2013 distribution trends
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  • Common mistakes made in Strategic Pricing programs?
    The biggest mistake is to ignore the opportunity to generate an increase of 200 or more basis points (2 percentage points) of gross margin percentage. We have seen very few situations where this cannot be achieved and sustained. This kind of increase is huge when you consider the effect on the bottom line, on ROI. It’s far more dramatic than slashing the staff or reducing sales commissions. For a $50 million distributor, we’re looking at additional operating profit of over $750,000 for a 200 basis point improvement (net of sales commissions on the increased gross margin dollars). They are losing over $60,000 of profit dollars for each month that they hesitate.
    For management teams who see the opportunity, and are willing to act, we would point out the following pitfalls:
    •Like any other critical initiative, top leadership commitment (personal involvement and unqualified support) is crucial.
    •A qualified manager must take on total responsibility for pricing as all or part of his/her job description.
    •Some ERP systems are better than others, however nearly all of the popular ones have fairly weak pricing functionality. Strategic pricing provides powerful information but it does not “automatically” appear in the distributor’s pricing files. Part of the implementation job is rethinking the pricing process, any exploring ways to get more out of the ERP system’s pricing module.
    •If an outside consultant is used for the strategic pricing project, like other outside resources this person is a source of valuable information and advice guided by experience. The value of the consultant is getting the project done right and on time, but the ultimate success depends on the company’s people – not the consultant.
    •Many distributors have demonstrated sustained margin improvement and continuous improvement over several years. This kind of success is the result of hard work, measurement of results and course correction.
  • The whale curve indicates that operating profits peak at $14,349,974 and that $12,025,399 (83.8% of profits) is lost on money-losing accounts.
    The peak-to-actual ratio of 6.16 is extremely high (unfavorable).
    Investigate the operating loss accounts. There are some large loss accounts for which explanation is needed.

Transcript

  • 1. 2013 Distribution Trends Microsoft Dynamics® AX Industry Summit February 12, 2013 © 2013 Evergreen Consulting. LLC
  • 2. Brent R. Grover Evergreen Consulting, LLC 29525 Chagrin Boulevard, Suite 214 Cleveland, OH 44122 brent@ evergreen-consulting.com (216) 360-4600 ext.101 • NAW Institute Fellow • Author of eight books about W-D • Distribution CEO • Business school faculty • International firm CPA
  • 3. • Distribution TRENDS • High level overview of DISTRIBUTION METRICS • Talking & selling to DISTRIBUTION DECISION MAKERS • Distributor IT INVESTMENT OUTLOOK
  • 4. 2013: The Year to Invest • Housing starts rebounding • Return of manufacturing • A good year in 2013, a mild pause in early 2014 followed by several nice years • Distributors more interested in investing in productivity than in adding staff
  • 5. Housing starts, vehicle production, energy • 2013 housing starts projected at 980K units • Domestic vehicle production SAAR 15.5M • Natural gas exploration • Individual microeconomics depend on trade line, customer segment and geographic market
  • 6. Washington uncertainty: resolved • Health care taxes • Income taxes • Estate taxes • Low interest rates • Plenty of cash available to qualified borrowers
  • 7. Work force demographics • Median age increase from low 40s to low 50s • Baby boomers, Gen X and Millennials • Aging distributor sales force • Changing role of distributor sales professionals • Multichannel marketing • Need to keep up with technology
  • 8. Can’t just “move boxes” • VMI, consignment, JIT, other inventory programs • 3PL, 4PL • Value-added services required
  • 9. Vending machines • "Candy machines" no more • Placement doubled in 12 months • Plan to place 30,000 in 2013 (goal was 10,000 in 2012) • 25% of sales in fourth quarter • Safety supplies, cutting tools, fasteners
  • 10. Co-opetition • Distributors of noncompeting products share locations • Distributors of competing products in different markets share inventory • Distributors share customers • Distributors share buying power
  • 11. amazonsupply.com • 500,000 stock products in 14 product categories • B2C buying experience for B2C: one click, Amazon Prime® • Free shipping, $50 minimum, 365 day return privilege, phone support, charge accounts • Experimenting with same-day delivery in some metro areas
  • 12. Strategic Pricing • Pricing autonomy without market pricing information • Identify and fix outliers • Promote consistent pricing to resistance • 200 basis points adds 8-10 points to ROI
  • 13. Customer Profitability Analysis & Cost to Serve • Measure operating profit of transactions, customers and groups of customers • Track cost to serve differential for customers • Holistic balance of order size, margin, cost to serve
  • 14. • Distribution TRENDS • High level overview of DISTRIBUTION METRICS • Talking & selling to DISTRIBUTION DECISION MAKERS • Distributor IT INVESTMENT OUTLOOK
  • 15. TECHNOLOGY © 2013 Evergreen Consulting. LLC 16
  • 16. Strategic profit model for distributors © 2013 Evergreen Consulting. LLC 17
  • 17. Strategic profit model for distributors NI Sales X Sales Assets Assets X Equity NI = Return on Asset Leverage Sales Turnover Equity Return on Investment 18
  • 18. Strategic profit model for distributors $300,000 $10M 3.0% X $10M $2.5M 4.0 X $2.5M X $1.0M 2.5:1 © 2013 Evergreen Consulting. LLC $300,000 = $1.0M 30% 19
  • 19. • Distribution TRENDS • High level overview of DISTRIBUTION METRICS • Talking & selling to DISTRIBUTION DECISION MAKERS • Distributor IT INVESTMENT OUTLOOK
  • 20. Hidden Risk: ERP Upgrades
  • 21. Hidden Risk: ERP Upgrades
  • 22. Hidden Risk: ERP Upgrades Half are more than one version behind.
  • 23. Hidden Risk: ERP Upgrades Most do not know if their costly mods are included in the current releases available from other vendors.
  • 24. • Distribution TRENDS • High level overview of DISTRIBUTION METRICS • Talking & selling to DISTRIBUTION DECISION MAKERS • Distributor IT INVESTMENT OUTLOOK
  • 25. Technology goals in the 2013 distributor strategic plan • E-commerce: critical mass • 85% plan to upgrade their websites CRM: coming of age • Mobile: game-changer • • 1/3 of Grainger visitors on mobile often reserve orders for will call (vs. 2% on grainger.com) • Analytics: center stage • Strategic use of sales resources – reality gap
  • 26. Analytics in action • Pricing optimization: strategic pricing • Eliminating pricing outliers • Establishing pricing consistency • Holding sales reps accountable • Customer profitability / cost to serve • Protecting high profit customers • Building order size; reducing costs to serve • Focusing on profitable customers
  • 27. Transaction profitability: Three Legged Stool  Margin  Order size  Cost to serve © 2013 Evergreen Consulting. LLC
  • 28. Peak earnings potential Actual earnings net of losers © 2013 Evergreen Consulting. LLC
  • 29. • High invoice profit Small Winners • Low $ volume • Penetrate • Build volume Small Losers • Low invoice profit • Low $ volume • Build % & order size • Willing to let go • High invoice profit • High $ volume • Protect Big Winners • Low invoice profit • High $ volume Big • Reduce CTS Losers • Willing to keep, if strategic © 2013 Evergreen Consulting. LLC 30
  • 30. Brent R. Grover Evergreen Consulting, LLC 29525 Chagrin Boulevard, Suite 214 Cleveland, OH 44122 (216) 360-4600 brent@evergreen-consulting.com www.evergreen-consulting.com “We wrote the books on distribution.”™ © 2012 Evergreen Consulting. LLC