Strategic Insights # 13
MANAGE YOUR: “PRECISION, SUPPLY-CHAIN
Have you checked
out the reviews at Amazon.com for the must-read book: Islands of Profit in a
Sea of Red Ink by Jonathan Byrnes? It will tell you how to measure net-profitability
of your customers and products and what to do with the insights. For some
sub-groups of customers and/or items, Byrnes recommends trying “Precision
Supply Chain Solutions” (PSCSs). Although he wrote the book for all industries,
he illustrates his PSCS recommendation with some notable distributor cases.
why not? Due to flexible
service capabilities (and terms), distributors have lots of PSCSs. Besides the standard
way of servicing “house” accounts, think of all of the exceptional operating procedures
(and terms) your firm has invented to accommodate peculiar needs of (large)
customers. Many dead items in the warehouse, for example, may have started as “special
stock” for a customer that is no longer buying them. And, every “integrated
supply” deal has similar overall objectives, but highly unique
Your VP Of Customer-Centric
firm has cost-to-serve model(s) that enable net-profit ranking reports for
-customers, items and suppliers - what next? First, determine why the extreme winners
and losers are that way. On the customer ranking report, for example, only
large volume/activity accounts can be at the top and bottom and both sets have
been granted exceptions to standard procedures and terms.
Next, who will
be put in charge of both measuring and improving the overall economic
effectiveness of these PSCSs for both parties? If big customers have their “VP
of Supply Chain”, then who is our “VP of Supply-Chain, Value Improvement”? And,
how do they get skilled at auditing the inter-business-processes that have
evolved with our biggest accounts to then tweak them for big, win-win gains?
And, Most House Accounts That Get Standard
that go to market with outside sales reps tend to accumulate a lot of not-grown-for-years,
small customers. Net profitability reports reveal that these accounts (in a
sales rep, service model environment) are modest losers. But, hundreds add up
to a big loss and a distraction from creating service value for the few,
high-profit-growth impact customers. The activity costs of the standard service
model exceed the margin dollars per transaction even with high-margin, list
pricing. This group needs a new “Wholetail” service model that will either make
them profitable or drive them to inhibit a clueless, standard-service
WHAT ABOUT PRODUCT-CENTRIC PSCS’s?
What do net-profit
ranking reports for SKUs reveal? Most profitable items usually sell at
below-average mark ups, but greatly offset the discounts with high: turns;
average margin-dollars per pick or line; and margin-dollars per delivery cost. Biggest,
losing items are highly-picked, doo-dads with “great margins”. But, an 80%
margin in a $1 item is still a big loser if warehouse picking costs average $5-$10.
distributors with warehouse scale and procedures for handling bulky, high-volume
goods also offer complimentary parts, pieces and accessories. A person (on a
piece of equipment) cannot touch small margin-dollars per line item without
costing money. What are the PSCSs for your: parts,
pieces and miscellaneous accessories? Solutions already exist in other channels;
why not borrow and adapt them?
In the middle of
the SKU, net-profit-ranking report, there are thousands of items that are
rarely picked. These are economic losers due to carrying-costs, picking-costs
or both. And, finally special orders on “parts-n-pieces”
dropped shipped (“direct”) to the customer from suppliers may have (again) great
margin markups, but the margin dollars are much less than the activity costs of
all of the channel people and paperwork. There are existing solutions to be borrowed
for these loser categories too.
Some supplier lines include all four
sub-categories of items. If we sit down with supplier honchos and have a new
conversation about the new net-profit-per-item math together, it isn’t too
fill-rate levels by not just picking activity, but by inherent profitability
peculiar big-volume, big-losing end-user cases. (Every distributor has a few of
these freaks of nature out of every 1000 active customers.)
adapt PSCS’s that have already been proven in other typically big-volume
consumer channels before other channels attack our cross-subsidies.
The Future Of Net-Profit
Analysis And Winning With PSCS’s Is Here: SEIZE IT!
Thanks to the
plunging costs of web service software, any sized distributor can quickly and
affordably have the net-profit analytic tools and solutions to synergize with
channel partners. Learn how distributors are doing this at the fall conference promoted
in footnote #2 or request an on-line demo of the Waypoint Analytics service