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September
28, 2006, Distribution Channel Commentary (DCC) # 91
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TOPICS:
1.
THEMATIC
QUOTES.
2.
CASE
STUDY: BUSINESS IS OFF 31% IN AUGUST (LUMBER DISTRIBUTION) WHAT TO DO?
3.
WANT TO
RETHINK YOUR BUSINESS IN 10 DIFFERENT INNOVATIVE WAYS – AN OFFER.
4.
MASTER
WHOLESALERS ARE WOEFULLY UNDERAPPRECIATED – SLIDE SHOW, NEWS ON SYSCO’S RDCs.
5.
BALANCED
SCORECARDS + CHANGED INCENTIVES + TOUGH QUESTIONS + KINETIC CHAIN = CHANGE
1.
THEMATIC
QUOTES.
The Chinese symbol for “crisis”
is two brush stroke characters that translate in to “danger” and “opportunity”.
"Chance (and economic
turbulence) favors the prepared mind (and organization)." Louis Pasteur
"Was it possible, Bender
wondered, that a cruise ship was more diligent about killing germs than his own
hospital?" (Article from New York
Times cited in topic #5)
2.
CASE
STUDY: BUSINESS IS OFF 31% IN AUGUST (LUMBER DISTRIBUTION) WHAT TO DO?
Yesterday I got the indirect
news from a client that his son is working for a monster building supply
distributor that saw year over year sales drop in August by 31%. Another data point from the building material
distribution channel that I got from a chain of retail lumber yards was that
year to date sales through August were off 10%, which included 5% in product
deflation and 5% drop in unit volume. I suspect that the sales drop-off curve
might be accelerating so that their August ’06 sales versus August ’05 might be
closer to the first company’s 31% figure. The big case study question for
anyone who might be affected by the current plunges going on in both the
housing industry and the auto supply chains might be: “If you were the CEO of
this distressed company, what would you do?”
The correct answer in business
is always “it depends” on a lot of factors. In general, however, we might ask if
we could rewind the tape and have a choice between whether we want to be one of
the following types of managers:
·
An anticipatory manager who is
always looking for present data that is different from the norm and trying to
extrapolate whether this is the beginning of a new opportunity or a problem, so
that we can invest a bit of resources into being ready for big positive and
negative surprises.
·
An in-the-moment, super-agile, reactive manager
(and company) who can outrun the rest of the reactive or comatose competitors.
Be a fast follower, a settler, but not a pioneer with arrows in his back.
·
Or, an emergency, crisis manager who may
scramble to barely survive
I would hope that the 31% down
chain had anticipated that the housing bubble was a bubble and had not tried to
get out at the very top, but had started to be more selective as far as adding
capacity and selling marginal customers being kept alive by the bubble. They,
of course, will be wiped out by the bubble and leave some suppliers with some
big write-offs. Once the plunge is upon us, standard recipe stuff is to: downsize
all cost and activity aspects of the business to be in tune with residual
demand; upgrade what we do, by terminating all of the least productive
people, branches, etc; refocusing more marketing energy on the 5-10% of
the customer pool that tends to do best during downturns at the expense of all
of their other reactive and crisis-management competitors; and most important, reinvent
our value and cost models. The real business genius managers do all of this
with a bi-focal view on what the industry will look like at the other end of
the trough, so that they solve both today’s big problems while positioning
themselves for what will eventually be important.
If you haven’t already seen a
softening in your channel, do you have contingency plans for a general economic
downturn in the US?
Do you have both a short term and long-term view? Do you have ideas on how you
should be reinventing your business model beyond just trying harder and doing
“best practices” to be like everyone else, except more efficient, of course? Do
you think about this sort of stuff with your management team on an annual and
periodic review basis? Want some help? Read on and/or contact me for even more.
For a do it yourself, quick fix,
business concept web site, go to the link below. I promise you that if you do
no more than just read their inspirational signs you will benefit. http://www.businessballs.com/
3. WANT TO RETHINK YOUR
BUSINESS IN 10 DIFFERENT INNOVATIVE WAYS – AN OFFER.
Regular readers know that I have
been working on “innovation management” ideas and projects for some time. Along
the way I became a fan and follower of an innovation strategy firm in Chicago named Doblin,
Inc. The managing partner and thought leader is an impressive fellow named
Larry Keeley. I’ve been reading his stuff and using his/Doblin’s “10 ways to
innovate” model for the past year, so I thought it was high time that I should
email him to see if I could actually get permission to use his conceptual
material that I was borrowing. He agreed! So, here’s what I’m thinking and an
offer…
Trying to run our business
better and doing lots of reactive, incremental adaptations to stay in harmony
with our business partners is good and necessary stuff, but it doesn’t give us
any sustainable competitive advantage. It just keeps us in the game, and our
numbers go up and down with the industry tides. Distributors, for example, that
distribute big pound products made of steel, zinc, and copper have done
sensationally well over the past two years thanks to the global commodity
bubble being driven by all construction bubbles in China and a global housing
bubble. But, what will happen when things necessarily regress to the mean?
Don’t we all have a bit of Starbucks or iPod envy. Why can’t we turn a total
profitless commodity like coffee beans into a super-profitable, rocket ride.
Or, what if we are a moribund, profitless, commodity equipment producer like
Apple computers, why not reinvent how to make huge money on rock-n-roll.
How did Apple and Starbucks do
it? They innovated by using 7 and 8 of Doblin’s 10 different ways to innovate.
So, forget coming out with new, improved products or a new, improved product
system idea, because according to Doblin those 2 way over-worked innovation
methods don’t yield any return. Instead, look systematically at how you can
weave two or more of the other ten ways to create something new. If you are
intrigued, but totally confused, then email karen@merrifield.com and request a copy
of the “Keeley slide show”. It is about 16 slides from one of Larry’s 70+ slide
shows that focuses on Doblin’s 10 ways to innovate with some case study
examples.
If this abridged slide show
hooks you further, then feel free to contact me about your iPod envy. If you
are a global manufacturer and can sign big buck consulting commitments go
directly to larrry.keeley@doblin.com.
4.
MASTER
WHOLESALERS ARE WOEFULLY UNDERAPPRECIATED – SLIDE SHOW; NEWS ON SYSCO’S RDCs
Next week (October 5th)
I will be doing a short presentation at the ISSA (Jan-San channel) convention
on how distributors can partner with master wholesalers for breakthrough
results and really just replicate what has already happened in other bigger,
channels. If you are going to be there and have any interest, the 25 minute
presentation will be at 12:30 on the main show floor of McCormick at the
“Education Theatre” which will be at the back end of the floor. Otherwise, you
can check out the annotated version of my slide show which has been posted at
our web site at this link: http://www.merrifield.com/articles/ISSAFill-rate_annotated_show.pdf.
For those of you in the
foodservice channel, you are acutely aware of Sysco and its plan to spend about
a billion dollars on 9 regional master distribution centers to feed its 400
operating companies on a just-in-time basis. The best fundamental analysis I
have seen on how this is all going is being done by an analyst named Jason
Whitman at Cleveland Research. If any of you would like a copy of his latest
report on Sysco, email him for it at the following address. He also is
interested in visiting with anyone from the foodservice channel that has a view
on how well (or not) Sysco is doing. Here’s Jay’s email address: jwhitmer@cleveland-research.com
(216-649-7203).
5.
BALANCED
SCORECARDS + CHANGED INCENTIVES + TOUGH QUESTIONS + KINETIC CHAIN = CHANGE
How do you tell a bunch of
distribution managers to start thinking and managing differently when they have
just had the best two years in their history (or some of the old timers since
the last commodity shortage windfall years of ’74 and early ’75)? It’s
difficult. We all like to take credit for whatever good is going on around us,
and because we only see what we want to see, we continue to think that the good
times will last forever. At the stock market peak in 2000 a book entitled the
“Dow 36,000” came out. And, the latest surge in housing would continue, because
“this time it is different”. Maybe, at worst, we will have a very high plateau
for real estate prices, or a “soft landing” which hasn’t ever happened.
Because what get’s measured and
has incentives tied to it, does tend to get managed with changed behavior, if
necessary. I would suggest the following prescription:
·
Develop your own distribution-specific version of
“balanced scorecards” in which you put equal weight on the traditional
financial numbers; the service quality metrics; the personnel development
activities; and the general innovation portfolio of activities. For more on
‘balanced scorecards” check out this link:
http://bscol.com/
·
Ask the questions about what are the 4-8 metrics
that we can measure everyday to make sure that we have achieved and are
maintaining basic service value brilliance that is tuned to each customer
segment that we go after. And, what are we doing that is better and different
for key core, target, and super-losing accounts. For more on this see Exhibits
30-33 at http://merrifield.com/exhibits/
·
Make a list of all our employees that is broken
into three groups – stars, steadies and problems. Do we all agree on who the
stars are and what their relative rankings are? What are we doing to feed, grow
and keep them? Do we agree on the “problems” and what are we doing about them?
·
As you scratch your collective heads about how to
close performance gaps in the balanced scorecard numbers to maximize management
compensation, use my kinetic chain to ask what we need to change at all seven
steps to make this new and better world happen. (More on the “kinetic chain” is
at: http://www.merrifield.com/exhibits/Kinetic_Chain_Ex_16.pdf
) This will help you to come up with a holistic and consistently aligned
solution for your change opportunities.
As usual, I’m standing by to
help you with more if you need it.
That’s all for this commentary!
Bruce
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