August 19, 2017


















Footnotes for “Strategic Insights # 1: “THE STRATEGIC PATH TO PREMIUM DISTRIBUTOR PROFITS”

Footnotes for “Strategic Insights # 1: “THE STRATEGIC PATH TO PREMIUM DISTRIBUTOR PROFITS”

1.        Al Bates is the CEO of The Profit Planning Group. He has been doing financial management performance studies for specific channel sub-sets of distributors for 30 years. He wrote a book on “Improving Distributor Profitability” published by the NAW in which he looked at 10 year trends of the roughly 10,000 distributors’ financial data in about 40 different channels.  The net conclusion was that all channel financial returns had been trending down through the ‘90’s into the early ‘00’s. The bottom 90% were averaging a pre-tax Return On Total Assets (ROTA) of 5.4% which is an inferior return - on an after tax basis – to what shareholders would get if they  liquidated their companies and put the money  into more liquid, less-risky municipal bonds. The top 10%, however, were averaging 15.4%. The top 5% typically average about 25%. For the top 5%, the after-tax return on shareholders’ equity ratios (ROE, ROI) – depending upon the positive debt leverage that they could have- averages 4 to 6 times greater than the ROI of the average distributor. And, the top 10% individual companies consistently outperform their industries peers over the years. My big assumptions are:

a.       The top 10% are strategically more focused with better operational cultures/beliefs.

b.       A big chunk of the bottom 90% know that: they are under-performing; but don’t want to change; and no one can make them.(CEO’s of public companies, on the other hand, will have turnaround investors threatening to take them over, fire the management team and run the business differently.) 

c.       Some percent of the 90% have (newly-arrived?) CEOs who really are willing to shake things up to make the company a better economic engine for all stakeholders (my kind of managers! Contact me!)

There is more on why ROTA is such a good universal measurement for financial productivity and why in a de-leveraging world (that is currently experiencing a government borrow and spend reflation recovery that will not end well) having a free-cash flow company is very desirable. Here are two additional references: 

                                                               i.      Chapter one of my virtual, unfinished book written in 2003 on pages 2-5 at this link:  .http://merrifield.com/books/Chapter%201.pdf

                                                             ii.      And, “quantum profit gram #5 entitled “High Rota Management is Key” at this link: http://quantumprofitmanagement.com/info/QPMnewsletter05.pdf

 

2.       “Quantum profit management”? Quantum refers to – as in physics – the smallest indivisible unit of matter. In this case, QPM calculates the profit or loss increments on a given line item on a given invoice which will have dynamically accounted for the different value-chain cost steps that actually went into that order (e.g. direct, indirect, warehouse, cross-docked from a hub, counter, web order entry, etc. all have different cost-step math.) Once a firm has this cost-model quantum profit information, then it can be summed to provide profitability ranking reports of all sorts, which can trigger multiple levels of analytics and reporting.

Creating an optimally effective cost-model for your business to capture and them manipulate this new quantum profit information is a daunting task. By outsourcing the problem to Waypoint, you are basically hiring your own virtual VP of model building and maintenance who has experience doing this job for many distributors in many channels. Then, you and your team get to be the editors with Waypoint doing all of your tweaking for you as needed.

QPM then goes on to provide multiple levels of analytics on top of the core profitability ranking reports. For example, if we look at the single biggest losing customer at a given distribution location, we can do second level analysis into why are they a loser by “right clicking” to check all of transactions and all of the unique items that the customer has bought for some period of time. The transactions and items are both ranked by profitability too. Managers can instantly see meaningful patterns within this data and usually have instant ideas for simple work-arounds that can improve the economics for both partners.

At a third level of analytics or progress tracking, we will want to see how reps and special task teams are doing at improving the “net profit” for high-impact accounts (“Delta PBIT” or “profit before interest and taxes” progress). So, there are ranking reports by “Delta PBIT” for each territory. A fourth level of tracking report is the 5x5 sales force dashboard. And finally, we will want the reps to be incented the same way that shareholders are. We don’t want them pursuing incremental margin dollars which may have a cost to serve equal to or greater than the margin for a loss. They should pursue, sell and structure buy-sell deals in which the company does make a true net profit. And, retroactively, we would like to pay reps for being part of the solution for turning current losing accounts into winners. So, QPM includes (5) net profit incentive reports.

As a distributor uses QPM, they start to realize a different set of guidelines apply than what we have normally used when looking through a financial reporting lens. Eight of these guidelines are summarize in Quantum Profit Gram #12 at this link: http://quantumprofitmanagement.com/info/QPMnewsletter12.pdf

3.       Distributors that have gone to market traditionally with outside sales reps often collect lots of small, not-growing or even moribund customers that can only generate small average orders and small annual total purchases. If the distributor has continued to give them old-fashion wholesale service which includes: 800 #; inside sales rep; warehouse people to pick, pack; shipping/ local delivery; trade credit; and an assigned sales rep who may not even call on them now, THEN the total service costs per transaction will exceed the margin dollars even with list price margin percentages. To become profitable, this sub-set of customers will have to be offered a different “business model” or “service bundle/envelope” in which some or all of these changes must be made (which exist for Grainger and Fastenal customers visiting a wholetail location):

a.       Higher prices

b.       Strict minimum order size (order half as often, buy twice as much; and/or buy more items from us that you may not have known we had)

c.       Transaction fees for orders below minimum levels

d.       Special orders for non-stocked items not offered or at an unbundled fee

e.       Unbundled freight charges with yet higher order sizes to qualify for free freight

f.        Drive to, pick out, pay cash or CC at a “wholetail” location (more on this term below)

g.       A less expensive, more effective, proactive way of marketing communication than outside sales reps (web catalog and order entry; telemarketing; e-grams)

Banks and casinos segment customers by volume levels; they can have between 7 to 15 strata ranging from huge whales at the top of the pyramid of customers to minnows at the bottom.

a.       How many strata of customers (with corresponding service models) within one industry category can distributors have?

b.        Where are the monthly/annual sales totals that divide one strata from another?

c.       What are the typical service bundles for each strata?

d.       How many strata can one distribution facility handle effectively, distinctively and profitably, because structural issues – like location and costs per square feet -- can be mutually exclusive for different strata? Here are some answers to these questions from one of my writings:

Many distributors have a primary business/service-economics model that is trying to serve too many different sizes of customers. From smallest to biggest customers, here are five models that we see every day that could be selling the same item at different prices and terms:

1.   Hardware (retail) store on main street.

2.   Commercial (“Wholetail”) store on a commercial highway where rent is between retail and warehouse-zone costs. These stores (Fastenal, WW. Grainger) have a deeper and/or more focused (fasteners; auto-parts) selection of goods which customers often need quickly to do a job.

3.   Catalog/mail-order and/or tele-sales warehouse facility going after smaller-than-wholesale orders on items that are freight-insensitive (UPS-able) and/or time-insensitive (otherwise go to the wholetailer). Pricing is whatever the traffic will bear; credit cards handle “trade credit”; and freight is unbundled and often marked up.

4.   Traditional, full-service-with-outside-rep wholesale model. From a warehouse-area the distributor will sell at “wholesale list” or less, but include free: phone in ordering; warehouse pick, pack and ship; trade credit; and outside sales coverage.

5.   Drop-ship, brokerage business. The value proposition includes: the manufacturer’s brand; the distributor’s trade credit; and the rep’s general services which involve doing a lot of detail work for the customer’s projects and monitoring/expediting/trouble-shooting any of the factory orders. There are, in some channels, pure “office” wholesale brokers. In many channels, there can be a few reps who handle primarily drop-ship, brokerage accounts. Reps who “own” their customers and can switch to other distributors with the same or equivalent supplier access and trade credit have the most “power” in negotiating compensation terms.

Most distribution entities typically can do one or two of these models profitably, but then will lose on the rest for both lack of focused execution and expense structure conflicts. Cash-n-carry, wholetail counters at the back of warehouses in warehouse districts with no visibility to commercial traffic will, for example, under-perform as a profit center.

 

KEY QUESTIONS:

1.   Considering the cost of services bundled (or not) into the price of goods for the five models: what is the minimum gross margin dollar per order and per month per customer needed to make a profit on each customer with model 4 and 5?

2.   How many customers does your business currently have in each strata of customer?

3.   What is the total estimated profit or loss that your company is making on each strata pool of customers?

4.   If your primary way to go to market is with outside sales reps, what is the fully-loaded, average cost per sales call? What is the minimum gross margin dollars per month from an account to support rep coverage? How many accounts fall below the minimum? So What? (See article 4.11 reference below. It has answers to some of these questions.)

     

For more on turning the small-order/customer division from a loser into a winner:

For cases on solving the small order customer/problem see these articles:

a.       http://merrifield.com/articles/2_15.asp “tackle the small order problem now”

b.       http://merrifield.com/articles/2_19.asp  “rethinking distributor profitability”

c.       http://merrifield.com/articles/4_11.asp  “rationalize sales force capacity…” this article is a must read, do the math and solve several inter-related problems with one big solution that generates 5 new sources of profits faster than anything else a full-service, rep-dominate distributor can do.

d.       In the DVD training program, “High Performance Distribution Ideas for All” a number of modules address the small order problem and the need to segment customers by strata and re-serve them differently at every level. The DVD is free for Waypoint subscribers. Waypoint webinar attendees can buy it for $300. And, anyone can buy it from www.merrifield.com for $995. It is unconditionally guaranteed!

4.       (LOTS!) MORE ON THE CORE PROFIT INTERSECTION OF MOST PROFITABLE CUSTOMERS X PRODUCTS.

What follows is more information than most people want, but indulge me; it is highly important for stocking distributors. The first part is on how core-intersection(s) evolved at a given distribution location and then why industry life-cycle realities make critical mass fill-rate economics most important today. The last part is on actual definitions, guidelines and tactical plays for improving fill-rate economics for both customer and company. 

FIRST BIG QUESTION: if most profitable customers and items are mutually independent, which came first the chicken or the egg? How did my “core-intersection” grow up to be what it is? The first distributors in any new distribution channel were typically spin outs from the manufactures founded by inventors who invented the first product that started what grew up to a be an entire product category, if not a vertical industry channel/ecosystem. Then, parallel, life- cycle stories unfolded for:

Products, categories, and an array of manufacturers (with an association)

Downstream, customer industries (with their associations) and

The hub-economics provided by independent channel species (reps, brokers, importers, processers, master distributors, 3PLs, distributors/dealers, retailers, etc.) each with their own respective associations (which have all consolidated significantly in the past 15 years). The channel creatures responded to the economic efficiency and effectiveness needs of both suppliers and end-customers.

In the beginning of a given channel industry, an inventor develops something new and sells it direct in his home area to the biggest, most-logical, new, progressive customer(s). To sell it further away, he needed to hire geographic territory reps who “knew the territory” (like in the musical “The Music Man”). They typically got paid about 5% commission on all sales shipped into their territory.  

For freight and customer service reasons, factories next paid reps to become regional “stocking reps” with factory inventory on consignment and third party fees for extra handling costs. Then, the reps wanted to run other complimentary products through these locations to sell more products to the same customers who were begging the reps to help them, but the primary factory didn’t make those goods. Reps then spun off to become independent wholesalers, but still retained their original, geographic exclusive franchises.

Once distributors proved to be viable creature in a given channel, entrepreneurs started opening distributorships from scratch usually taking on a lot of #2, 3 and 4 imitative factory lines, because the original lines were still locked up by the first wave of distributors. The startup imitators could often get into the game, though, because the US consumer economy tripled in constant dollars from ’52 to ’66. And, the original factories and their exclusive distributors got rich, fat and complacent. The category founders lost a lot of share to: “we are #2, but we try harder with lower prices” factory-distributor combinations. Many founding channel factories waited too long to: move towards more “intensive distribution”; sell alternative channels; split their distribution into “short line (commodity) and full-line (special local support and stocking needs) distributors; etc.

As a distributor continued to attract and retain more customers with common needs that were supplied by core franchises, snowball or virtuous, reinforcing feedback cycles started between core products and customers. Customers demanded that the distributor add more complimentary lines and products. And, new factories would go to best target end-users, ask them who were the best full-service distributors and then approach the distributors to take on the line. Bigger sales into a common customer niche supported more profitable buying from an array of suppliers needed to create a one-stop-shop, local-in-stock inventory offering.

But, life-cycle forces converted channels from ones dominated by factories demanding product-push promotions (or lose your exclusive or the line) to consolidated channels dominated by big customers who want “supply chain”, demand replenishment systems for the now commodities that they are buying. Distributors need to become truly customer-centric as opposed to customer-centric about the products we want to sell them. This requires an entire different way of thinking, marketing and operating, which most distributors have not done. The key to growing profitably is now marring the right growing customers by co-creating the demand-replenishment systems that they want. The following transitions are on-going; different customers are at different locations along the bell-shaped adoption curve for supply-chain buying:

The rep is in charge of the customer…..now a team shaped by the customer is:

Reps get paid on product volume in a territory/account base…by the customer on an un-bundled for fee basis; or, the distributor must tune the incentive(s) to the net profit and net profit growth an account covered by a rep.

The rep covers all accounts in a geography….only accounts with $400/month+ in margin (potential) can support any sort of outside rep coverage (article 4.11).

Don’t believe me? What were the cannons shot off in history to let us all know that we must update our management assumptions to be in tune with life-cycle realities? Key transitional phases in these life-cycles were first signaled in consumer channels, but the life-cycle forces have gradually permeated all other commercial channels. The macro theme is going from: push-product to create and fill demand (want VHS or Betamax for $1000 in ’80 at Circuit City)

To:

mature, consolidating industries in which experience, repeat buyers are being chased by too much supply of equally, excessively excellent now-commodity products/suppliers. The end-user has the power, and they want the lowest total cost supply/service system (Circuit City dies, Best Buy keeps changing and wins). Here are some key milestone events and dates:

1962: Fair trade laws were disallowed and “brand names for less” discounters – K-Mart, Target and Wal-Mart – all started up as new business models spun out of old parent models. Actual “List Price” selling and exclusive-territory franchises started to fade away. Many distributors first got their exclusive franchises “dueled” in the mid-‘70s on. Factories started to sell alternative channels – big box stores, catalogs, etc. -- in the early ‘80s.

1988: Wal-Mart announces that they will no longer see or pay for “reps”. They will only do business with suppliers who send management led-teams to co-create “continuous replenishment”, “quick response” supply system. Suppliers and reps fought back unsuccessfully to continue to push products into geographic territories for a straight commission. This massively overpaid a rep for Wal-Mart volume, because he happened to have Bentonville, AS in his territory. Where is the customer-centric selling model and comp plan?! (See article # 4.13 about rethinking your rep incentives:  http://merrifield.com/articles/4_13.asp. 

1995: P&G announces that they will drastically reduce their product lines; stop doing channel loading programs; and reduce prices to every-day-low-ones based on the lessons that they have learned from Wal-Mart’s “quick response” platform. One big lesson is that you can’t have your best selling items making 300%+ or more of the profit to cross-subsidize “affordable prices” on the long-tail of the line which is a net profit loser. Otherwise, Wal-Mart will knock off the best items; guarantee them; and sell them for up to 80% less. Sam’s Cola, for example, is the exact same formula as Coke for 80% less. Ditto for Equate Mouthwash v. Listerine; etc. 

Most stocking distributors have big cross-subsidies in their product lines between the popular commodities and the slow-moving, dust collecting items. This encourages customers to load up on super A+ items from a narrow-stocking, discount supplier (for retail formats think of Aldi and Trader Joe’s stores) and then cherry pick the subsidized, special items at the full-stocking distributor. And/or, for Asian, private-label clone products to eat over-priced brand name commodities lunch. Factories have even more economic problems with the “long tail” of their product lines. (see: “Channel Economics Falling Down” at: http://quantumprofitmanagement.com/info/QPMnewsletter20.pdf)

1996: Jack Welch reports in a Fortune magazine article how much GE is saving on MRO supplies bought in their factories by going to “integrated, sole supply” contracts.  This “supply chain, spend management” strategy has been heavily embraced by every big company running SAP which touts its “spend process management” capabilities.

2001: The National Association of Purchasing Managers, which has been educating career purchasing people for Corporate America for years, changes its name to the Institute of Supply Management. If a customer of yours has a VP of Supply Chain, then where is your “inter-business, buy-sell processes consultant” to audit the account and co-create what they really want?

2001: The best-selling  book, “Good to Great” by Jim Collins comes out. Based on stock appreciation trends research that Collins uses that ended in 1995, he chooses 11 companies that went from good to great, the star of the stars is Circuit City.

2003: Circuit City fires 100% of their commissioned sales force who averaged over 50k per year to hire one half the people for 24K per year salary. The reps jumped on you at the door and tried to trade you up; the salaried folks wait to be asked questions. This mimics just one aspect of Best Buy’s business model which kept pace with life-cycle changes in the industry. But, it was too little change, too late for CC: RIP.

2010 Case Study: A Waypoint client distributor was shocked to find out that his “really good rep” was only allowed to see one of the company’s most profitable customers 4 times a year. But, the company comp plan was paying the rep $20K in commissions or $5K/call. What’s wrong with this picture? What would you advise the distributor to do to take the great customer to the next level?

2010 Questions:

Is it more important to sell best total economic value to the right customers in the right, best niches for your company or to do whatever promotional programs your suppliers might like you to do? Product promotions don’t:

Tell us who are most profitable customers/niches are.

Tell us not to sell to, because we are structurally higher cost and lower service value than other competitors with different service models.

What core items –from many suppliers- need best fill-rates?

What the rest of the service metrics are for the best niche’s service value equation.

If you grow faster than your industry, because you have best total service value for the right customers in the right, best niches for you, then all of your suppliers that indirectly are selling product into that niche will grow faster than the industry too. They will be pleased even if you don’t buy into their product-push programs to any potential customers for just the one line’s products.

If you have low-cost, because you are not servicing lots of misfit customers at a loss, then you will be making great profits to pay your suppliers on time which is the second most important thing you can do to make them happy.

(4. continued): More CORE-INTERSECTION, CRITICAL- MASS, Fill-rate Economics

Let’s assume that your company has used Waypoint’s QPM service to:

1.       Zero in on a pool of customers who are all in one common category (some kind of contractor, etc) that buys a one-stop-shop array of goods. Or, they may be a cross-section of different verticals, but they all buy common process needs solution from you (packaging, fluid power, etc.) that requires a common cluster of most popular items.

2.       You then do a most popular item ranking for this specific pool of customers to zero in on the most productive, profitable and/or service-satisfying items for the pool.

3.       How do you know consciously round out this core-intersection and maximize selling more of these core items to more of these core customers on ideally a larger average order sized basis? Why? What are the superior, win-win economics for both the customer and the distributor?

a.       How does one-stop-shop, in-stock fill-rates lower every one of the 11 elements of “total procurement cost” for a customer except for “price”? (http://merrifield.com/exhibits/8elements.pdf)

b.       If a customer can get everything they need when they need it, what does it do for their:

                                                               i.       labor productivity (“up-time, done-right-the-first-time )?

                                                             ii.       their value-chain performance (“done-on-time” for the next person, department or customer)?

                                                            iii.      Their customer satisfaction, retention and referral economics?

                                                           iv.      Do we measure these for the customer to give them value and then help them sell this value to the next party in the value-chain? Or, do we just let them cherry-pick our better service value and let us meet the low price with last look?

c.       If we increase a core customer’s order-size and margin dollar total in a transaction by 10%, how much of the incremental margin dollar flows through to the profit line? Given that many of our transactional activity costs are fixed regardless of the order size (stopping a delivery truck; paperwork processing costs to support the integrity of physical delivery and trade credit), the flow through is high. For more on “old-2-old”: http://merrifield.com/articles/2_29.asp.

d.       Conversely, what if we don’t have everything a customer wants right now at the desired (for both of us) location? What are the extra, hidden costs to us and the customer for: back-orders, split shipments from other locations, substitutions?

4.       Some building block concepts within a mathematical scenario:

a.       What is the minimum-to-maximum range/breadth of SKUs you would include within a one-stop-shop array? How much would might the breadth narrow for a small geographic market versus expand in your largest market in which one or more competitors will also stock more widely and deeply?

b.       What is the average inventory investment you would have (depth) to achieve the highest, fill-rate service value for core customers in comparison to competitors?

c.       Let’s call this breadth x depth of investment: “critical mass inventory” (CMI).

d.       Assume that the margin percentage rate that you typically enjoy on warehouse sales for this critical mass is the by-product of a number of variables and a given, then how many turns would you like to get out of the CMI have a good turn-earn #?

e.       To get the target turn range, how much in annual sales will you have to get from all of your customers (on warehouse business; your sales on directs and indirects are separate)? Let’s call this target sales number (range) “critical mass sales” or CMS.

                                                               i.      Do you have that much in sales already? If not what’s the shortfall? From what target accounts can it come from? Out of which weakest competitor’s hide will it come? (I’ve seen branch locations with “too much inventory and too low a turnover rate”, which is the symptom. The branch has clean A and B item inventory, it just doesn’t have CMS to turn the inventory/fill-rates, they need to competitively go after the heavy user customers. Is that sales volume even there in a small market? Or, does some entrenched competitor already own CM economics for the customers x product mix?)

                                                             ii.      Given the total size of a given geographic market, how many distributors can achieve CMS to turn CMI which is necessary to have a most competitive fill rate service level?   

                                                            iii.      If we could achieve, CMS for CMI by capturing 50 to 80% of the net profit pool of our target core customer pool, how big a barrier to entry for competitors would that be? CMI and CMS for a drug wholesaler is huge. Those numbers for a janitorial supply distributor are quite a bit smaller which makes it easier for more competitors to enter the space and try to get to CMS/CMI turn-earn.

                                                           iv.      Once we own a niche with CM economics, if we have other great service metrics and team-sell the key accounts, this core intersection will be a source of sustainable, free cash-flow profits for a long time!

f.        Other service metrics – zero errors, on-time delivery, etc.- are important, but fill-rates is foundational. What good are great people and great service except that we don’t have what you want today. Tune CMI, team-sell key niche customers, get 50-80% of the profit pool and 50% or more of the total volume from a niche to create sustainable profit power!

5.        Let’s do some “abductive thinking” to develop a simple “BEEF UP CORE ITEM INVENTORY AND FILL RATE ECONOMICS FOR BOTH PARTIES” experiment.

a.       Abductive logic is the logic of what could be possible; it can’t be proven by history, nothing innovative can, but it is a logical leap of what could be.

b.       Whatever our current fill-rates are on CMI items, let’s assume that they will increase a bit if we boost our average investment in all of these items (assume about 3-5% of all items that have been active in the past year). Simulate what the total investment might be for a 10, 20, 30% increase for all CMI items and do something significant, but affordable (get some suppliers to offer an extra 60 days on just the increment).

c.       Then, track what the monthly sales increases for those items are versus the next 3% of the most popular items that weren’t beefed up:  a controlled experiment.

d.       Measure what happens to the total sales for the core customers versus all other customers for a quarter or two as well as the average order size for those two sets of customers.

e.       Warning: don’t be surprised if all numbers go up more than you might think, because your historic fill-rates were not as good as you thought. Why?

                                                               i.      If we don’t have a most popular item, we have, in the past, done substitutions, but forgotten to apply the demand towards the core item. So, fill rates on the core item look better and the computer learns to re-order more of the substitute item and less of the requested item.  Not good.

                                                             ii.      We have done split shipments, but did not apply the demand to the core item at the intended branch. Fill-rates look better than they should and we are re-ordering more at the other branch and less at the customers preferred branch. Not good.

                                                            iii.      A customer asks if we have an extra large amount of a core item; we don’t. So, they go elsewhere. We not only lost the sale and perhaps a customer on occasion, but our fill rates appear to be better than they are. We are under-investing for the past actual and potential demand!

                                                           iv.      Higher local fill rates will also make local service people and the company far more productive, because the extra costs of taking care of “shorts” go away. Volume goes up and work activity actually drops.

Footnote # 5: More on margin flow through economics on larger average order size.

See Ch 2. Pp. 4-5 on “sensitivity analysis and incremental margin flow-through to the profit line for several different scenarios at: http://merrifield.com/books/Chapter%202.pdf.

 

Footnote #6: Sales training on tweaking existing buy-sell processes and business mix at high-impact accounts.

Once distributors understand how few accounts – typically less than 5% of all of the active accounts – fall into the high (future) profit impact category, they are compelled to re-focus on and take to the next-level: the most profitable customers; the biggest upside target “gazelle” customers; and the super-losers that can often be transformed into winners.

But, distributor principals and reps have little experience at doing buy-sell process improvement “audits” and follow-ups. The link below is to a first draft training guide on this actually quite simple, but powerful new way of a team approaching and co-creating next-level, micro-innovation, tweaks with key accounts: http://merrifield.com/exhibits/Ex%2059%20BSPI%20exhibit.pdf.

Footnote #7: How to define and measure “service excellence.”

In my distribution turnaround work, I’ve always identified about 5 most-friendly, most-profitable customers in the number one most profitable customer niche to interview. I go right to the CEO or VP of supply chain type person and ask a series of questions:

a.       Who are your top three suppliers in volume order? Why do you weight your purchases in that order? Has it always been that order? If you have shifted volume between suppliers, when and why?

b.       Going forward what are your main goals and key metrics that you are looking at to improve the total productivity of your company while lowering your total procurement cost for goods? At the end of the year, how do you get measured and reviewed, we want to: improve your productivity, lower your TPC and make you look as good as possible. Will you help us to co-create new solutions to do that?

c.       When you think about “outstanding service” can you think of any incidents when:

a.       We or some other supplier did something that wasn’t good? The act caused you downtime, wrong answers, lost customers, etc.

b.       Can you think of any acts of extra service effort by any supplier that still give you warm feelings today?

c.       (By listening to not just the top person, but then others as you do a walk through audit (see Ex. 59 at www.merrifield.com), we are looking for new service wrinkles or old service blind-spot holes for which we then need to invent in-house metrics to insure that we will create or improve those service values to a distinctive or even unconditionally guaranteed level for key accounts.)

d.       Modules 4.1-13 in our DVD training program are all about how to: define, measure, achieve, sell, get paid for and leverage the big 8 of service excellence.

e.       Case study documents:

                                                                           i.      The “big 8” of service excellence for a target niche of contractors: http://merrifield.com/exhibits/8elements.pdf.

                                                                         ii.      Do “circle 2”, “basic expected service excellence” before “extra services” in this slide show: http://merrifield.com/exhibits/Anatomy_of_a_Product.pdf.

                                                                        iii.      Articles on “service excellence: at www.merrifield.com: 3.1, 3.2, 3.5, 3.8, 3.9, 3.12, 3.13.

 

Footnote # 8:  If you don’t have every front-line service employees – heart, mind, and wallet – tied into achieving “service excellence metrics” with heroic extra efforts for key accounts, then it won’t happen. What are your “people engagement” metrics? My historical turnaround favorites are:

1.       Twice a year do anonymous morale surveys of all employees. There is, BTW, a perfect correlation between how effective employees rate their branch manager and the average morale score of people at a branch.

2.       What percent of employees are in excellent and good category v the few that are in shape-up or out programs (write them up 3 times, coach them back into “good” with the P.R.I.C.E system and then fire them with the certainty that even their best friends – if they have any - will think there was fair, “due process”.)

a.       For more on “high performance people management” see:

                                                                           i.      Articles: section 5, esp. 5.7 and 5.10

                                                                         ii.      DVD Modules: section 5

3.       What percent of employees got (with as many tries as needed) 100% on their written and oral explanations of the “corporate culture” test.

4.       What percent of learn-n-earn, cross-training certifications have been achieved as a percent of the total possible number?

5.       How many published praising statements is the location averaging per employee per week? (more on “praising statements being the oxygen of change and learning mastery” in articles: 6.3 and 6.4; and, DVD modules 5.1-5.8).