Strategic Insights 36

 

LET A THOUSAND, PROFIT-IMPROVEMENT INNOVATIONS BLOOM

Distributors with “Line-Item, Profit Analytics (LIPA) Management” capability can:

·        Go “Open Book”

·        Put all employees on bottom-line, gain-sharing incentives

·        Watch everyone grab newly visible ways to increase customer value and/or lower service costs  

·        Pay big bonuses out of even bigger profits

·        Work less and cheerlead more!

LIPA improvements will lift all of following, building-block metrics:

Increase the average:  Gross Margin Dollars (GM$) per line; order; stop of a truck; active customer; and Full-Time-Equivalent-Employee (FTEE). The extra GM$/FTEE then flows to greater: operating profits; profits/FTEE; and bonuses/FTEE.

I-DON’T-BELIEVE IT!  QUESTIONS AND CONCERNS: 

1.     I DON’T BELIEVE IT? WHAT DISTRIBUTORS HAVE DONE THIS? Contact me for case study testimonials in three forms: write ups; videotapes of CEO’s telling their stories; or happy, successful CEO’s to call.

2.     OPEN-BOOK IS AGAINST OUR RELIGION!? Not a bad policy, IF profits are anxiously weak and improvement plans are: to try harder at the same old tactics; nickel-dime other stakeholders; and hope. But, if LIPA reveals previously hidden, low-hanging, profit-fruit, why not pay everyone to see and seize it?

3.     WHAT LOW-HANGING FRUIT OPPORTUNITIES? Some highlights:

a.     Incent Reps to improve the Net Profit of their customers. They’ll use LIPA tools to find previously-hidden, inefficient, buying kinks to kettles within every customer’s buying history. Simple tweaks reduce small-dollar-picks and emergency orders that cost both parties. Customers’ hidden costs for downtime decline. Their uptime, on-time work and their customers’ satisfaction all improve. To maximize new benefits, customers give you more volume. And, the new, buy-sell-process cures create barriers for both old and new competitors. (Or! Incent Reps on GM$ to compel them to give away (extra) services for free to win more GM$s. Blind them to or make them risk-adverse about lose-lose, cost solutions.)    

b.     For most profitable (target) accounts, the Reps (and team) can do audits of every element of the buy-sell relationship to buff them to “10’s”. Small investments for upgrade improvements pay big returns.    

c.     Your buyers can re-tune fill-rates on the top 1% of the most profitable and popular SKUs and find a mix of ways to fix the 1% most unprofitable, small-dollar-pick items. GM$ per pick, order and customer will all increase due to both sets of solutions.

d.     Have associates know by heart the few, super-profitable accounts. Teach them to do spontaneous, Heroic Service Extras to help win more customer share. Teach them Service Triage. When all service needs can’t be done on time, most profitable accounts will be favored over losing, minnow accounts.

e.     On all future bids, associates will ask upfront questions about projected, service-activity details. What will be the estimated number of:  picks, deliveries and delivery locations? When the bid totals are big, but the average GM$ – per line, order and delivery – are too small: let competitors win. Or, offer to help the customer write the bid to make the high, service-activity costs visible. Then, you bid with activity-cost knowledge. The service-activity-cost-blind competitors may be spooked by unknown, high costs and either not bid or bid too high. You will win more bids that are always profitable.

f.     And, more! Profit Innovation – ideas, experiments, learning and results – will bloom everywhere.

4.     WHO WILL LEAD THIS? WHERE WILL WE GET THE TIME TO DO THIS NEW STUFF?

a.     Managers and Reps past their peak physical and mental-energy years who are income-comfortable will be a challenge. Educate them on how they can make more by doing less and having fun. The top and bottom 1% of the most profitable and unprofitable customers and items are all extremely so. Small tweaks to the extremes produce big, quick results. Then, confidence and innovation can snowball!

b.     If everyone is tied into bottom-line improvements and everyone’s contributions are transparent, then there is no place for coasters to hide. Hard-workers will goad the entitled coasters into action.      

5.     And, for more questions:  

a.     For keen readers, overkill education at: www.merrifield.com/EBook

b.     Or, attend the semi-annual Advance Profit Innovation Conferences. The next one will be 10/1-2/14 in Phoenix. (Info at: apicconference.com).

CONCLUSION:  NEW INSIGHTS + PROFIT INCENTIVES = BOTTOM-UP, INNOVATION PROFITS  

Service businesses with weak profits have been doing industry (herd),” best practices” for too long. They have no competitive – difference, value and/or cost – edges. So, give employees the full information on the Value Equation:  “Value (GM$s) – CostToServe = Profits”. Add a bit of education and a profit-improvement incentive and get out of the way.

The first competitor in a specific market to use LIPA Management will capture the easy, key-customer gains and jumpstart the firm on to a high-performance trajectory. Rent the LIPA Management web service by the month and be up and going in three weeks. Be in touch for a desktop demo at your convenience.