CIPH, CWA/MAD, EBMDA, FEWA, FPDA, FSSA, IDA, NAFD, NASSD, NPTA, NSDJA, OPWA, PTDA, WAFD, WMIA
Buying groups: EMBASSY, INET Group 9, Johnstone Supply, OMNI, (many others are considering)