A number of years ago, I had the good fortune to hear a lecture by the organization and quality guru W. Edwards Deming.
It was strange, because the talk was being delivered at a seminar presented by the Japanese Union of Scientists and Engineers, in Tokyo, because no Americans would listen back in the U.S.!
Beyond his mistrust of ‘management theory’ in general, and performance-based pay specifically, the thing I remember most about the speech was his response to a German questioner who worried about the acceptance of the new ideas necessary to transform his company’s outlook on quality.
“It is not necessary to change. Survival is not mandatory,” Deming answered wryly.
Advice never more true than during the current roller coaster market. What worked nicely in a steadily expanding economy is likely not optimal when things look like today. But worry not — crisis often arrives bearing gifts.
For example, this is the perfect opportunity to carefully reorient priorities of your entire service team. This is as true for suppliers as it is for distribution. Fearlessly exploring the most appropriate distribution strategies is essential to success in the market’s ‘new normal’ state.
Past obstacles to clarity have included:
- Failure to consider different channels that may be more sensitive to otherwise unnoticed changes in end user concerns;
- Fear of utilizing multiple channels (especially including Internet direct or semi-direct sales) due to concerns about erosion of distributor loyalty — or inter-channel cannibalization;
- Failure to periodically re-visit and update channel and logistics strategies.
This is an especially dangerous time to blindly continue the status quo with your distribution strategies.
The Internet’s access to worldwide supply has created structural sea-changes in terms of traditional manufacturer-distributor relations. It has brought significant disintermediation (channel skipping and brand hopping), but it can also facilitate cost-effective service to loyal distributors.
Meanwhile, improvements in supply chain management and logistics technologies — most importantly third party logistics (3PL) — must also be factored into choice of distribution partners.
The ‘killer app’ suppliers and distributors both need will identify unique and profitable service models for every market nook and cranny. ‘Micro-niching’ needs to develop immediately in the service/price matrix.
We must identify profit nuggets hiding within the extreme cross-subsidies woven among the most profitable and unprofitable customers — as well as suppliers, products, branches and sales territories.
Some of our recent research indicates that there is no necessary correlation between gross margin and the actual profitability of an account or product line. Measuring and managing Cost-to-Serve economics for individual customers is vital. Incentive plans must also be aligned with this new reality.
One new approach is the 5 x 5 Service Plan — an account service map that can be ingrained in every organization at the most local level — branch, sales territory or customer service rep. Every employee should identify and instinctively know the appropriate service reaction to:
- 5 Best Core Accounts to defend and grow;
- 5 Gazelles to change over, partner and then grow with;
- 5 Biggest Profit Losers that must be turned to gold…or turned over to competitors!
- 5 Fastest-Growing accounts;
- 5 Furthest-Down accounts.
How you define the niches above (fastest growing in sales, GP, lines purchased) is up to you. The biggest hurdle? Conventional financial systems can’t help much, because their inherent logic averages winning and losing elements, losing the fine detail needed to isolate and act on opportunity.
Add to this traditional thinking about what constitutes “best practices,”and many will simply abandon this admittedly tough exercise. This lazy stubbornness does have at least one helpful feature — you always know what you are going to be thinking tomorrow.
Any company, however, able to acquire the in depth customer-needs acuity delivered with the 5×5 model will find themselves in the catbird seat when we all face the next real challenge — a rocket ship recovery beginning in the next several months!
“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” ~ Charles Darwin.
Bill Wade is a partner at Wade & Partners and a heavy-duty aftermarket veteran. He is the author of Aftermarket Innovations. He can be reached at [email protected].
