QUESTION MAP FOR THINKING ABOUT MOST PROFITABLE ACCOUNTS
- No mathematical model will ever give us the true, discounted-cash-flow, net-present-value profitability ranking for our customers. The KISS approach to model making works best.
- Freaks of nature and most interesting opportunities happen at the "living edges" of ecosystems and our business. By looking deeply into what is going on at the extremes of our business via ranking reports, we are most apt to find new Ė knowledge, insights and methods Ė which can make our company different than the other, commodity-selling distributors.
- When we look at edges in our business through different lenses, we will see results that donít fit with our traditional thinking. We need to first brainstorm on all of the questions we can think of and order them in a helpful sequence to then start pushing the "wheel of learning (Slide show # 11, Slide # 8 at www.merrifield.com) to make first good thought experiments followed up by some quick questions to other stakeholders to gauge their interest or resistance.
- As we develop new mental models for dealing with new results, we must also unpack the emotion-laden, old beliefs that donít want to accept the new results (Slide show # 11, Slides 4 & 5 at www.merrifield.com). By blending what is still effective of the old with the new, we can then try pushing the wheel of learning to do rubber-meets-the road experiments.
- We will necessarily have to make "good mistakes" and start "failing forward" to get process-smart with new methods that will carry us to new north star, breakthrough results for all stakeholders.
- Below is a frontier question map for top 10+ most profitable customers. Can we look at both the list of customers and the questions to start a "dialogue" that will lead us to co-creating new knowledge by openly sharing: thoughts, history, facts, stories, feelings, etc.
./exhibits/CASESTUDYRethinkProfitPower.asp, and Article # 2.22 - ./articles/2_22.asp and the Support Notes), could that work for us? Why or why not? The steps are:
- Do you really believe that the customers at the top of the profitability ranking report are really that profitable? If we analyzed each one in depth and allocated more costs to them, wouldnít they all still be in the top 10% of our accounts, or still super profitable?
- What are the pros and cons of simple, complex or any activity based costing model for guesstimating customer profitability?
- Assuming that the top accounts are screaming winners under any cost allocation assumptions, what should we do to insure that we donít lose them? Would a good innovative offense to sell them better and more be a best defense?
- How can we break the top 10+ accounts in to specific niches of very homogeneous customers?
- Are there any customers that are a niche of one? Why? Could there be another one somewhere in our market to cultivate?
- Looking at 2 or more "core customers" in a given niche can anybody remember how we happen to become the suppliers of choice for these customers and why/how we grew up together so that they became so profitable?
- How and why did they get so big? How did they compete so well in their space?
- What kinds of relationships have we grown with these accounts? How many people-to-people strands are in the relationship-rope that holds us together? If one key strand broke would the rest of the strands still hold? Should we tolerate any sales rep controlled accounts in which the rep is the only big strand and could take the customer to another competitor? Could we increase both the number and the strength of strands for both defensive and proactive, value-added purposes?
- Have we earned their trust? Do we stock all that they buy very reliably? Are they heartfelt friends? How could we develop these kinds of relationships with 1 or 2 other large or fast-growing (tomorrowís whales) accounts?
- What kind of customers order large quantities of goods in large average order sizes in contrast to those who kill us with lots of small orders? Are they very disciplined about their replenishment systems and habits for all of their repeat buying needs so that they minimize their small, rush orders to us and instead order less frequently in bigger orders with more line items?
- How could we better target inherently profitable customers and avoid losing accounts or prevent losing accounts from becoming that way at the outset? A lot of our success involves some degree of lucky breaks meeting our good reactive efforts to jump on them. How do we systematically increase our luck?
- If we examine the niches that have 2 or more customers within them, might we assume that they would buy common items and services from us? If we pursued the item analysis and cross selling methods of "ABC Supply" (Exhibit 25 -
- Do a common item needs analysis for biggest, best, similar accounts within a niche.
- Beef up the fill rates for those items bought by 2 or more customers.
- Print out custom lists for each customer of what they havenít been buying from the common list.
- Assign a project manager to review the list with each customer to see if we can change their purchasing systems (and habits) for buying a number of the oversight items on a systematic, larger average order basis to benefit us both.
- Do a survey of the core customers in each target niche that identifies their common miscellaneous product supply vendors and items looking for more miscellaneous items that we can add to inventory and our new, improved, co-created replenishment system.
- Make sure that all employees know the top X most profitable, core customers by heart and that their reflexive answer should be "YES!" no matter what the customer requests or needs. (Could we give them all some case study training on what type of "heroic extra effort service(s)" they could possibly do?
./exhibits/Ex28.asp) and improve the customersí average order size economics are the (hidden?) driving, organizing forces behind:
- If we can sell a complete line item (they want 10 widgets. We have and ship them 10), instead of eight now plus two from another branch, supplier or substitution move, what does that economically mean to the customer and to us? If we can sell them one more average line order per invoice that involves an already stocked item, how much of the incremental gross margin will flow through to the operating profit line assuming that the margin in the order already makes it a profitable one? Or from another angle, what cost parts of: selling/maintaining a customer; stocking an item; and order processing costs are all fixed and donít increase with order size?
- The notion of becoming a more complete one-stop-shop source of supply for a customer niche to both lower all elements of their "total procurement cost" (exhibit 28 -
- why more people are buying more items from Wal-Mart SuperCenters; and
- why big industrial accounts have been consolidating suppliers and even going to integrated sole supply deals.
Could our sales force be better educated on the whyís and howís of selling, installing, improving and maintaining win-win, demand replenishment ideas and systems for good-sized, local accounts that havenít yet understood and demanded these total purchasing system savings? Why or why not? Should we change our education and incentives to help sales reps focus on selling and achieving win-win demand replenishment systems that are all profitable? (For more on shifting the mix of selling themes from less "product-push marketing" to more "demand replenishment system development" see article 4.9 & support notes at ./articles/4_9.asp.
23. Other questions that anyone can think of?
- If a customer has not requested us to work with them to take their buying processes to the next level to lower total procurement cost, what percent would be amenable to our teaching them total value purchasing system ideas? Or should we wait for them to get enlightened and react; or, wait for another competitor to try to steal our best accounts with a "breakthrough, new way to do business together"?
- If we used the most profitable customers as proxies for all other customers in the same niche within a profit center trading area, how many customers would there be in total? After we get process-smart with our best, most cooperative, most creative core customers, should we work our way on down the ranking list for one niche at a time?
- We need to look for more ways to more perfectly sell total value to the core customers in our #1 historic best niche of customers. How can we find some new opportunities?
- What if we stapled ourselves to both their purchasing paper work flow and our billing paper work flow into and through the customersí places? Could we find some inter-business, paper-based systems re-engineering improvement opportunities?
- What if we followed the flow and use of our products through the customerís entire business and utilization experience? Could we find ways to deliver the right product to the right place the right way every time that could significantly improve the customerís productivity, lack of downtime or general satisfaction?
- If we spend time hanging out with the people who must get and apply the goods we sell, can we find any frustration, excess cost or time inefficiencies in their world? How could we take that pain away and get rewarded for it?
- Can anyone think of a customer niche for which the company found a "golden nugget" of additional service opportunity which allowed the company to gain significant, profitable market share? Can we do it again with a systematic discovery process? How will we know if we donít "push the wheel of learning" and try some cheap, quick, good experiments? (How do you think P&G discovered that people were having a hard time lifting their jumbo Tide containers, so they put a spigot on the bottom of the big container?)
- If we insisted that ALL employees at a profit center know by heart the top 5+ most profitable customers, should we give them some "Yes, whatís the question/problem Mr. Great Customer training? Ritz Carlton, for example, allows their housekeepers to spend up to $2000 of company resources to smooth any customers ruffled feathers before having to check with a supervisor. But, they do give them some background and scenario based training.